Ending Annuity Tax Deferrals Would Worsen Retirement Savings 'Crisis'
May 10, 2013 by Jeff Jeffrey
If the U.S. Senate does away with tax deferrals for annuities, it would exacerbate the “crisis” the country is already facing when it comes to retirement savings, said Lee Covington, senior vice president general counsel at the Insured Retirement Institute.
Covington told BestWeek that IRI is leading an aggressive lobbying effort to convince members of Congress not to do away with subsidies for annuities and other life insurance products as negotiations involving cuts to federal spending progress in the coming months.
IRI has begun to see progress in its effort to protect the current tax incentives for retirement savings, he said. Earlier this month, the Senate introduced a resolution highlighting the role tax incentives play in encouraging employers to sponsor and maintain retirement plans and encouraging participants to contribute to their plans.
“That message is being delivered to members of Congress, and we feel it’s being received very well,” Covington said. “Of course, we’re going to remain vigilant in educating members about the impact that the tax-deferred treatment has on their constituents.”
Pressure on Congress to break the logjam in budget negotiations intensified earlier this year after a series of automatic spending cuts were allowed to go into effect.
The sequester, as it’s known, went into effect on March 1 and came as a result of painful automatic spending cuts Congress imposed on itself after a bipartisan “Supercommittee” failed to reach a deficit reduction deal during the 2011 fight over raising the federal debt ceiling (Best’s News Service, Dec. 5, 2012).
IRI is part of a multi-group effort to convince Congress to maintain tax incentives on life and annuity products in any budget deal reached by lawmakers.
Twice this year, Americans to Protect Family Security, an industry partnership supporting life insurance as part of retirement planning, has brought representatives of the life insurance industry to Capitol Hill in an effort to keep lawmakers from abandoning tax incentives for purchasing life insurance. On April 9, more than 1,000 life insurance agents met with lawmakers to discuss life insurance issues, including the tax incentives on life products (Best’s News Service, April 9, 2013).
Americans to Protect Family Security includes the American Council of Life Insurers, Association for Advanced Life Underwriting,GAMA International, Insured Retirement Institute, National Association of Independent Life Brokerage Agencies and NAIFA.
IRI is also pushing for legislation that would provide workers with regular reports on the income generated on their savings. During the past Congress, lawmakers introduced the Lifetime Income Disclosure Act, which would have required those reports. But the bill failed to gain passage.
Covington said he expects the bill to be reintroduced during the current Congress.
“We believe that will help people understand what their lump sum, so to speak, will generate in income and spur them to save more,” Covington said. “Sometimes that lump sum looks like a big number. But when it has to last 25, 30, 35 years in retirement it often results in a lower amount than many consumers expect.”
Covington said IRI is also joining with other industry groups to support passage of the National Association of Registered Agents and Brokers Reform Act, or NARAB II. Bipartisan bills have been introduced in the U.S. House and Senate that would establish a national clearinghouse for agent and broker licenses, allowing producers to seek approval to sell insurance in multiple states without having to obtain separate licenses (Best’s News Service, March 12, 2013).
Independent Insurance Agents and Brokers of America, one of the groups leading the NARAB II effort, has put the licensing reform act at the top of its legislative priorities. O nApril 18, Rep. Jeb Hensarling, R-Texas, who chairs the House Financial Services Committee, came out in support of NARAB II at IIABA’s Legislative Conference in Washington.
“There is a lot of support, and we know of no opposition to the bill,” Covington said. “We’re very optimistic we’ll get that done this year.”
To watch the interview with Covington, go to http://www.bestweek.com/v.asp?v=covington513.
(By Jeff Jeffrey, Washington Bureau Manager: jeff.jeffrey@ambest.com)
