December 2020 Issue:
116th Congress Nears Its End, with Major Issues to Resolve
The outgoing 116th Congress is drawing to a close, but before the lights go out, lawmakers must fund the government and try, yet again, to enact badly-needed coronavirus crisis aid. Time grows short. Current funding for the federal government’s discretionary spending expires at midnight December 18. Failure to enact new funding authority means the government will shut down during a raging pandemic. That’s a result no one wants.
Negotiations are feverish, with the goal being a gigantic omnibus spending bill that will allocate $1.4 trillion in discretionary funding for the balance of this fiscal year. Negotiators also plan to attach to the must-pass spending measure a package of new (or extended) coronavirus aid.
Currently, appropriators have agreed on the “302(b)” allocations (the divvying-up of the topline $1.4 trillion to be spent) but decline to reveal what those allocations are. They say the amount of money that will go to each agency and program will become known when each of the 12 regular order appropriations packages is finalized. To date, most of the spending decisions have won agreement from the negotiators, including an extension of and funding for the National Flood Insurance Program (NFIP). But some sticking points remain. And the coronavirus aid negotiations are further complicating this already fraught negotiation.
Issues that have the best chance for inclusion in 2020 legislation include liability protection, small business help (a re-start of the Paycheck Protection Program (PPP), along with modifications to the PPP), unemployment benefits, and funding for health care services. That leaves for later other, highly sensitive issues like expiring paid leave, employer tax rules, and access to health insurance rules.
One extremely thorny issue is how to deal with distribution of new COVID vaccines. It is widely agreed that medical care providers, first responders, and the elderly will be among the first to have access to the vaccines, after they are approved (assuming they are approved) by the Food & Drug Administration (FDA). That approval could come as early as this week.
A key question is the cost of nationwide vaccine distribution, and the education to go along with it that will, it is hoped, persuade the vast majority of Americans to get the vaccine. The U.S. has already purchased 100 million doses of the first vaccine likely to be approved. That is enough to inoculate 50 million people—far short of the number needed to achieve “herd immunity” and to bring the pandemic under control. A central element of the ongoing coronavirus aid negotiations is a decision about how much federal funding to provide for this effort—and how to allocate those funds among States and localities.
Another key controversy is the issue of liability protection. For the GOP, this is a top tier priority issue, but is one of considerable concern to Democrats. Democrats, in turn want more money to aid struggling states and local governments, something many in the GOP oppose. Thus, it is widely believed that the two issues will move (or fail to move) in tandem—one will not be done without the other.
On December 8, the GOP’s lead negotiator, Sen. Mitch McConnell (R-KY), proposed dropping both the business liability provisions and the extra aid to States and local governments. Democratic response—from Rep. Nancy Pelosi (D-CA)—was to call the proposal “appalling.”
Also, on December 8, current Treasury Secretary Steve Mnuchin weighed in with a new proposal, which he said had been approved by the White House and coordinated with Congressional GOP leadership. It also built on the bipartisan plan that is the basis for the McConnell-Pelosi negotiations, but it eliminates proposed federal supplemental unemployment benefits, and instead adds a $300 billion proposal to send direct stimulus checks to each middle-income taxpayer. Democrats also quickly panned this proposal.
And so, negotiations continue. Resolution is not expected until next week.
Gigantic year-end funding bills are by no means unusual, but this year’s version is unique because of the imminent change in the Administration and the coronavirus issues in play. However, most Washington insiders see odds for the enactment of an omnibus bill as at least 50-50.
Prospects: President-Elect Biden has called the current emerging coronavirus aid legislation “a down payment” and says more aid will come early next year. Thus, even if Congress and the President manage an agreement on coronavirus aid before year-end, the incoming 117th Congress and Biden Administration will make broader, greater COVID-related aid among their first priorities in 2021.
NAIFA Staff Contacts: NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org, or Michael Hedge – Director – Government Relations, at mhedge@naifa.org.
Congress to Address Expiring CARES Act, FFCRA Provisions
A series of provisions contained in the CARES Act and in the Families First Coronavirus Response Act (FFCRA), which became law last spring, expire at the end of 2020. However, the pandemic and the economic turmoil it has caused are not over. So, Congress must address which of these provisions must be extended into 2021 or beyond.
Among the expiring provisions that Congress will examine are:
- CARES Act Paycheck Protection Program (PPP): New PPP loans had to be applied for by the end of July, 2020—new loans are no longer available. Applications for loan forgiveness are due by the date that is either two or five years from the maturity date of the loan. These issues are top priority for lawmakers. A re-start of the PPP, along with fixes to various glitches in the program, are at the top of every lawmaker’s list of provisions to include in new coronavirus crisis aid legislation. One issue that has wide bipartisan support is making deductible business expenses paid with forgiven PPP funds. Under current law and regulation, those expenses are not deductible. Congress would need to act in order for those expenses to be deductible. (See article below.)
- Employee Retention Tax Credit (ERTC): The CARES Act included a refundable 50 percent payroll tax credit on the employer-paid portion of payroll taxes on wages up to $10,000 per employee. Excluded from this tax credit are payroll taxes that are covered under the Families First Coronavirus Response Act (FFCRA) paid leave provisions, and/or the PPP rules. The ERTC applies to wages paid between 3/12/20 and 12/31/20. Many lawmakers want to extend the availability of the ERTC for eligible wages paid in 2021.
- Payroll Tax Deferral: The CARES Act also defers employers’ obligation to make Social Security tax payments through the end of 2020. This provision applies to self-employed persons, too. The provision requires that the deferred employment tax be paid over the following two years, with half of the amount required to be paid by December 31, 2021, and the other half by December 31, 2022. The rule applies to the employer portion of the Social Security payroll tax on wages paid between March 27, 2020, and December 31, 2020. In-play is whether to extend this deferral into 2021.
- Unemployment Compensation: The federal supplemental unemployment benefit payment of $600/week expired this past July 31. Due to expire on December 31, 2020, is the CARES Act’s authorization of 13 extra weeks of eligibility for state-determined unemployment benefits. Also, expiring is the provision authorizing 39 weeks of unemployment benefits for self-employed and gig workers, and the extra 20 weeks of extended benefits in states where the availability of benefit is contingent on full federal funding.
Also expiring at the end of this year is the provision that allows for full funding of the short-time compensation programs that let employers temporarily reduce a worker’s hours rather than laying off the worker. Under these programs, a worker now working reduced hours can qualify for a partial unemployment benefit while keeping employer-provided benefits along with their jobs, albeit at reduced hours.
Two other unemployment benefit provisions also expire at year-end. They are federal funding for the “waiting week” for unemployment benefits, and interest-free loans to states that need to borrow to keep their unemployment trust funds solvent. Failure to deal with these issues means a real risk of increasing UI taxes.
- Limit on Business Interest Deduction: The limit on the deduction for business interest expenses reverts to 30 percent of a taxpayer’s adjusted gross income (AGI) at the end of 2020, unless Congress enacts a new law extending it.
- Retirement Savings: A variety of retirement savings plan special rules expire at the end of the year. They include the suspension of the minimum required distribution rules, the waiver of the early withdrawal penalty tax for pre-retirement withdrawals made for coronavirus-related reasons, the rule that doubles the amount a person can borrow from his/her retirement plan along with eased repayment rules, and the rule allowing for one year of deferral (although late contributions accrue interest) on required contributions to defined benefit (DB) pension plans.
- Charitable contributions: The Tax Cuts and Jobs Act (TCJA) increased the limit on the deduction for monetary charitable contributions from 50 percent to 60 percent of adjusted gross income (AGI) for 2018 through 2025. The CARES Act increases this ceiling to 100 percent for 2020. Unless Congress extends this CARES Act rule, the ceiling will revert to 60 percent of AGI for 2021 through 2025. In 2026, it would revert to 50 percent of AGI.
The CARES Act also authorized a deduction of up to $300 for cash donations by individuals who don’t itemize. This rule will expire at the end of 2020 unless Congress extends it. And, the CARES Act made a change that expires at year-end to the rules for corporate charitable gifts. Normally, deductions for charitable contributions by C corporations are limited to 10 percent of taxable income. For contributions made in 2020, the CARES Act increased the deduction ceiling to 25 percent of taxable income for tax years beginning in 2020.
FFCRA/Paid Leave
The rule requiring employers with 500 or fewer employees to provide paid sick leave (for leave taken for coronavirus-related reasons) expires 12/31/20. Similarly, the FFCRA requirement that employers with 500 or fewer employees provide paid Family and Medical Leave Act (FMLA) leave taken for specified coronavirus-related reasons expires at the end of the year. Likewise, the rule that results in the government paying for this required leave—the refundable payroll tax offset—ends on December 31, 2020.
Prospects: Most, if not all, of these CARES Act and FFCRA provisions, enjoy the support of most lawmakers. So, chances for extending these rules into 2021 are reasonably good, although there is still worry about the provisions’ cost. It is likely all of these rules will be addressed early in 2021, if not before the end of 2020.
NAIFA Staff Contacts: NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org, or Michael Hedge – Director – Government Relations, at mhedge@naifa.org.
Top Legislative Priorities for 2021 Begin to Emerge
President-Elect Biden and key lawmakers have begun to comment on their top priorities for the incoming 117th Congress. First on everyone’s list is pandemic control/coronavirus crisis aid. After that, there are more and more comments about infrastructure (which has considerable pay-for tax implications), climate change, and immigration reform.
Key to pandemic control will be decisions regarding vaccines against COVID-19. Currently, there are three vaccines awaiting Food and Drug Administration (FDA) approval. FDA approval is widely expected, likely later this month, although it is not guaranteed. Once (if) approved, government (federal, state, and local) will be faced with the herculean (and expensive) task of getting as many Americans as possible vaccinated as soon as possible. That task requires money, and everyone agrees a lot of that money, if not all of it, will have to come from the federal government. That means Congress will have to enact legislation.
That could turn into an effective driver of more coronavirus crisis aid. In addition to money for vaccine distribution (and education), a potential coronavirus bill could authorize business liability protection, extended paid leave rules, more federal unemployment benefits, more money for struggling state and local governments, education support, and perhaps another round of direct stimulus payments to individuals.
While some of the cost of this legislation could be offset—by reallocating as yet unspent CARES Act money, or with consensus on other revenue raisers, the high likelihood is that a new bill will add—probably considerably—to the federal deficit. And, while the pandemic is still raging out of control across the country, chances are lawmakers will argue over the extent of this deficit spending, but not whether to do it.
That attitude may well extend to other legislation, too. For example, Ways & Means Committee (where tax bills originate) Chairman Rep. Richard Neal (D-MA) said right before Thanksgiving that he thinks Congress could “wrap into one big bill” legislation that tackles coronavirus aid, infrastructure, and climate change. “Given the Fed’s determination to keep interest rates low, we can do some borrowing,” he said.
However, any tax bill carries with it the risk of at least some offsetting tax rule changes. Democrats are on record supporting an increase in the corporate and top individual tax rates, and also on rolling back some favorable business tax rules, like the deduction for closely-held business income. Those changes, while initially unlikely, are sure to be debated as soon as it looks like the pandemic and its associated economic damage are coming under control.
Another issue expected to get an early look in the 117th Congress is the PRO Act, a labor-friendly bill to expand union protections and address other union concerns. Of importance to NAIFA is the provision that would make it virtually impossible for financial advisors to remain classified as independent contractors. NAIFA, in conjunction with impacted carriers, is working to eliminate this threat to independent agents. The PRO Act’s worker classification provision is modeled on the California law’s “ABC test.” However, the California ABC test does exempt insurance agents from its stringent rule. NAIFA is seeking a similar exemption from any federal law that may move through the legislative process.
Prospects: A stimulus/coronavirus aid/infrastructure/climate bill could be huge—early guesstimates are around $4 trillion—about $2.4 trillion in coronavirus aid and $1.5 trillion for the infrastructure and climate portion of the package. It’s unlikely the closely-divided Congress would approve such a big bill, even if President-Elect Biden called for a bill that big. But something somewhat scaled back in scope could well work its way through Congress early in 2021.
NAIFA Staff Contacts: NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org; Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org, or Michael Hedge – Director – Government Relations, at mhedge@naifa.org.
Treasury, IRS Release Guidance Denying Deduction for Business Expenses Paid with Forgiven PPP Funds
On November 20, the Treasury and the Internal Revenue Service (IRS) issued formal guidance saying that business expenses paid with forgiven Paycheck Protection Program (PPP) funds are not deductible. The guidance comes in Revenue Ruling 2020-27 and in Revenue Procedure 2020-51.
The IRS/Treasury guidance makes clear that even if the PPP loan funds have not yet been forgiven (or if an application for forgiveness has not yet been filed), if there is a reasonable expectation of forgiveness, the business expenses paid with those funds will not be deductible.
Prospects: Congress’ top tax writers, and lawmakers in general, believe that business expenses should be deductible, even if they’re paid with tax-free forgiven PPP funds. However, under current law, that is not the case as Rev. Rul. 2020-27 and Rev. Proc. 2020-51 make clear. So, it will take Congress enacting a change in the law to make it happen. Prospects for such a change are good, but not guaranteed.
NAIFA Staff Contacts: NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org; or Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org.
White House Currently Doing Final Review of DOL Fiduciary Rule
On November 25, the Department of Labor (DOL) sent to the White House (the Office of Information and Regulatory Affairs, or OIRA) for review its final prohibited transaction exemption available to certain fiduciary advisors when working with plans and their participants.
It is not yet known what, if any, changes DOL made to the rule based on the comments it received on the rule it proposed this past July. However, it is widely expected that there will be some changes.
The new DOL fiduciary proposal includes a class exemption from ERISA’s prohibited transaction rules. That prohibited transaction exemption (PTE) would be available to advisors who are fiduciaries under the rules. The rule reaffirms the historical five-part test for what constitutes advice that makes the advisor a fiduciary. Then, it imposes on a fiduciary a standard of conduct derived from the Impartial Conduct Standards applicable to all investment advice fiduciaries. Then, it provides a PTE for these fiduciaries that generally permits sale of proprietary products, most forms of compensation—including commissions—and retains Prohibited Transaction Exemption (PTE) 84-24 governing annuities and other life insurance products.
The proposed new regulation governs retirement advice, including rollovers from retirement savings plans to IRAs. Generally, the proposal aligns with the Securities and Exchange Commission’s (SEC’s) Regulation Best Interest (Reg BI) that applies to Broker-Dealers and their Registered Representatives. On June 26, the Second Circuit Court of Appeals upheld Reg BI.
OIRA review is the last step prior to finalization of the rule. OIRA has been ruling quickly on regulations near the end of the Trump presidency, and so a final rule is expected to be released before year-end, or perhaps early in January.
Prospects: A final rule from the outgoing Trump Administration’s DOL may not settle the issue. There have already been comments from progressive Democrats about the need to revisit (and tighten) fiduciary rules at both DOL and the SEC. And legal challenges are possible, especially if the rule as finalized is substantially similar to the rule as proposed. We are watching this carefully and will keep you posted.
NAIFA Staff Contacts: NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org; or Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org or Michael Hedge – Director – Government Relations, at mhedge@naifa.org.
IRS Eases Retirement Plan Loan Rules
On December 7, the Internal Revenue Service (IRS) issued TD 9937, a new final rule that eases a retirement plan participant’s ability to roll plan loan balances to other tax-favored accounts. In addition, the rule defers plan sponsors’ reporting obligations until 2021.
The rule provides that when a plan participant has filed the necessary Form 1099-R, he or she may claim the tax-free rollover for distributions (loan balance rollovers) done after August 30, 2020. August 30 is the release date of the proposed version of this final regulation. The rule also lays out how to deal with qualified plan loan offsets (money owed to employer-sponsored plans when the retirement plan has terminated or when the plan participant is no longer employed with the plan sponsor).
The new final rule comes under the authority of a provision in the 2017 Tax Cuts and Jobs Act. That provision amends Internal Revenue Code (IRC) section 402(c). It allows for a 60-day extension that permits retirement plan account holders to transfer qualified distributions to other eligible accounts, like IRAs, without paying additional fees.
NAIFA Staff Contact: Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org.
IRS Extends Contribution Deadline for Single-Employer DB Plans
In Notice 2020-82, the Internal Revenue Service (IRS) extended until January 4, 2021, the deadline for defined benefit (DB) plan sponsors to elect to add to a prefunding balance or to use a prefunding account balance to offset the minimum required contribution for the 2020 plan year.
Notice 2020-82 also provides rules for determining the amount of the minimum required contribution and/or the amount that can be added to a plan’s prefunding balance related to any excess contribution. The rule is that if the contribution is made by January 4, 2021, the relevant amount of the contribution will be determined by computing the applicable interest adjustment using the actual contribution date.
Prospects: DB plan funding rules are an open issue in current negotiation for new coronavirus aid. DB plan sponsors are lobbying hard for eased funding rules in light of the economic turmoil many companies are experiencing as a result of the pandemic. However, it is unclear whether this relief will be included in any new coronavirus aid legislation—if Congress and the President succeed in reaching agreement on a new package. But, Notice 2020-82 will be helpful for DB plan sponsors if legislation to provide DB plan funding relief stalls, or during the interim period during which the effort is pending, but not finalized.
DOL Issues Final Rules on Setting Up a Pooled Employer Plan
On November 12, the Department of Labor (DOL) finalized its rules governing establishment of pooled employer plans (PEPs), also known as multiple-employer plans (MEPs). The rule is largely administrative and is applicable to the process of starting a PEP rather than to rules governing employers that choose to participate in a PEP.
Under the rule, PEP sponsors could begin operations by electronically registering as a PEP as of November 25. Registration is a requirement contained in the statute (the SECURE Act) that created PEPs. Financial services firms, including insurers, are eligible to sponsor PEPs. PEP operation can officially begin January 1, 2021.
Registration to form or participate in a PEP is done online, at https://www.efast.dol.gov/welcome.html. A fact sheet prepared by DOL’s Employee Benefits Security Administration (EBSA) that outlines the steps a PEP sponsor must take can be found at https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/pooled-plan-provider-registration.
Prospects: PEPs were designed as a way to make it easier and more affordable for small and medium-sized businesses to offer a tax-favored retirement savings plan to their employees. Supporters are optimistic that it will work as planned and that, as a result, many more rank-and-file workers will have access to an employer-sponsored retirement savings plan. NAIFA strongly supported the PEP and MEP rules in the SECURE Act. It is anticipated that a significant number of NAIFA members will acquaint their small and medium-sized business clients with the PEP/MEP opportunity—a win for both NAIFA members and the businesses they advise.
NAIFA Staff Contact: Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org.
IRS/Treasury Release Questions and Answers on SECURE Act Automatic Enrollment Safe Harbor Plans
In Notice 2020-86, the IRS and Treasury issued guidance, in the form of questions and answers, on how to use the SECURE Act’s increase in the 10 percent cap for automatic enrollment safe harbor plans.
The guidance includes 13 questions and answers, and requests comments on any other aspects of the rules governing automatic enrollment safe harbor plans. Comments are due by February 8, 2021. Among the issues these 13 questions and answers address are QACA (qualified automatic contribution arrangements—often 401(k) plans) contributions requirements under the statutory safe harbor, when and how existing QACA plans must be amended to reflect SECURE Act changes, safe harbor plan notice requirements, and timing of contribution requirements.
Notice 2020-86 is posted at https://www.irs.gov/pub/irs-drop/n-20-86.pdf.
Prospects: IRS and Treasury say the information in this guidance is not comprehensive and to expect further guidance at a later date.
NAIFA Staff Contact: Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org.
Biden Moves to Fill Key Cabinet Slots, Including DOL, Treasury, and HHS
President-Elect Joe Biden has announced his choices for Secretary of the Treasury and Secretary of the Department of Health and Human Services (HHS). He plans to nominate Janet Yellen to head the Treasury Department, and former Rep. Xavier Becerra to lead HHS. There is ongoing speculation about who he will nominate as Secretary of the Department of Labor (DOL).
First, President-Elect Biden announced on November 30 that he would nominate Janet Yellen as Treasury Secretary. Yellen has a long track record of government service on matters of the economy, including a stint as chair of the Council of Economic Advisors during the Clinton Administration and as chair of the Fed during the Obama Administration. She is highly regarded on Wall Street and among business interests, but also has support from progressives. She would be the first woman in U.S. history to head the Treasury Department.
For HHS Secretary Biden said on December 6 that he plans to nominate current California Attorney General and former Rep. Xavier Becerra (D-CA). Becerra served on the House Ways & Means Committee, which has jurisdiction of health tax, Medicare and Medicaid issues, and participated in the development of the Affordable Care Act (ACA). But he is not viewed as an expert on health issues. However, his backers point to his strong management experience—a key requisite at the sprawling HHS, and his acknowledged political skills. During his tenure in Congress, he also headed the House Democratic Caucus. His nomination may prove to be controversial, although observers are stopping short of predicting that he cannot win the votes needed for Senate confirmation.
For the DOL, several names—all pretty liberal and most viewed as less friendly to business interests than to labor—have emerged. They include California Labor Secretary Julie Su, Boston Mayor Marty Walsh, Rep. Andy Levin (D-MI), and Sen. Bernie Sanders (I-VT). Organized labor (unions) is split in their support between Walsh and Levin, and Levin would come up against Biden’s reluctance to name a sitting member of Congress, where the Democratic majority is slim in the House and partisan control is up for grabs in the Senate. Sen. Sanders could have a hard time getting confirmed given that his far-left positions will be sure to be anathema to Senate Republicans. But a key Biden ally, Rep. Jim Clyburn (D-SC) is championing him for the job, which reportedly Sanders himself is lobbying for. Su is viewed as a “fighter for vulnerable workers” and as a woman would bring promised diversity to the cabinet. Walsh has the support of AFL-CIO President Richard Trumka, who is working to build support for his nomination among other unions.
Prospects: President-Elect Biden began by apparently successfully walking a fine line between moderate Democratic interests, the interests of the far-left progressives, and support from the GOP. However, some of his more recent picks—including Becerra for HHS—have sparked some controversy. Currently, it looks like progressives will have the most influence at DOL. That could create a substantial challenge for such key NAIFA priorities as the fiduciary rule.
NAIFA Staff Contacts: NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org; Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org or Michael Hedge – Director – Government Relations, at mhedge@naifa.org.
Federal Advisory Committee on Insurance (FACI) Holds Virtual Meeting
On December 3, the Federal Advisory Committee on Insurance (FACI) held a virtual meeting to discuss recent activities and priorities of the Federal Insurance Office (FIO) as well as holding a Q&A with stakeholders regarding the various proposals for a pandemic protection program.
Steven Seitz (Director, FIO) provided an update on current domestic priorities, including:
- Monitoring business interruption insurance proposals from federal and state legislatures and the private sector.
- Monitoring other issues that the COVID-19 pandemic may impact (e.g., capital markets, workers’ compensation, etc.).
- Monitoring inconsistent state insurance measures (e.g., FIO reported no preemption actions).
- Issuing a request for information regarding FIO’s study of the insurance capital standards.
- Issuing a proposed rulemaking regarding the Terrorism Risk Insurance Program (TRIP).
- Monitoring insurer reluctance to offer policies in hazardous areas (e.g., noted in its annual report).
- Reviewing recommendations for long-term care insurance regulations.
The Subcommittees on COVID-19 provided several recommendations. Such recommendations included:
COVID-19 Preparedness
- FACI approved by voice and regular vote the following recommendations from the Subcommittee on COVID-19 Preparedness to FIO:
- Reiterate the importance of insurance being deemed a business essential service and encourage federal and state regulators to allow for regulatory compliance efficiencies or take similar relief actions during a future pandemic or emergency.
- Develop resiliency planning for state and federal regulators with uninterrupted regulatory oversight, approvals, and ongoing business operations during pandemics.
- Encourage regulatory agencies and insurers that have not already done so, either voluntarily or for purposes of satisfying regulatory requirements, to develop strategies that address key pandemic challenges.
- Conduct a study of the federal and state regulations relating to the use of e-delivery in the insurance sector. The study should identify and explore existing regulatory barriers limiting insurers’ and customers’ ability to utilize e-delivery and examine the disparities in internet access (e.g., the “Digital Divide”).
- Encourage federal and state regulators to permit or, to the extent e-signature is already adopted, enhance the use of e-signature for insurance transactions and regulatory filings, subject to appropriate safeguards to prevent fraud by parties subject to the transaction.
- Encourage state regulators that have not already done so to transition to electronic insurance company regulatory filings where appropriate, subject to appropriate safeguards to prevent fraud by parties subject to the transaction.
- Encourage state regulators to transition to online/remote exams and training for producer licensing, subject to appropriate safeguards to prevent fraud by parties subject to the transaction.
Additionally, The Subcommittee on COVID-19 Preparedness proposed but did not vote on its draft recommendation regarding premium grace periods. FACI members debated whether it was comprehensive. The Subcommittee will revise the recommendation ahead of the next meeting.
NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org or Michael Hedge – Director – Government Relations, at mhedge@naifa.org.
DOL Issues Proxy Voting Final Rule
DOL has released its final rule on Fiduciary Duties Regarding Proxy Voting and Shareholder Rights. Assistant Secretary Pizzella called the rule a set of “common sense principles underlying proxy voting” that puts workers’ financial interests first.
Specifically, the rule states that the fiduciary duty to manage shareholder rights does not require the voting of every proxy or the exercise of every shareholder right. The final rule also sets out six obligations for ERISA plan fiduciaries when making decisions on exercising shareholder rights, including proxy voting. Plan fiduciaries must:
- Act solely in accordance with the economic interest of the plan and its participants and beneficiaries;
- Consider any costs involved;
- Not subordinate the interests of the participants and beneficiaries in their retirement income or financial benefits under the plan to any non-pecuniary objective, or promote non-pecuniary benefits or goals unrelated to those financial interests of the plan’s participants and beneficiaries or the purposes of the plan;
- Evaluate material facts that form the basis for any particular proxy vote or other exercise of shareholder rights;
- Maintain records on proxy voting activities and other exercises of shareholder rights; and
- Exercise prudence and diligence in the selection and monitoring of persons, if any, selected to advise or otherwise assist with exercises of shareholder rights, such as providing research and analysis, recommendations regarding proxy votes, administrative services with voting proxies, and recordkeeping and reporting services.
The final rule allows fiduciaries to adopt optional means (safe harbors) for satisfying their fiduciary responsibilities with respect to decisions on whether to vote proxies. These safe harbors do not establish minimum requirements, may be applied flexibility, and may be used independently and in conjunction with each other.
The final rule will have an effective date of 30 days after publication in the Federal Register, with delayed compliance dates until January 2022 for certain recordkeeping requirements.
EBSA’s landing page to the final rule and fact sheet can be found here: https://www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AB91.
NAIFA Staff Contact: Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org.
NAIC Executive Committee Updates UTPA Rebate Language
The National Association of Insurance Commissioners’ Executive Committee adopted an amendment to the NAIC Unfair Trade Practices Act that would liberalize the existing restrictions contained in the Model Act’s anti-rebating provisions.
The adopted language allows insurers or producers to "offer or give non-cash gifts, items, or services, including meals to or charitable donations on behalf of a customer, in connection with the marketing, sale, purchase, or retention of contracts of insurance." The revised language provides that offering or providing products or services that will help mitigate risk or loss will not be considered impermissible rebates.
NAIFA commented on the revisions to the UTPA in a letter sent in July to the NAIC’s Innovation and Technology (EX) Task Force.
NAIFA commended the NAIC for undertaking a review of the current UTPA provisions that deal with rebating, with an eye towards modernizing the model in recognition of technological and risk/loss mitigation advances that have occurred in recent years.
“Basically, recent technology advances generally referred to as ‘insuretech’ have resulted in the development of products that will aid in risk and loss mitigation,” said Gary Sanders, NAIFA’s Counsel, and VP. “Things such as Fitbits and monitors that will tell you that your water heater is leaking, etc., can help reduce risks for consumers and losses for insurers.”
In general, NAIFA supports the approach taken in the draft as well as the scope of the proposed expansion of the types of practices, products and/or services that would not be considered an impermissible rebate.
The amendments also allow each state commissioner to impose a cap on the dollar amount of gifts, meals, and similar items that can be provided without running afoul of the anti-rebate laws.
NAIFA Staff Contact: Julie Harrison – State Chapter Director – Government Relations, at jharrison@naifa.org.
House and Senate Committee Leaders Strike deal on Bipartisan Surprise Medical Billing Fix
On December 11, 2020, House and Senate committee leaders announced a deal to allow surprise medical billing to move forward in Congress, increasing the likelihood of passage before the end of the congressional cycle.
Rep. Richard Neal (D-MA), chairman of the House Ways and Means Committee, signed onto legislation that would ban balance billing, where a doctor or hospital charges patient fees their insurer won’t cover, for most out-of-network care. It also seeks to protect patients when they get emergency care from an out-of-network provider.
The bipartisan agreement is between the top Democrats and Republicans on the House Energy and Commerce, Ways and Means, and Education and Labor committees, as well as the leaders of the Senate Health, Education, Labor, and Pensions Committee.
With Chairman Neal’s backing, it’s likely the surprise billing package can be attached to the year-end government spending bill, as lawmakers attempted to do late last year. The deal drawn up would allow providers to enter into arbitration to seek higher reimbursements from insurers. The legislation would direct the arbitrator to consider a host of factors: median in-network rate, information related to the training and experience of the provider, the market share of the parties, previous contracting history between the parties, complexity of the services provided, and any other information the parties submit.
Prospects: The bipartisan compromise does not yet have the backing of Senate leadership, so it remains to be seen if the inclusion of the proposed legislation will be included in any year-end spending package.
NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org or Michael Hedge – Director – Government Relations, at mhedge@naifa.org.
NAIFA’s Christopher Gandy Speaks at NAIC Meeting on Race and Insurance
Christopher L. Gandy, a member of the 2021 National Association of Insurance and Financial Advisors (NAIFA) Board of Trustees and the president of NAIFA’s Chicagoland chapter, spoke on behalf of NAIFA at a National Association of Insurance Commissioners (NAIC) meeting of the NAIC’s Special Committee on Race and Insurance.
Gandy spoke about the need for insurance and financial products and services, as well as financial literacy education, in diverse communities. He discussed the industry’s need for greater diversity in the ranks of insurance and financial services professionals to reach underserved communities.
"Wouldn't it make sense for insurance companies from the top down to look like their constituencies and the public they serve?" Gandy told the Commissioners and other attendees.
He also spoke about the work of NAIFA's Diversity, Equity, and Inclusion Task Force. "NAIFA seeks to change the insurance industry change from the inside out and make diversity, equity, inclusion, and acceptance part of our DNA," he said.
Gandy entered the insurance and financial services industry in 1999 after playing professional basketball for the Chicago Bulls and the San Antonio Spurs as well as in L’Hermaine, France. He has been a NAIFA member since 2003. Gandy serves on NAIFA’s Diversity, Equity, and Inclusion Task Force and is a member of the NAIFA 2025 Strategic Planning Committee. He is a highly sought-after speaker for industry events and has been featured in such publications as Advisors Magazine, GQ, and InsuranceNewsNet.
“I would like to thank Commissioners Marlene Caride of New Jersey and Mark Afable of Wisconsin for inviting me to speak at this meeting,” Gandy said. “It is crucial that policymakers and leaders within the insurance industry understand and address disparities and inequities that impact the financial wellbeing of all Americans, particularly those in diverse communities that have been traditionally underserved.”
A recording of the NAIC committee meeting is available on the NAIC website.
NAIFA Staff Contact: Julie Harrison – State Chapter Director – Government Relations, at jharrison@naifa.org.
US Senate Passes National Defense Authorization Act (NDAA) Including Exemption for Insurance Agents
On December 11, the US Senate voted to pass the NDAA with bipartisan support. The bill primarily focuses on military activities of the Department of Defense but includes a provision that addresses potential financial crimes.
This provision would require most small businesses with fewer than 20 employees to file new reports on its beneficial ownership with the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). Businesses would have to comply with the reporting requirement within two years of the NDAA’s enactment, or upon incorporation of the business.
The final version of the bill included an explicit exemption for insurance producers as such reporting for producers was unnecessary. NAIFA worked with congressional legislators as well as industry partners to ensure an exemption was included in any final legislation.
Insurance producers work closely with state regulators to provide ownership information making it redundant to provide similar information to the federal government. The insurance industry is largely regulated at the state level, making further federal regulation unnecessary.
Prospects: President Trump has threatened to veto the NDAA bill and has until December 23 to either sign or veto the package. However, with 84 members of the Senate voting for the NDAA bill, the Senate does have enough votes to overturn a potential presidential veto.
NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org or Michael Hedge – Director – Government Relations, at mhedge@naifa.org.
Final Rule Gives More Flexibility to ACA Grandfathered Plans
On December 11, the U.S. Departments of Labor, Health and Human Services, and Treasury released a final rule on health plans grandfathered from the Affordable Care Act’s (ACA) rules. The rule provides some new flexibility to grandfathered health plans, including the authority to increase fixed-amount cost-sharing requirements like deductibles to the extent required to allow the plan to maintain its status as a high deductible health plan (HDHP). It also provides an alternative method for measuring permitted increases in fixed-amount cost-sharing plans.
The Centers for Medicare & Medicaid Services (CMS) issued guidance last year that allowed states to choose whether to extend grandfathered plans for a year or less and whether to extend such plans to the individual and small group markets.
NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org or Michael Hedge – Director – Government Relations, at mhedge@naifa.org.
Protecting Every Future Platform Amplifies Financial Security Message
Educating consumers about the role politics can play in our industry is the first step in advocating for policies that help insurers provide quality service. NAIFA member Cort Bradbury published an article with Protecting Every Future about the importance of financial advisors to middle-market investors.
Protecting Every Future, an initiative of ACLI, which is a collective voice of Americans who believe in policies that protect our financial future. To publish your knowledge about insurance issues with Protecting Every Future, contact Diane Boyle to share your expertise with consumers.
NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org.
