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NAFA Submits Comments on Administration’s Longevity Annuity Proposed Rule
NAFA’s last issue of Annuity Outlook reported that the Treasury Department, in early February, issued two proposed rules in connection with its initiative to help families achieve retirement security by expanding lifetime income choices. Among other things, the rules would modify the required minimum distribution rules to facilitate the purchase of deferred annuities that begin at an advanced age. These modifications would apply to certain contracts, termed “qualifying longevity annuity contracts” (QLACs), which meet specified requirements. Unfortunately, the proposed QLAC definition would exclude an “equity-indexed contract or similar contract.” No definition is given for equity-indexed contracts, but may well include any indexed annuity. Accordingly, NAFA filed a comment letter on May 3, expressing our concerns, while also acknowledging our appreciation of the Administration’s recognition of the importance of annuities and its efforts to help facilitate expanded use of annuities in retirement planning.

NAFA Meets with DOL on Proposed Fiduciary Rule
Recently, NAFA President Kim O’Brien and NAFA’s CapCity Advocates lobbyists, Wright and Cliff Andrews, met with DOL Deputy Assistant Secretary Michael Davis, along with DOL’s top staff members who are working on a revised proposed fiduciary rule. They gave no indication of when the rule would be reissued, but we think a draft rule might be released in August. Much of the meeting involved NAFA providing information about fixed annuities (e.g., product types, customer demographics, suitability and state regulation, distribution channels). The DOL staff appeared to be sincerely interested in learning more about fixed annuities and to recognize that these are insurance products. The staff indicated that the current prohibited transaction exemptions would continue to apply under the new proposal and that our particular focus should be on having an adequate seller’s exception for fixed annuity sales. Unfortunately, DOL still appears to favor a seller’s exception that only covers 401(k)s and not IRAs. In this regard, NAFA will continue to seek a workable seller’s exception that would cover IRA’s and include fixed annuity products.

CFTC Chairman Gensler has commented several times in recent months that the final swap definition rule will be released soon. As noted in our last update, NAFA submitted comments on a joint SEC and CFTC rule, which among other things, would subject annuity products and some insurance products to federal swaps regulations. We are cautiously optimistic that the final rule will be clarified to follow Congressional intent in the Dodd-Frank Act that insurance products not be treated as swaps.

Tax Reform & Retirement Account Hearings
NAFA remains alert for any significant new proposals that would affect the taxation of fixed annuities or qualified or non-qualified account rules. Although there have been no such proposals this past month, it is important for the industry to recognize that Congress is expected to undertake major tax reforms, possibly late in 2012, but almost certainly in 2013, where “everything,” including annuity taxation, will “be on the table” and subject to change. In the months leading up to this debate, NAFA will continue educating Congress on the importance of maintaining the current favorable tax deferral provisions for insurance and annuity products.

Last month’s Federal Annuity Watch reported that on February 13, the President released the 2013 budget. Although the budget did not contain proposals for dramatic overhaul of insurance and annuity taxation, it did contain recommendations to modify the proration rules for life insurance companys’ general and separate accounts, to expand the pro rata interest expense disallowance for corporate-owned life insurance, to expand information reporting to require information reporting for private separate accounts of life insurance companies, and modify rules that apply to sales of life insurance. We do not expect any significant action in the near future on these recommendations, but will be monitoring.

Also, recently the House Ways and Means Committee held a hearing on tax reform and tax-favored retirement accounts. The several hour hearing went very well from our perspective, as there was bipartisan consensus from Committee Members and witnesses that the current tax code for retirement planning is basically working well and Congress must not change the system as there could be strong negative consequences. However, clearly there is concern that some parties might push for changes as Congress debates tax reform and thus the strong message. The other central themes from the hearing, that have been echoed numerous times in recent Hill hearings, were the need for Congress to establish Automatic IRA’s, which will help lower and middle income workers in small business jobs, and changing auto enrollment and auto escalation rules. Additionally, there were several brief references about the importance of annuities to manage longevity risk.

Lastly, at the end of March, the Senate Banking Committee Subcommittee on Economic Policy held a hearing entitled “Retirement (In)security: Examining the Retirement Savings Deficit.” The hour long hearing focused on the need to enhance retirement security for Americans. There was no partisanship and no new policy initiatives announced by any Senator. Instead the hearing offered a brief overview of significant retirement savings problems that are facing Americans, with a consensus that workers must save more for retirement, which is why auto enrollment and automatic IRA’s are being touted by witnesses as helpful policy options. Annuities were not discussed, other than a fast positive comment by an EBRI witness saying annuities are an option that should be offered by employers to help employees manage longevity risk.

Federal Insurance Office
The new Federal Insurance Office (FIO) created by the Dodd-Frank Act still has not released its overdue report on how the current system of insurance regulation might be modernized and improved. Once released, NAFA will review the report and respond as needed.

As reported in the last Federal Roundup, NAFA is monitoring any SEC actions to impose uniform fiduciary standards on broker-dealers and investment advisors. An SEC staff report last year recommended the creation of such a uniform standard, and we anticipate SEC will use the authority granted under Section 913 of the Dodd-Frank Act to propose a rule possibly next year. However, the SEC has received extensive political pressure to first conduct cost benefit analysis before proposing any rule, and recently, it released internal guidance that it will conduct such analysis for all proposed rules. There have been several SEC hearings in the past several months focusing on this topic. We have heard that later this year the SEC might publish a request for information related to uniform standards of care.

NAFA, the National Association for Fixed Annuities, is a national trade association exclusively dedicated to promoting the awareness and understanding of fixed annuities. NAFA is the only association whose sole purpose is advocating for the fixed annuity product.

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