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Key Senators Question Fidelity’s Decision to Offer Bitcoin Investment
House Democrats Introduce New Bill to Tax Multimillionaires on Unrealized Gains
Federal Deficit, Low for Now, Seen as Skyrocketing Within 10 Years
House Committee Passes Bill Revising Process for Registering Index-linked Annuities
NAIFA Sends Letters to CMS to Lessen the Impact of CMS Final Rule
Congress Passes Reconciliation Bill
On August 12, the House of Representatives approved the Senate-passed Inflation Reduction Act, H.R.5376. The House vote was 220 to 207. The Senate passed its bill on August 7, by a 51-50 vote. (Vice President Harris broke the tie.) President Biden supports the bill and will sign it into law.
The $740 billion measure extends enhanced Affordable Care Act (ACA) premium tax credits for three years, includes a package of clean energy/climate change rules, gives Medicare authority to negotiate prices on specified prescription drugs, raises taxes on big corporations, and reduces the deficit by some $300 billion. In a win for NAIFA, it does not raise taxes on life and health insurance, annuities, retirement savings, employer-provided benefits, or individuals.
Over the past year and a half during which this bill was developed, NAIFA, along with allies in the insurance and retirement savings communities, beat back a number of proposals that could have adversely impacted NAIFA members and their clients. These included proposals to tax unrealized gains on capital asset investments (i.e., impose tax liability on gains even when the assets were not sold); to impose tax surcharges on individuals making more than specified amounts; to raise top individual, capital, and corporate tax rates; to change grantor trust rules; to adversely change independent contractor (worker classification) rules; and others.
The all-Democratic Inflation Reduction Act is considerably smaller than the $1.2 trillion Build Back Better package approved last year by the House of Representatives. A reconciliation bill subject to strict and limiting rules, but exempt from the Senate’s filibuster process, it is the product of more than a year and a half of hard-fought negotiations between moderate and progressive Democrats. It started its journey through the legislative process as a $3.5 trillion package of “human capital investment” that included provisions that would have raised the federal minimum wage, created a federal paid leave program, and allocated more federal money towards childcare, senior care, education, and low-income housing. It also included many of the green energy incentives that ultimately survived in the final bill.
After more than a year of ups and downs, it finally settled out as the package was approved unanimously by Senate Democrats and the Independents who caucus with the Democrats. The House accepted the Senate package as the best that could be done under current political circumstances (a 50-50 Senate and a House Democratic majority of only four votes).
Prospects: H.R.5376 will soon be the law of the land, if it is not already by the time you read this. It is widely viewed as a political win for Democrats, although there are plenty of Republican victories in it, too—especially in the long list of adverse provisions that were left out of the package. Whether it will have an impact on voter choices in the November mid-term elections remains to be seen, but it is sure that candidates from both parties will use elements of both the substance of, and the process by which, the Inflation Reduction Act was enacted, in campaigns over the next three months.
NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at dboyle@naifa.org; Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org; or Michael Hedge – Director – Government Relations, at mhedge@naifa.org.
House Passes Remote Notarization Legislation
On July 27, the House of Representatives passed H.R.3962 the Securing and Enabling Commerce Using Remote and Electronic Notarization Act (the SECURE Notarization Act). The bill authorizes a notary public to notarize electronic records related to interstate commerce remotely, subject to specified procedures.
Generally, remote electronic notarizations would be authorized subject to the following requirements:
The bill also requires federal courts and states to recognize remote notarizations, and states are empowered to set up their own requirements for remote notarization.
Prospects: There is companion legislation, S.1625, pending in the Senate. However, Senate action, either in the Judiciary Committee or on the Senate floor, has not yet been scheduled.
NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at mhedge@naifa.org.
Bipartisan Worker Classification Proposal Offers Compromise
A new bipartisan bill, H.R.8442, would create “worker flexibility agreements” which would provide some Fair Labor Standards Act (FLSA) worker protections but would continue to treat workers who enter into these agreements as independent contractors for purposes of tax laws.
The Worker Flexibility and Choice Act was introduced by Reps. Henry Cuellar (D-TX), Elise Stefanik (R-NY), and Michelle Steel (R-CA) on July 20. It provides that worker flexibility agreements would supersede state worker classification laws. It does not apply to collective bargaining agreements, but union opposition is expected. However, big gig worker trade associations, like those representing truckers and construction companies, already support it.
The bill provides that under a worker flexibility agreement, employers would be subject to obligations under privacy, anti-discrimination, anti-harassment, anti-retaliation, safety, and family & medical leave laws. It states that workers would be considered employees for purposes of the FLSA, including minimum wage and overtime rules. Workers could enter into worker flexibility agreements with multiple companies. The bill would require each agreement to contain a written summary of the health, retirement, training, or other benefits to which workers would be entitled during the life of the worker flexibility agreement.
Prospects: It seems unlikely that H.R.8442 will be enacted into law this year, although it is possible the bill could find its way into a bigger measure (e.g., the year-end government funding bill). With gig worker associations supporting the bill, and unions so far relatively quiet on it, it has an outside chance as a compromise on the high-profile, controversial issue of worker classification. However, Congress’ legislative plate is full already, so chances are that real scrutiny and debate on this measure will wait until next year or longer.
NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at mhedge@naifa.org.
Key Senators Question Fidelity’s Decision to Offer Bitcoin Investment
On July 26, Sens. Dick Durbin (D-IL), Tina Smith (D-MN), and Elizabeth Warren (D-MA) wrote to Fidelity Investments questioning the company’s decision to offer a bitcoin investment option to retirement plan participants. But other lawmakers support making cryptocurrency investments available to retirement plan savers.
In their letter, Sens. Durbin, Smith, and Warren described bitcoin as a “volatile, illiquid, and speculative asset” and said they thought Fidelity’s decision to make such an investment an option for retirement plan savers seems “ill-advised.”
“While plan sponsors ultimately are responsible for choosing the investments available to participants,” the Senators wrote, “it seems ill-advised for one of the leading names in the world of finance to endorse the use of such a volatile, illiquid, and speculative asset in 401(k) plans—which are supposed to be retirement savings vehicles defined by consistent contributions and steady returns over time.
“As one of the largest 401(k) providers, Fidelity must be aware of the precarious position of Americans’ retirement savings,” the letter continues. It then cites statistics about the challenges facing middle Americans seeking to save for retirement, and concludes with, “Why would Fidelity allow those who can save to be exposed to an untested, highly volatile asset like Bitcoin?”
The letter goes on to point out that Bitcoin is an available investment for those who want it, but that it is inappropriate in a retirement savings account. “Working families’ retirement accounts are no place to experiment with unregulated asset classes that have yet to demonstrate their value over time,” the Senators said.
In recent months, DOL became aware of firms marketing investments in cryptocurrencies to 401(k) plans as potential investment options for plan participants. This spurred DOL to publish a Compliance Assistance Release in March reminding fiduciaries of their responsibilities under the Employee Retirement Income Security Act (ERISA) and highlighting the risks that cryptocurrency may pose to retirement accounts. The Department expressed “serious concerns regarding the prudence of a fiduciary’s decision to expose 401(k) plan’s participants to direct investments in cryptocurrencies” and cited “the significant risks of fraud, theft and loss” presented by these digital assets.
However, this letter is not the only position on cryptocurrency on the Hill. For example, Sen. Pat Toomey (R-PA) is working on legislation (the Retirement Savings Modernization Act) that would specifically allow retirement plan sponsors to choose, subject to fiduciary rule constraints, to offer cryptocurrency investment options in their retirement plans.
Sen. Toomey said the bill would “make it clear that an asset manager would not be violating their fiduciary obligations solely by virtue of investing in alternative asset classes. All the other fiduciary obligations still apply. You still have the diversity requirements, you still have all the prudential requirements there, but you don’t systematically exclude this enormous category.”
Prospects: This Durbin-Smith-Warren letter is but one more sign of growing Congressional concern about the use of cryptocurrency in retirement plans and, in general, as an unregulated (or inadequately regulated) investment option. Sen. Toomey says he will introduce his bill as soon as he finds a Democrat to sign on to it with him. So, expect Congressional as well as regulatory action on the cryptocurrency issue in the weeks, months, and years to come.
NAIFA Staff Contacts: Michael Hedge – Director – Government Relations, at mhedge@naifa.org; or Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.
House Democrats Introduce New Bill to Tax Multimillionaires on Unrealized Gains
On July 28, Reps. Steve Cohen (D-TN), Don Beyer (D-VA), and 31 other Democrats introduced a bill that would tax capital gains, even if they are not realized (i.e., the asset is not sold). The 20 percent tax would apply to those with an annual income (including capital gains) of $100 million or more.
The “Billionaire Minimum Income Tax Act” would impact only a small sliver of American taxpayers, but it would change a general principle of current U.S. tax law—that income is taxable only when it is received, constructively or actually (i.e., realized). There is already an existing exception to this principle, however, in the traders’ mark-to-market regime. The idea’s proponents (including the Administration) say that this bill, and others like it, would directly target income inequality. They point to the fact that most Americans pay annual tax on their wages and on the gains, they earn on the sale of their investments, but the nation’s wealthy can avoid these taxes by bequeathing their wealth to their heirs without recognizing capital gains and borrowing against their wealth instead of selling assets. Advocates argue correcting this inequity could lead to a fairer tax code.
Prospects: There is little likelihood that the Billionaire Minimum Income Tax Act will be enacted this year. However, it reflects a concern among Congressional Democrats that the tax code is tilted in favor of the rich, The Administration in its most recent budget proposal also included a provision to tax unrealized capital gains at death. There are similar proposals in the Senate as well.
Although the specifics of these proposals (e.g., at what level of income would the tax be imposed and when) may differ, there is a real interest, especially among Democrats, in questioning whether income has to be realized (actually received) before it can be subjected to tax. This is a development that could have a profound impact on tax policy, even if it begins with applicability only to the ultra-wealthy. Remember, that’s how the income tax itself started some 100 years ago. This bears close watching.
NAIFA Staff Contacts: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org; or Diane Boyle – Senior Vice President – Government Relations, at dboyle@naifa.org.
Federal Deficit, Low for Now, Seen as Skyrocketing Within 10 Years
The Congressional Budget Office (CBO) released its latest long-term (30-year) budget projections report. While an improvement on last year’s projections, it still predicts an unsustainable long-term growth in debt and deficits. CBO projects a comparatively low deficit level for two years, but an explosion in federal debt held by the public in years three through ten. It rises from 98 percent of GDP in 2022 to 185 percent of GDP by 2052. Deficits will grow from 3.9 percent of GDP in 2022 to 11.1 percent in 2052. Major trust funds, including the Social Security Trust Fund, are also predicted to become insolvent over this period. That sets up a high likelihood that Congress will soon be looking at tax increases as well as spending cuts in an effort to control deficit and debt growth.
The good news is that CBO projects a decrease in the federal deficit from $2.8 trillion in 2021 to $1 trillion in 2022. The decrease is attributable to the winding down of coronavirus response spending and an increase in revenues, CBO said.
CBO also projects an average budget shortfall of $1.6 trillion from 2023 to 2032. The increasing debt will result from higher interest costs and greater spending on programs to benefit the elderly (a growing percentage of the U.S. population). Rising revenue, also projected by the CBO, will keep the deficit from rising even further, the report states.
“Relative to the size of the economy, federal debt held by the public is projected to dip over the next two years, to 96 percent of GDP in 2023, and to rise thereafter. In CBO’s projections, it reaches 110 percent of GDP in 2032 (higher than it has ever been) and 185 percent of GDP in 2052. Moreover, if lawmakers amended current laws to maintain certain policies now in place, even larger increases in debt would ensue,” the CBO report concluded.
Prospects: This CBO report has already triggered new concerns on both sides of the aisle about deficit reduction legislation, as has the level of inflation. The Democratic reconciliation bill, “The Inflation Reduction Act of 2022,” is one example of a Congressional response to the projected future increases in the deficit. Expect more proposed legislation to address the deficit in the months and years to come—both in the form of tax increases and in spending cut proposals.
NAIFA Staff Contacts: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org; or Diane Boyle – Senior Vice President – Government Relations, at dboyle@naifa.org.
IRS Extends Plan Amendment Deadline
On August 3, the Internal Revenue Service (IRS) extended the deadline for amending retirement plans and IRAs as a result of changes to retirement law made by the SECURE Act.
The new deadline, according to the IRS, is now December 31, 2025. IRS Notice 2020-68 extending the deadline was published in the Internal Revenue Bulletin on August 22. Per the Notice, “The extended amendment deadline for [1] a qualified retirement plan or section 403(b) plan (including an applicable collectively bargained plan) that is not a governmental plan or [2] an IRA is December 31, 2025. Later deadlines apply with respect to governmental retirement plans (including governmental plans under section 457(b) of the Internal Revenue Code).”
The SECURE Act, enacted late in 2019, made numerous changes to retirement plan law, many of which require plan sponsors to amend their plans in order to reflect the new law.
Prospects: The SECURE Act was enacted at the very end of the year in 2019 and had numerous early-in-2022 effective dates. This Notice by the IRS extending the plan amendment deadline will be welcome news for plan sponsors working with NAIFA members.
NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.
DOL Proposes Tightening of QPAM Rules
On July 27, the Department of Labor (DOL) released new guidance (Z-RIN 1210 ZA07) that tightens the rules (class exemption 84-14) governing when a qualified professional asset manager (QPAM) can qualify for the class exemption from the fiduciary rules that allow it to manage retirement plan assets.
Generally, the proposed new rule would disqualify a qualified professional asset manager from using class exemption 84-14 if it is convicted of a domestic or international crime. Further, disqualification could result when a firm (or person) is covered by a non-prosecution or deferred prosecution agreement. The disqualification would last for ten years and would impact the entity relying on it if it, any of its affiliates, or five percent or more owners are convicted of certain crimes.
Among the proposed amendments to class exemption 84-14 are:
In addition, the proposed amendments to the QPAM rules would clarify the updates regarding a QPAM’s authority over investment decisions, adjust the asset management and equity thresholds in the QPAM, and add a new recordkeeping provision. One of the more troubling changes includes a prohibition on “parties in interest” planning, negotiating, or initiating a transaction, and presenting it to a QPAM for approval.
The proposed amendments to class exemption 84-14 would reverse a Trump-era policy that allowed QPAMs to exclude convictions in foreign countries from affecting the QPAM status. This was based on financial institutions’ arguments that many of them have dozens or even hundreds of affiliates across the world. Under the proposed amendments, conviction of specified criminal activity anywhere in the world could impact a financial institution’s operations in the U.S.
This proposed new rule would impact any investment manager that manages investments of nearly $137 million (up from $85 million). Some NAIFA members may be impacted, and any NAIFA member that works with a plan sponsor that uses a QPAM will need to be aware of this new proposed rule when advising a client about its investment management decisions.
Prospects: DOL is accepting comments and requests for a public hearing on the proposed amendment to class exemption 84-14. Such comments are due 60 days after publication in the Federal Register, (i.e., by the end of September).
NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.
NAIFA Sends Letter to House Energy and Commerce Committee
NAIFA and other trade associations have sent a letter to influential members of the House Energy and Commerce Committee expressing concerns with the discussion draft of the American Data Privacy and Protection Act, which is a national uniform privacy law proposal.
NAIFA supports federal laws and regulations protecting the confidentiality of personal information and believes policy at the federal level will help avoid problems a variety of confusing and potentially contradictory state laws would cause. NAIFA members provide financial products, services, and advice to Main Street American families and businesses. Their clients entrust them with sensitive personal information, so it is among the highest priorities for our industry that we keep that information secure.
Prospects: NAIFA is working with the Committee and asking for a higher level of dialogue to address the issues of concern. NAIFA welcomes a continued discussion of these complex topics and is willing to serve as a resource as the Committee continues to receive input on H.R. 8152.
NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at mhedge@naifa.org.
House Committee Passes Bill Revising Process for Registering Index-linked Annuities
On July 28, the House Financial Services Committee voted to advance a bipartisan bill requiring the Securities and Exchange Commission to create a new form for registering index-linked annuities, which allows investors to save for retirement in a more streamlined process.
NAIFA, along with several of our industry partners, strongly supports the “Registration for Index Linked Annuities (RILA) Act” (S.3198/H.R.4865), which would require the SEC to create a form specific to RILA registrations.
Registered index-linked annuity (RILA) products offer a good option for some consumers who want to benefit from market growth while reducing their exposure to market losses. These are long-term, tax-deferred investments that are often well-suited for investors who are preparing for retirement, especially those who are retired or are nearing retirement and wish to reduce the impact of market downturns.
Unfortunately, the Securities and Exchange Commission (SEC) paperwork required to register RILAs is unnecessarily burdensome and confusing. It requires financial institutions to submit forms more often used for initial public offerings or other “catch-all” forms that require a great deal of extraneous information not relevant to RILAs and not readily available to insurance firms offering RILAs.
Prospects: It remains to be seen when the bill is brought to a vote in the House, but it is anticipated that it is likely to happen in September. However, in the Senate, the outlook for that version of RILA is less certain. It remains to be seen if the Senate will take up the legislation before the end of the congressional calendar.
NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at mhedge@naifa.org.
NAIFA Sends Letters to CMS to Lessen the Impact of CMS Final Rule
In May, the Centers for Medicare and Medicaid Services (CMS) issued a Final Rule which revises the Medicare Advantage (Part C) program and the Medicare Prescription Drug Benefit (Part D) program regulations to implement changes related to marketing and communications, past performance, Star Ratings, network adequacy, medical loss ratio reporting, special requirements during disasters or public emergencies, and pharmacy price concessions.
While this final rule creates several new requirements for Medicare Advantage and Part D, the most displeasing of these are the new marketing and communications requirements. CMS has stated that it received a significant increase (over 15,000 complaints in 2020, which more than doubled in 2021 to 39,000) in beneficiary complaints regarding the marketing activities of Third-Party Marketing Organizations (TPMOs) who sell Medicare Advantage and Part D products.
The new rule affirms that Medicare Advantage plans and Part D sponsors are responsible for TPMO activities associated with the selling of those plans, and requires that:
(A) Verbally when communicating with beneficiary through telephone.
(B) in writing when communicating with a beneficiary through mail or other paper.
(C) Electronically when communicating with a beneficiary through email, online chat, or other electronic messaging platform.
The rule also adds a requirement that Medicare Advantage and Part D plans create a multi-language insert that will inform the reader of available interpreter services, in the top fifteen languages used in the United States and includes new parameters and requirements governing dually eligible special needs plans, medical loss ratio transparency, and pharmacy price concessions.
Additionally, this rule codifies previous technical guidance included in the Managed Care Marketing Guidelines:
NAIFA has received a great deal of input on this rule, specifically, we have fielded several complaints regarding the requirement that all phone calls with beneficiaries be recorded. This requirement applies to all agents who enroll beneficiaries into new plans, whether they are new or existing clients. CMS is interpreting this rule as applying to agents who are walking their clients through online applications as well.
On balance, beneficiary dissatisfaction is not with their agent of record, but with the call centers that solicit beneficiaries to switch plans that may not meet their needs. NAIFA believes that calls with existing clients should be exempt from this requirement. To that end, we have been in contact with CMS and, on July 26, sent a letter to CMS Administrator Chiquita Brooks-LaSure requesting an exemption for agents working with existing clients.
Additionally, on August 11, NAIFA joined with joint trades partners and sent an agents coalition letter to CMS advocating for a rule implementation delay of six to 12 months, during which CMS will work with stakeholders to develop marketing regulations that will protect beneficiaries while allowing them access to their trusted licensed independent agent or broker.
Prospects: NAIFA is continuing its collaboration with CMS, requesting an exemption for agents working with existing clients. NAIFA, along with our industry partners, will continue to press this issue with CMS and will provide updates as necessary.
NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at mhedge@naifa.org.
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