April 2022 Issue:

• Sen. Sasse to Keynote NAIFA Congressional Conference Set for May 23-24
• Biden Budget Proposes Over $1 Trillion in New Taxes
• House Passes SECURE 2.0
• House Committee Approves “Add-on” Retirement Savings Provisions
• Emergency Savings Provision in Play in Retirement Savings Legislation
• Treasury Proposes MEP “One Bad Apple” Regulation
• DOL Issues Warning to Plans Offering Cryptocurrency Investment Options
• Bipartisan Senate Plan Would Establish “Starter” 401(k)/403(b) Plans
• NFIP Flood Insurance Premiums Go Up
• Treasury/IRS Proposes a Fix to ACA “Family Glitch”
• Biden to Nominate Two New SEC Commissioners
• Treasury Requests Comments on LTC, Accelerated DB Reporting

Sen. Sasse to Keynote NAIFA Congressional Conference Set for May 23-24

Ben Sasse (R-NE) will keynote NAIFA’s annual Congressional Conference on May 23-24, 2022, in Washington, DC. Sen. Sasse, a member of the Senate Finance Committee—the committee with jurisdiction over tax proposals—will share with Congressional Conference participants his insights into the importance of constituent input in the legislative process. He will also comment on what kind of tax legislation lawmakers will consider in the upcoming few months. 

The Congressional Conference is an important way to maximize NAIFA’s influence with Congress and is both professionally and personally rewarding for those who participate in it. NAIFA's Congressional Conference helps NAIFA members establish and grow relationships with their elected Representatives and Senators, maximizes the influence of NAIFA members from all 50 states, and hones the issues education that NAIFA members bring on behalf of their clients and the solutions they provide for 90 million American families.

During the first day of the Congressional Conference, hundreds of insurance and financial advisors from all around the country will hear from Sen. Sasse, participate in a briefing on currently pending issues, and learn how to effectively lobby their own Members of the House of Representatives and Senators. On day two, participants go to Capitol Hill to visit with their lawmakers and their key staff.

The Congressional Conference will be at the Marriott Renaissance in downtown Washington, DC. More information and registration are available online. 

NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org; Michael Hedge – Director – Government Relations, at mhedge@naifa.org; or Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.

Biden Budget Proposes Over $1 Trillion in New Taxes

Many of the new taxes the Administration is suggesting are familiar “tax the rich/big corporations” proposals. Among them are proposals to tax capital gains annually, even when those gains have not been realized; increase corporate and individual tax rates; repeal step-up in basis; and drastically narrow COLI programs. Following is a list of the proposals of concern.

• Tax Rates: The budget proposes raising the corporate tax rate from 21 percent to 28 percent, and the top individual tax rate from 37 percent to 39.6 percent. The top individual tax rate would apply to income over $450,000 for married couples filing jointly, $225,000 for married persons filing separate returns, $400,000 for single taxpayers, and $425,000 for heads of household. These amounts would be indexed after 2023. The new rates would take effect for taxable years after December 31, 2022.
  
  
• Capital Gains: Wealthy taxpayers (those whose taxable income exceeds $1 million) would pay tax on their capital gains and dividends at ordinary income tax rates (i.e., 37 percent under current law (40.8 percent with the net investment tax), 39.6 percent (43.4 percent with net investment tax) if the proposal to increase the top individual tax rate is enacted). The $1 million threshold would be indexed for inflation. This rule would take effect as of the date of enactment.
  
  
• Capital Gains/Transfers by Gift or at Death: The Biden budget proposes a repeal of step-up in basis rules. It would impose current tax liability on increases in the value of capital assets, even when the asset has not been sold (gain has not been realized) when the property is transferred by gift or at death. The tax would be calculated using carryover rather than step-up in basis. The proposal would apply to taxpayers with $1 million or more in taxable income. Such transfers would be “deemed recognition events.”  There are some exceptions to this rule, like those described in the proposal for trust rule changes (see below). This rule would take effect for transfers after December 31, 2022.
  
  
• BOLI: The budget proposes an expansion of the business-owned life insurance (BOLI aka COLI) pro-rata interest disallowance rules (i.e., rules that require a reduction in a company’s business interest deduction based on the amount of cash value in their BOLI policies)—the proposal would eliminate the exception from these rules where the policies are on the lives of the business’s employees, officers and/or directors. The exemption would remain for policies on the lives of 20 percent or more owners. The proposal is retroactive—the change, if enacted, would apply to policies issued after December 31, 2021. A material change to a policy would be treated as creating a new policy for purposes of the grandfather rule.
  
  
• Trusts: The budget proposes that increases in the value of trust assets would trigger capital gains tax. The proposal would deem that property placed in a grantor trust triggers a recognition (taxable) event—the tax would be calculated on the difference between the transferred asset’s value as of the date it was acquired, and its fair market value on the date it is received by the trust. For assets held in existing trusts, the gain would be deemed to be realized if the gain hadn’t been recognized (and taxed) within the previous 90 years (i.e., since 12/31/1939). Assets would be subject to current valuation rules. 

Exceptions to these new trust rules include:

• Gains on assets transferred to surviving spouse. For surviving spouses, the asset will carry the decedent’s basis (i.e., carryover rather than step-up in basis). 
• Transfers to charities would be fully exempt. 
• Owners of family-owned and operated businesses could choose to exclude their family-owned and operated businesses until the business is sold or it ceases to be family-owned and operated. 
• A lifetime exemption for $5 million (indexed after 2022) in gifts. 
• Also exempted is tangible personal property (e.g., household furnishings), except for collectibles. 
• The $250,000/person ($500,000 for a married couple) exemption for tax on gains on the sale of a residence would also be exempt from these rules.
  
  

  These rules would be effective for transfers (by gift or at death) as of January 1, 2023.

• DAC (Deferred Acquisition Costs): The budget proposal describes this proposed change as a “technical correction” to reflect the intent of the law as enacted in the 2017 Tax Cuts and Jobs Act (TCJA). It would change the capitalization rate of net premiums for group life insurance from 2.05 percent to 2.45 percent, and the capitalization rate for other non-annuity contracts from 7.70 percent to 9.20 percent.   
  
  
• Reporting on Life Insurance/Annuity Account Values:  The budget includes a provision that would require “certain financial institutions to report the account balance (including, in the case of a cash value insurance contract or annuity contract, the cash value or surrender value) for all financial accounts maintained at a U.S. office and held by foreign persons.”
  
  
• Minimum Tax on the Ultra-Wealthy: The Administration is proposing a 20 percent minimum tax on “total income,” including increases in the value of capital assets (even if the gain has not been realized), for taxpayers with total wealth (the difference between total asset value and liabilities) of greater than $100 million. The proposal would apply to existing wealth, although there are transition rules (an impacted taxpayer could pay the first year of liability in nine equal annual installments, and in subsequent years in five equal annual installments (on top of the installments due from the previous year’s liability). 

The proposal includes rules on how to calculate this new tax liability, including how to accommodate situations involving asset losses, and valuation rules. The proposal also covers how to deal with “illiquidity.” The effective date is taxable years beginning after December 31, 2022.

• Fixed Indemnity Health Insurance Policies:  The budget proposes excluding fixed indemnity health insurance from the usual rule that the cost of such policies is deductible by the employer and excludible from income by the employee if the policy’s payments are not related to the actual cost of a medical expense. “The proposal would amend section 105(b) of the Code to clarify that the exclusion from gross income for payments received through an employer-provided accident or health plan applies only to the amount paid directly or indirectly for a specific medical expense. Any fixed payment (in the form of a direct payment, reimbursement, loan, or advance reimbursement) to an employee under a fixed indemnity arrangement that is paid without regard to the actual cost of the medical expenses the employee incurred would not be excluded from gross income and would be treated as wages subject to FICA and FUTA taxes. 

“Under the proposal, fixed indemnity arrangements would be defined to include certain critical disease or specified disease policies and arrangements that provide fixed payments for specific items and services according to detailed payment schedules, thus making payments from these policies subject to Federal income, FICA, and FUTA taxes. Individuals would still be able to exclude from gross income any fixed amounts paid through an accident or health policy purchased with after-tax dollars.”

The proposal would be effective for taxable years beginning after December 31, 2022.

• Nonqualified Deferred Compensation (NQDC): The budget proposes requiring withholding of the 20 percent additional tax on NQDC income includible in taxable income because the NQDC arrangement does not comply with NQDC rules. The proposal would be effective after December 31, 2022.
  
  
• GRATs (Grantor Retained Annuity Trusts): “The proposal would require that the remainder interest in a GRAT at the time the interest is created have a minimum value for gift tax purposes equal to the greater of 25 percent of the value of the assets transferred to the GRAT, or $500,000 (but not more than the value of the assets transferred). In addition, the proposal would prohibit any decrease in the annuity during the GRAT term and would prohibit the grantor from acquiring in an exchange an asset held in the trust without recognizing gain or loss for income tax purposes. Finally, the proposal would require that a GRAT have a minimum term of ten years and a maximum term of the life expectancy of the annuitant plus ten years.

“For trusts that are not fully revocable by the deemed owner, the proposal would treat the transfer of an asset for consideration between a grantor trust and its deemed owner or any other person as one that is regarded for income tax purposes, which would result in the seller recognizing gain on any appreciation in the transferred asset and the basis of the transferred asset in the hands of the buyer being the value of the asset at the time of the transfer. Such regarded transfers would include sales as well as the satisfaction of an obligation (such as an annuity or unitrust payment) with appreciated property. However, securitization transactions would not be subject to this new provision.

“The proposal also would provide that the payment of the income tax on the income of a grantor trust is a gift. That gift occurs on December 31 of the year in which the income tax is paid (or, if earlier, immediately before the owner’s death, or on the owner’s renunciation of any reimbursement right for that year) unless the deemed owner is reimbursed by the trust during that same year. The amount of the gift is the unreimbursed amount of the income tax paid.”

The effective date generally would be trusts created, and transactions occurring, on or after the date of enactment, but subject to legislative language covering specific types of transactions that Congress deems worthy of excluding.

• Estate Tax Rules: The budget also contains a slew of estate tax administrative proposals, including such issues as installment payments, valuation rules, reporting requirements in connection with trust assets, etc. 
  
  
• Generation-Skipping Tax (GST) Rules: Generally, the budget proposes that GST exemptions would apply only to (a) “direct skips and taxable distributions to beneficiaries no more than two generations below the transferor, and to younger generation beneficiaries who were alive at the creation of the trust; and (b) taxable terminations occurring while any person described in (a) is a beneficiary of the trust.” The proposal would be effective for all trusts subject to the GST, regardless of the trust’s inclusion ratio, as of the date of enactment.
  
  
• Funding Post-Retirement Life/Health Insurance Benefits: Current law allows employers to fund post-retirement life and health insurance benefits for their retirees, even though the employer has no obligation to actually pay those benefits. The funding may be in the form of a lump-sum deductible contribution to a welfare benefit fund. The budget seeks to lessen what the Administration says is the potential for abuse of this rule by requiring post-retirement benefits to be funded over the longer of the working lives of covered employees (on a level basis), or ten years, unless the employer commits to maintaining those benefits for at least ten years. The proposal’s effective date is for taxable years beginning after December 31, 2022.
  
  
• Deferral of Gain from Like-Kind Exchanges: The proposal would allow the deferral of gain up to an aggregate amount of $500,000 for each taxpayer ($1 million in the case of married individuals filing a joint return) each year for real property exchanges that are like-kind. Any gains from like-kind exchanges in excess of $500,000 (or $1 million in the case of married individuals filing a joint return) a year would be recognized by the taxpayer in the year the taxpayer transfers the real property subject to the exchange. The proposal would be effective for exchanges completed in taxable years beginning after December 31, 2022.

Explanations of all of the FY 2023 tax increase proposals are in the Treasury’s “Green Book.” 

Prospects: Most of these proposals won’t get enough support to pass Congress, but some may—especially the narrower ones that don’t trigger a lot of consumer press coverage and widespread lobbying in opposition. This raises particular concern about such proposals as the ones impacting trust and estate tax rules, BOLI, indemnity health insurance, and post-retirement benefit funding.

NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org; Michael Hedge – Director – Government Relations, at mhedge@naifa.org; or Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.

House Passes SECURE 2.0

On March 29, generation two retirement savings legislation took another step forward when the House approved H.R.2954, the Securing a Strong Retirement Act (SSRA). The bill the House voted on melded ERISA-focused provisions in the Education and Labor Committee-approved RISE Act with the tax-focused Ways & Means bill. 

NAIFA supports the House-passed bill, which includes 49 provisions aimed at simplifying and/or further incentivizing retirement savings plans. Among the provisions are:

• An automatic enrollment requirement for 401(k) and 403(b) plans.
• A phased-in increase in the age when required minimum distributions (RMDs) begin (from current law age 72 to age 75 by 2033).
• An increase in catch-up contribution limits for people aged 62, 63, and 64, to $10,000, indexed—these will have to be Roth contributions (i.e., after-tax contributions and tax-free distributions).
• A rule requiring employers to include long-time part-time employees who have been with the company for two years (down from three) or more among those eligible to participate in retirement plans.
• The ability to count student loan payments as plan contributions eligible for the employer match.
• Authority for 403(b) plans to participate in MEPs (and PEPs), and an enhanced start-up credit for plans that join a MEP or PEP.
• Authority to plans to accept employee self-certification for hardship distributions.
• Require catch-up contributions to be Roth contributions (both with respect to employee deferrals and with respect to employer matching contributions)—this is a revenue raiser and is somewhat controversial.
• The bill also makes it easier for plans to offer lifetime payment options by “removing barriers” to the use of annuities, including longevity annuity benefits and insurance-focused EFT funds. 

The bill actually raises money—around $93 million over the ten-year window. That extra revenue could come in handy if and when the Senate adds provisions (hopefully including the NAIFA-supported expansion of rules that would allow those with multiple retirement plans and subject to required minimum distributions (RMDs) to aggregate their RMD obligations and pay them from the retirement plan(s) of their choice.

The bill’s revenue raisers include a provision that requires Roth treatment of catch-up contributions, a provision that will allow SIMPLE plans to accept Roth contributions, and a provision allowing hardship distributions from employer contributions and account earnings from 403(b) plans.

The Senate is working on its own version of SECURE 2.0. It is expected that the Senate bill will contain most, if not all of the provisions in H.R.2954, plus a few more. Currently, relevant committee staff (Finance and HELP (Health Education, Labor, and Pensions), are working on some 100 or so potential additions to the House bill. Among them is the NAIFA proposal to allow owners of multiple retirement plans to pay their RMD obligations from the plan(s) of their choice, rather than on a plan-by-plan basis. 

On March 29, the Senate HELP Committee held a hearing on the retirement savings issues (ERISA Title I) in its jurisdiction. At the hearing, the committee heard testimony about the importance of making employer plans available to more workers. There was a specific focus on issues like creating a government website to help individuals who left retirement savings behind when they changed jobs to find those savings (the “lost-and-found” issue), divorcing spouse’s retirement savings protections, and disclosure rules. 

Prospects: Both the Finance and HELP Committees plan to mark up their respective retirement bills, although the two are likely to be merged before the legislation goes to the Senate floor for a vote. Timing is uncertain, but it is likely to be late April or early May before the committees are ready to mark up their bills.

NAIFA Staff Contacts: Jayne Fitzgerald – Director – Government Relations, at JFitzgerald@naifa.org; or Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org.

House Committee Approves “Add-on” Retirement Savings Provisions

On April 5, the House Education and Labor Committee marked up and approved a bill that would add several provisions omitted from the House-passed Securing a Strong Retirement Act, H.R.2954 (SECURE 2.0). Among them is a provision that would allow a “sidecar” rainy-day savings fund within a retirement plan.

H.R.7310 is a partisan bill. It was approved by the Education & Labor Committee by a 29 to 21 vote. H.R.2954, on the other hand, is bipartisan and widely supported. The House approved it by a 414 to 5 vote. H.R.7310 includes the authority to access expected tax refund monies in the event of a financial emergency, participant-level plan disclosure rules, financial education programs through employer-sponsored plans, and rules aimed at protecting divorced spouses’ interests in their ex-spouse’s 401(k) plans. 

Prospects: Most of H.R.7310 is unlikely to become law. However, some provisions – e.g., some kind of “emergency savings” provision – may find their way into a final SECURE 2.0 bill. There is considerable bipartisan support for an emergency savings provision in the Senate, and so that kind of a provision has a decent chance of being included in the final House-Senate version of SECURE 2.0 later this year.

NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at JFitzgerald@naifa.org.

Emergency Savings Provision in Play in Retirement Savings Legislation

A proposal to allow for savings to be used pre-retirement for emergencies is in play as the Senate works on its version of generation-two retirement savings legislation. The proposal is not in the House-passed SECURE 2.0 (the Securing a Strong Retirement Act (SSRA), H.R.2954), but is very much in play as the Senate gears up to pass its own bill.

There are a number of emergency savings proposals under consideration, but potentially the key one is S.1870, the Enhancing Emergency and Retirement Savings Act. S.1870 was introduced last year by Sens. Michael Bennet (D-CO) and James Lankford (R-OK). The bill would allow retirement plan participants to withdraw, penalty-tax-free, vested amounts, up to $1,000 in a year, from their retirement savings accounts. 

Also possible is the Refund to Rainy Day Savings Act, S.2600, introduced last August by Sen. Cory Booker (D-NJ) and included in the House Education & Labor Committee “add-on” bill. The Refund to Rainy Day Savings Act would allow individuals to defer up to 20 percent of their anticipated tax refunds into an interest-bearing special “rainy day fund” at the Treasury Department. Withdrawals from the fund—including interest on the taxpayer funds deferred—would be treated as if they were tax refunds (i.e., not taxable). Treasury would set most of the rules for withdrawal, and also the applicable rate of interest paid on the funds deferred.

The notion of an emergency savings fund, whether as part of a retirement plan or at the Treasury, is one that has drawn a lot of interest, and considerable support. However, there are a number of objections to the idea, too. Among the key concerns is the potential for leakage from a retirement plan. Locking up funds to be available for retirement is an important piece of the rules surrounding retirement savings, say retirement savings experts. They say it will be important to balance the incentive for workers to lock up retirement savings funds by allowing for a reasonable amount to be accessible for emergencies against the need to prevent undue leakage.

Retirement plan experts also point out that there are already some in-plan retirement products—e.g., Roth contributions to IRAs or 401(k) plans—that “offer employees an emergency savings vehicle to a sidecar to their existing retirement plan.” There is also a state-based IRA program in Maryland that is implementing a sidecar emergency savings program. And a 2021 Commonwealth Financial Network survey found that eight of the nine biggest record-keeping companies in the U.S. have introduced or are planning to introduce an emergency savings product.

Prospects: The pending emergency savings proposals would add new tax advantages to emergency savings plans. While it is by no means certain that such a plan will be included in the emerging SECURE 2.0 legislation, it seems very possible. We will keep you posted.

NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at JFitzgerald@naifa.org.

Treasury Proposes MEP “One Bad Apple” Regulation

On March 25, the Treasury Department proposed a new regulation (REG-121508-18) that implements the SECURE Act’s repeal of the “one-bad-apple” rule, subject to certain conditions, applicable to multiple employer plans (MEPs) and pooled employer plans (PEPs).  

Generally, the proposed regulations set out the process by which a MEP can take advantage of the inapplicability of the one bad apple rule (called by the Treasury the “unified plan rule”) when one of its participating employers fails to comply with the retirement plan rules. 

The one bad apple rule repealed, subject to certain conditions in the SECURE Act (enacted into law in 2019), required disqualification of the entire MEP plan if and when even one participating employer failed to comply with retirement savings plan rules. Under the SECURE Act’s rule, if a MEP complies with the conditions set forth in the legislation, only the participating employer(s) that fails to comply with the repeal’s rules will be disqualified.

The proposed regulation requires significant notice and opportunity to correct a failure of the rules for participating employers (and participants) that are not in compliance with the rules. If a non-compliant employer fails to correct (or respond to) a rules violation, the MEP must notify affected plan participants as well as the non-compliant employer. The proposed regulation sets out the number, timing, and contents of the required notices. 

The MEP must also make sure the affected plan participants have a nonforfeitable right to the amounts credited to their accounts that are attributable to employment with an employer in violation of the rules (and thus ejected from the MEP), the regulation specifies. 

Comments on the proposed regulation are due 60 days after its publication in the Federal Register, or May 27. A public hearing on the regulation is scheduled for June 22.

Prospects: The proposed regulation has very specific notice requirements, which likely will trigger multiple comments. Finalization of the regulation will not occur for a while—first Treasury will have to analyze the comments, both as submitted and as heard at the hearing. Then, it will have to make any changes it deems required. Then the regulation will have to go to the White House (the Office of Management and Budget’s (OMB’s) Office of Information and Regulatory Affairs (OIRA) for review. OIRA may or may not accept Treasury’s proposed changes, but the regulation cannot be finalized until Treasury and OIRA agree on the final form of the regulation. Thus, it will likely be at least several months before this proposed regulation is finalized.

NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at JFitzgerald@naifa.org.

DOL Issues Warning to Plans Offering Cryptocurrency Investment Options

On March 10, the Department of Labor (DOL) issued Compliance Assistance Release No. 2022-01, which warns against the use of cryptocurrency investments in employer-sponsored retirement plans. DOL said, “The Department cautions plan fiduciaries to exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu for plan participants.”

DOL said it has “serious concerns” about the prudence of a cryptocurrency investment. “These investments present significant risks and challenges to participants’ retirement accounts, including significant risks of fraud, theft, and loss.” DOL called cryptocurrency investments “speculative and volatile” and noted that cryptocurrency is relatively new and subject to an “evolving regulatory environment.” Accordingly, DOL’s Employee Benefits Security Administration (EBSA) is planning to “conduct an investigative program aimed at plans that offer participant investments in cryptocurrencies and related products, and to take appropriate action to protect the interests of plan participants and beneficiaries with respect to these investments. The plan fiduciaries responsible for overseeing such investment options or allowing such investments through brokerage windows should expect to be questioned about how they can square their actions with their duties of prudence and loyalty in light of the risks described above.”

Prospects: There is increasing agency and Congressional concern about cryptocurrency. This DOL warning to plan fiduciaries is an example of what is likely to become tighter regulation of cryptocurrency-based products. 

NAIFA Staff Contacts: Michael Hedge – Director – Government Relations, at mhedge@naifa.org; or Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.

Bipartisan Senate Plan Would Establish “Starter” 401(k)/403(b) Plan

On March 30, Sens. Tom Carper (D-DE) and John Barrasso (R-WY) introduced S.3955, the “Starter K Act.” The bill, if enacted, would create a simplified retirement savings plan, either as 401(k) or 403(b) plans, available to employers that do not currently offer a retirement savings plan. Plan participants could save up to $6,000 annually in a “Starter-K” plan.

These Starter-K plans would:

• Provide a safe harbor for discrimination testing, thus streamlining regulation.
• Allow employee contributions of up to $6,000/year, indexed—employers would not be required to match employee contributions; additional catch-up contributions would be allowed for plan participants over age 50.
• Require automatic enrollment, subject to employee opt-out, at a minimum default level of three percent of pay.

In addition, the bill directs the Department of Labor (DOL) to provide simplified reporting requirements for Starter-K plans.

The bill’s sponsors anticipate that Starter-K plans will be most appealing to small businesses. They say that since only half of the country’s small businesses currently offer retirement savings plans, this legislation could significantly increase the number of workers who have access to employer-sponsored retirement savings opportunities.

Prospects: The Starter-K proposal is in the mix of provisions that could be included in the emerging Senate version of SECURE 2.0, the generation-two retirement savings legislation. However, it is not a slam dunk. There will be revenue concerns, and offsets may be required. Neither a revenue estimate nor potential offsetting proposals are yet available. Both Sens. Carper and Barrasso are members of the Finance Committee, which has jurisdiction over the bill. So, subject to resolving the revenue issues, the legislation has a decent chance of being included in the Senate version of SECURE 2.0.

NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.

NFIP Flood Insurance Premiums Go Up

On April 1, premiums for National Flood Insurance Program (NFIP) flood insurance went up. The premium increases will impact NFIP flood insurance policyholders as their policies renew.

The NFIP’s parent agency, the Federal Emergency Management Agency (FEMA), said the premium increases reflect more accurate pricing. FEMA projects that almost four million policyholders will see increased rates for their NFIP flood insurance—about 200,000 of them will see “sharp increases,” while about 3.6 million will see “moderate” price hikes. About 1.2 million policyholders will get a decrease in their premium rates. The rate adjustments are based on property value and on whether the property is in or near flood-prone areas. Thus, the more valuable the property, and the closer it is to flood-prone areas, the steeper the flood insurance premium increase will be, FEMA said.

FEMA also pointed out that the premium rate adjustments do not impact NFIP’s solvency—they just “reshuffle” who pays how much. FEMA describes the changes as “equity in action.”

Prospects: There is considerable concern among coastal state lawmakers from both parties about these premium increases. But, NFIP and its solvency problems are competing with higher-priority issues in an election year when bipartisan legislation is rare. Thus, it appears to most observers that chances for legislative action on this issue are dim.

NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at mhedge@naifa.org.

Treasury/IRS Proposes a Fix to ACA “Family Glitch”

On April 5, Treasury, and the Internal Revenue Service (IRS) proposed a new regulation (REG-114339-21) that would redefine the Affordable Care Act (ACA) “affordability” of health insurance to use the cost of family coverage in determining whether a worker has access to “affordable” health insurance coverage. This matters because “affordability” determines whether the worker can qualify for subsidies (premium tax credits) available through the ACA.

The proposed regulation would implement the rules in Internal Revenue Code (IRC) section 36B, the section of the tax code that allows for a premium tax credit for taxpayers who meet certain eligibility requirements. Among those requirements is that a member of the taxpayer’s family enrolls in a qualified health plan that is both affordable and that offers minimum essential coverage through an ACA-based Exchange for one or more “coverage months.”

The proposed regulation defines “affordable” as less than 9.5 percent (indexed) of the cost of family coverage, rather than the current rule, which looks at the cost of the individual worker’s coverage. 

There will be a public hearing on the proposed regulation on June 27, 2022. Comments on it are due 60 days after publication of the proposed regulation in the Federal Register, or by June 5.

Prospects: Family coverage is, generally, substantially more expensive than individual health insurance coverage, and thus switching the definition of “affordable” to include the cost of dependent coverage will significantly impact the level of employer contribution that must be made in order for the insurance to be affordable. The proposed regulation is likely to draw many comments, both pro, and con, as a result. 

NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at mhedge@naifa.org.

Biden to Nominate Two New SEC Commissioners

On April 6, President Biden announced that he would nominate two people to serve as commissioners on the Securities and Exchange Commission (SEC). Confirmation of these two nominees will give the SEC a Democratic majority.

One nominee, Jaime Lizarraga, is currently serving as a senior advisor to Speaker of the House Rep. Nancy Pelosi (D-CA). Lizarraga would replace departing SEC commissioner Allison Herren Lee. The other nominee, Mark Uyeda, is currently on detail from the SEC to the Senate Banking Committee. If confirmed, Uyeda would fill an open Republican seat on the SEC.

Prospects: The new Democratic majority that would be in play if Lizarraga and Uyeda are confirmed would help bolster SEC Chair Gary Gensler’s regulatory efforts on ESG funds, hedge fund managers, crypto issues, and Wall Street trading.  

NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at mhedge@naifa.org.

Treasury Requests Comments on LTC, Accelerated DB Reporting

The Treasury Department, on April 7, issued a formal request for comments on the form (Form 1099-LTC) it uses for reporting on long-term care (LTC) benefits, including accelerated death benefits. The form is used by insurance companies, governmental units, and viatical settlement providers to gather data on whether LTC benefits were paid (partially or totally), without regard to expenses, on a per diem basis, or on another periodic basis.

Comments are specifically requested on whether the collection of information is necessary for the proper performance of Treasury’s function, including whether the information collected has practical utility; the accuracy of Treasury’s estimate of the burden created by collecting the information; ways to enhance the quality, utility, and clarity of the information to be collected; ways to minimize the burden imposed by information collection, including specifically on the use of automated collection techniques or other forms of information technology; and estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide the information to be collected.

Prospects: Comments are due by June 6, 2022.

NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at JFitzgerald@naifa.org.