Federal Roundup

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Tax Reform

The Senate Finance Committee and the House Ways and Means Committee are both in the process of crafting comprehensive tax reform proposals. In the Senate, Chairman Baucus (D-MT) and Ranking Member Hatch (R-UT) are conducting bipartisan meetings with various interested parties and releasing “option papers” that will “include ideas from across the spectrum and, as such, don’t necessarily have the endorsement of either the Chairman or a Ranking Member.” In the House, Chairman Camp (R-MI) and Ranking Member Levin (D-MI) have created 11 “Tax Reform Working Groups” to gather information from the public about specific policy areas and to release discussion drafts of possible legislative fixes.  Of interest to NAFA is the “Pensions and Retirement” group chaired by Rep. Tiberi (R-OH) with Rep. Kind (D-WI), who’s serving as Vice Chair. NAFA has met with all of the key Senate and House policymakers on these committees to present our concerns about protecting the tax deferral benefits of annuities. At this point, it’s unclear what policy changes these committees might recommend and we continue to be told that “everything is on the table.”

Additionally, NAFA is monitoring the budget process for possible negative “pay-for” language that impacts annuities. For example, in the President’s 2014 budget there’s a recommendation to “limit an individual’s total balance across tax-preferred accounts to an amount sufficient to finance an annuity of not more than $205,000 per year in retirement, or about $3 million for someone retiring in 2013.” The policy basis for this recommendation is the contention that the “wealthy” are using tax favored retirement vehicles to accumulate money that’s “substantially more than is needed to fund reasonable levels of retirement savings.” There are also recommended limits on the value of tax deductions, including “employee contributions to defined contribution retirement plans and individual retirement arrangements” for higher income taxpayers.  It’s important to understand that these proposals, as well as others in the Administration’s budget that may affect fixed annuities, are only proposals. At this point, it’s unknown whether any of them will be included in the reforms that will subsequently be proposed and formally considered by Congressional tax writers.  In any case, NAFA is watching this process closely and will continue communicating our concerns regarding the importance of preserving the current tax treatment for annuity products.

DOL Fiduciary Rule

Several weeks ago, DOL Assistant Secretary Phyllis Borzi spoke at an industry conference and indicated that the proposed fiduciary rules probably won’t be issued until this fall. The details of a final rule are not known, but the intent to cover IRA’s is still clear. In particular, DOL plans to use a recently released GAO report on how the 401(k) plan rollover process could be improved (available at: http://www.gao.gov/products/GAO-13-30) to support her position that people are being misled, etc. and that higher standards are needed. In a recent newsletter, Secretary Borzi stated, “If you haven’t yet seen the report, I would encourage you to take a look. Released in early April, it found concerns that participants were being encouraged to choose rollovers to individual retirement accounts (IRAs) in lieu of options that could be more in their interest are well-founded.” Additionally, Chairman Harkin (D-IA) of the Senate Health, Education, Labor and Pensions Committee responded to the GAO report stating, “This report is a wake-up call that we need stronger consumer protections in the growing 401(k) rollover market.”

SEC Fiduciary Standards

On March 1st, the SEC published a request for information about standards of conduct for broker-dealers and investment advisers when they provide personalized investment advice about securities to retail customers. This information is intended to guide the SEC on possible proposed rulemaking on uniform fiduciary standards. NAFA will be monitoring closely for any impact in the fixed annuity space.

Additionally, Mary Jo White was sworn in on April 10 to serve as Chair of the SEC. She has stated that fiduciary standards are one of many policy topics she plans to address, but at this point, it’s unclear how she will proceed. For now, the public comment period for information about standards of conducts noted above is open for several more months and presumably it will take some time for the SEC to review these comments before taking any further action. Certainly, the retirement industry is concerned that while the SEC is gathering data, DOL is working on a final rule and the apparent lack of coordination between the two agencies to harmonize fiduciary standards will likely have significant negative consequences for industry and consumers.

Federal Insurance Office

In recent testimony presented by the U.S. Department of Treasury, an official stated that the long awaited Federal Insurance Office (FIO) report on modernizing insurance regulation and the first annual report on the insurance industry would be released in the “coming months.” While NAFA has been expecting these reports “every few months” since the first quarter of last year, it appears that FIO is closer to completing its work.



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