Federal Roundup

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Prepared for NAFA by CapCity Advocates

Tax Reform

The recent two-year bipartisan budget agreement has temporarily paved the way for a revitalized tax reform debate. However, the federal debt ceiling will need to be raised by February 7 (there is a little wiggle room after this date), which might cause a few fireworks in January and February, but Chairmen Baucus and Camp remain committed to moving the discussion forward on comprehensive tax reform. A week before Thanksgiving, Chairman Baucus surprised many policymakers by releasing a series of tax reform legislative proposals. None of these proposals have a negative impact on NAFA, but we are watching for the release of a retirement reform proposal. In the House, Chairman Camp has crafted a comprehensive bill that he will release by the end of the first quarter. Accordingly, we anticipate more substantive tax reform action in the House and Senate during the first and second quarters. Most likely, action will consist of hearings and markups at the committee level with floor action occurring possibly after elections during the so-called lame duck session. Without question, the path forward will be difficult as there are strong differences between Republicans and Democrats over revenue-neutral vs. revenue-raising policy approaches and entitlement program reform. Please stay tuned for developments!

DOL Fiduciary Rule Re-Proposal Summer 2014     

Per a recent DOL 2014 action agenda, the release of a revised fiduciary rule is tentatively scheduled for August 2014. However, it is certainly possible that a rule could be proposed earlier next year. Regardless of the exact timing, there will be a window for the industry to prepare as the new rule language has to be reviewed by the Office of Management and Budget and then a public comment period will take place (although the comment period could be short). Additionally, the position of the new secretary of labor on this policy debate is unclear, although most observers anticipate that he will approve the work conducted by DOL Assistant Secretary Phyllis Borzi. NAFA will continue monitoring this ongoing policy issue.

SEC Fiduciary Rule

The SEC is still evaluating the possibility of crafting a uniform fiduciary standard for broker-dealers and investment advisors. In its recent 2014 regulatory agenda, a fiduciary rule is listed as a long-term action item. While this agenda suggests limited action at the end of this year or perhaps in 2015, the industry must remain vigilant as most Hill sources believe that it is not a question of if, but when, the SEC acts. If the DOL publishes a new fiduciary rule next summer, the SEC might be compelled to act shortly after. Additionally, on November 22 the SEC’s Investor Advisory Committee unanimously passed draft recommendations for the SEC to write a fiduciary rule using authority under Section 913 of the Dodd-Frank Act OR by amending the Investment Advisers Act to narrow the broker-dealer exclusion. NAFA will be monitoring this policy debate closely to make sure there is no changes creeping into the fixed annuity marketplace. Lastly, the House passed H.R. 2374, the Retail Investor Protection Act, introduced by Rep. Wagner (R-MO), that would stop the DOL from prescribing any fiduciary rule until the SEC issues a final standards of conduct rule. No Senate action is expected on this bill as there was strong Democratic pushback, including from the Obama Administration.

Federal Insurance Office Report Released

The long-overdue insurance industry modernization report from the Federal Insurance Office was recently released! A review of the report clearly suggests that the FIO would like its power expanded and seeks a greater role for the federal government in regulating many aspects of the insurance industry. Certainly there is a bias presented toward the federal government being the best solution (over the NAIC), although the report explains that it is not plausible or necessary at this point for the federal government to have “complete” oversight. Among a series of recommendations, the report urges that all states enact model suitability standards from the NAIC or federal action to achieve the uniformity that might be required (interestingly there was reference to the 151A indexed annuity history in DFA to incentivize states to pass suitability standards). Also, there is discussion of the need for possible federal action on the state guaranty system if greater uniformity is not reached. Additionally, there are a number of recommendations for action on policy issues including capital standards, captives, reserving and resolution authority. Please contact NAFA for a copy of the report.


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