January 2022 Issue:
BBB Reconciliation Bill Remains Stalled in the Senate
The House-passed Build Back Better (BBB) reconciliation bill (H.R.5376) remains stalled in the Senate. But Washington insiders predict work on a smaller BBB measure will begin by next month.
On December 17, 2021, Sen. Joe Manchin (D-WV) announced that he would not support the House’s BBB bill and added that he is done talking about it. Without his vote in the 50-50 Senate, assuming that all 50 Republican Senators remain opposed to it, the bill cannot pass. Sen. Manchin cited concerns about the bill’s long-range cost (most provisions in the bill expire after only a year or two, so the short-term $1.75-$2 trillion cost—fully offset though it is—spirals to some $4 trillion if all of its provisions are extended through the ten-year budget window), inflation, and the uncertainty of economic recovery.
However, President Biden said on January 7, 2022, that he expects to resume negotiations with Sen. Manchin (and other Senators with concerns about the House-passed bill) later this month.
The House bill contains a number of provisions of interest (and in some cases, concern) to NAIFA members. These include a federal paid leave program that could adversely impact employer-provided disability income programs, expanded, and extended Affordable Care Act (ACA) health insurance subsidies, and a variety of “tax-the-rich” tax increases. However, the bill as passed by the House, and as is, being reviewed by the Senate excludes many proposals that would have been adverse to NAIFA interests. These excluded provisions include corporate and individual tax rate increases, changes to grantor trust rules, a mandatory retirement savings plan rule, and others. Hats off to NAIFA members and their staff who successfully lobbied to eliminate these proposals from the emerging BBB legislation.
Prospects: Democrats say that failure to enact a BBB bill is “not an option.” However, cobbling together the votes to pass a package of around $1.5 trillion to $1.75 trillion that both moderate and progressive Democrats can support is a tall order. Whatever can pass the Senate (speculation is focused on a ten-year package of climate change provisions, possibly an extended child tax credit that would be subject to a work requirement and expanded/extended ACA subsidies) could run into a buzz saw in the House. Such a package is likely to cause heartburn among progressive Democrats, as being insufficient. So, odds that the bill will be enacted into law are only about 50-50, and it is probable the initiative will not be completed until late in February, if that soon.
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.
What to Expect in 2022—More Tax Increase Proposals, Government Funding, Pre-Elections Politicking
Legislative activity during 2022 is likely to be intense, but not all that fruitful. Congress must pass a bill to fund the government for the rest of this fiscal year (the first deadline on that is midnight February 18). By the end of the year, lawmakers may again have to address the debt limit. But beyond these issues there is little that Congress currently “has” to do.
Lack of a “drop-dead deadline,” though, will not stop Congress from trying to do other legislation. However, the current toxic and highly partisan climate on Capitol Hill will stymie most if not all legislative efforts that go beyond government funding/debt limit.
First up on the 2022 agenda is legislation to address voting rights. In an effort to pass that, Senate Democrats may try to change the chamber’s filibuster rules to get around the current rule that requires 60 votes to avoid killing legislation by filibuster. As of now, neither the voting rights legislation, nor the filibuster rule change proposals seem likely to win enough support to get through the Senate.
After the voting rights/filibuster effort, lawmakers will try to pass an omnibus government funding bill on a bipartisan basis. That effort could include inserting into the government funding bill some of the more widely-supported Build Back Better (BBB) bill’s provisions (e.g., climate change, child tax credit, health insurance subsidies, some tax increases). Failure to craft a bipartisan government funding bill would mean either enactment of another continuing resolution (CR)—with no policy changes and no increases in domestic spending—or a government shut-down. No one wants a government shut-down, and most lawmakers do not want another CR—the GOP badly wants increases in defense spending, while Democrats want to hike spending on some social programs. Likely there will also be a fight over whether to ease current restrictions on using government funds for abortion and other policy issues.
President Biden is scheduled to give the State of the Union (SOTU) address on March 1. That speech will lay out the Administration’s priorities for 2022. Anticipated is a renewed call to enact his signature BBB legislation, full-throated support for a federal voting rights law (assuming, as almost everyone in Washington does, that the January effort to enact voting rights legislation fails), and continued efforts to fight the COVID pandemic.
Amid these and other legislative proposals, expect progressive Democrats to again attempt to raise taxes on businesses and wealthy individuals (corporate and top individual rate increases, changes to trust rules, etc.). These could be offered as offsets to renewed efforts to enact a federal paid leave program and other social priorities.
It is also possible that Congress will take up bipartisan retirement savings legislation (SECURE 2.0 in the House, updated and modified RESA in the Senate). That, however, will require bipartisanship. And bipartisanship is in short supply just now—and will get even scarcer as we get closer to the November 2022 elections.
Control of both the House and Senate are in play in November. The GOP thinks it can win enough seats in both chambers to again control Congress. Democrats, of course, are focused on retaining their control of both the House and Senate. Strategies to further these goals will shape the politics of all 2022 legislative initiatives.
Finally, there is the “wild card factor.” Will there be a “game-changer” development, e.g., more COVID and a worsening economy as a result—or the opposite: improvement in the economy and the COVID situation? Will there be an international crisis, or a bad natural disaster? Any such event could fundamentally change the politics and prospects for legislation in 2022.
Prospects: It is highly likely that Congress will fund the government, without a government shut-down, either with an omnibus appropriations bill or by another CR. There’s a 50 percent chance some kind of BBB bill will pass, probably by spring. Beyond that, it is anyone’s guess what 2022 will bring. Stay tuned.
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.
Lawmakers React to Surprise Billing Regulation
The new surprise billing health insurance law took effect on January 1, 2022, but the controversy over who pays (and how much) for health services bills that are out of a patient’s network continues. The good news is that patients themselves can no longer be billed for higher out-of-network charges, but whether the provider or the insurer (or self-insured employer) pays those higher out-of-network charges remains the subject of ongoing debate.
The “No Surprises” law and its newly promulgated regulations provide that higher out-of-network bill disputes must be resolved by an arbitration process that, as a central tenet, looks at the median in-network charge for the services in dispute.
Some lawmakers, led by Sen. Bill Cassidy (R-LA), say that there is too much focus on median in-network charges in the arbitration process, and note that it was not Congress’ intent or the intent of the law to give so much importance to the median in-network charge factor.
“At this point, it’s another principle involved,” said Sen. Cassidy. “Can you just really totally reject that which Congress has said because you don’t like it? Or because maybe a couple of members of Congress who didn’t get their way influence you?”
Generally, insurers and self-insured employers say use of median in-network charges as a baseline in deciding who pays out-of-network charges is what Congress intended. However, medical care providers—including hospitals and doctors—say that the arbitration process must weigh other factors as well when determining the appropriate charge (and who pays it). Lawmakers are similarly divided. The regulation sides with those promoting use of median in-network charges as the primary arbitration standard.
In late December, Sen. Cassidy, along with Sen. Roger Marshall (R-KS) and 24 other GOP Senators, wrote to the Department of Health and Human Services (HHS), asking HHS to change its interim final rule to give more weight to additional factors in determining appropriate out-of-network charges and the payors responsible for them. The letter alleges that HHS’s interpretation of the arbitration rules does not reflect the Congressional intent behind the law. The Senate GOP letter followed a similar letter in November by 150 House members, led by Rep. Brad Wenstrup (R-OH).
No Democrat signed the Senate letter, but the House letter did reflect some bipartisan support for the effort to change the regulation. Congressional supporters of changing the surprise billing interim final rule say they are pessimistic about the chances of HHS changing its rule. However, they say legal challenges might force HHS to change its regulation. “I think we have to allow the courts to play out, and I think that the administration is going to lose,” Cassidy said. “The intent of the law is very clear. It’s very clear, and [the administration] very clearly violated it.”
There are several lawsuits on the issue currently pending. The legal challenges all focus solely on the arbitration process. They are not seeking to prevent the no surprise billing law from taking effect.
Prospects: While it is likely to take at least months before the issue is settled, only the “who pays” portion of the regulation is in dispute. No one is arguing that patients could be responsible for higher out-of-network charges. But the issue is a key concern for insurers, self-insured employers, and health care providers.
NAIFA Staff Contact: Michael Hedge – Director – Government Relations at mhedge@naifa.org.
De-Risking Pensions May Become Big Issue in 2022
With many companies’ pension funds in much-improved condition after last year’s banner stock market performance, industry experts are predicting a spike in de-risking activity. That means that the outlook for big corporate pension plans is shifting towards pension risk transfers to insurance companies and annuities, and to a further, possibly steep, decline in defined benefit (DB) pension plans.
According to a new Willis Towers Watson PLC analysis, the aggregate funding status of 361 Fortune 1000 companies’ pension plans improved to 96 percent in 2021, an eight-percentage-point increase over 2020. It also marks the first time in 15 years that big corporate pension plan funding levels were above 90 percent.
Industry experts say that the shift from DB plans to 401(k) and other individual-oriented defined contribution (DC) plans will not only continue but may also accelerate. This is because workers are becoming more accustomed to retirement savings through DC plans—the Department of Labor (DOL) says the number of DB plans has declined by 73 percent since 1986. When asked on surveys, most workers prefer the guaranteed retirement income provided through a DB plan, but most no longer have that option, unless it is restored through a de-risking strategy that results in insurance companies issuing lifetime annuities to workers in lieu of their DB benefits.
De-risking this year could be economically appealing to companies with now-better-funded pension plan funds because the cost of a buyout or shift to insurance/annuity-covered retirement benefits decreases as the pension plan’s unfunded liability shrinks.
This shift may have already started. According to the Secure Retirement Institute, third-quarter pension buyouts in 2021 were three times as many as there were in 2020.
There are issues—including legislative risk—connected to this trend. Policymakers (both Congressional and regulatory) say the consequences that will be felt by retirees are largely unknown. There are also issues connected to the extent to which plan participants are getting or should get “full disclosure” of de-risking plans. The issue came up during last year’s confirmation hearing for Lisa Gomez, President Biden’s nominee to head DOL’s Employee Benefits Security Administration (EBSA). EBSA is the agency with jurisdiction over de-risking activity. Gomez told Senators that she would make sure that EBSA looks into making sure that de-risked assets are in the best interest of their workers.
Prospects: De-risking of DB plans seem to be an issue on the verge of action by either EBSA, Congress, or both. Congressional activity is particularly likely if Congress moves forward with generation two retirement savings legislation (SECURE 2.0 in the House; modified RESA in the Senate). This is an issue NAIFA will be watching closely in 2022.
NAIFA Staff Contact: Judi Carsrud – Assistant Vice President – Government Relations at jcarsrud@naifa.org.
DOL/EBSA Finalizes Pooled Employer Plan Disclosure Forms
On December 28, the Department of Labor’s (DOL’s) Employee Benefits Security Administration (EBSA) released a final rule governing the instructions pooled employer plans must use to file reports for groups of employers operating under a single pooled employer plan (PEP) in the 2021 plan year. This rule is only applicable for 2021 plan years. Permanent PEP rules for the annual Form 5500 are still on hold, EBSA said.
The final PEP disclosure rule requires PEPs to include account balance information on each employer participating in the PEP, proof that the PEP complied with registration requirements, and participating employer information for multiple-employer health care plan filers.
PEPs were authorized by the 2019 SECURE Act, which NAIFA supported. The new law allows separate plans with similar service providers to file joint Forms 5500. 2022 is the first year of the new SECURE Act-authorized PEP disclosure forms. EBSA has proposed, however, requiring separate audits for each plan.
Prospects: PEPs may trigger increased interest, particularly among small employers, in sponsoring retirement savings plans. But the separate audit provision could pose a problem. And until the roll-out of other regulatory requirements is complete, it is hard to judge whether the PEP structure as authorized in the SECURE Act will, as Congress intended when it passed the law late in 2019, result in more employers offering and more employees participating in workplace retirement plans.
NAIFA Staff Contact: Judi Carsrud – Assistant Vice President – Government Relations at jcarsrud@naifa.org.
ESG Reg Comments Urge More Clarity
The Department of Labor’s (DOL’s) Employee Benefits Security Administration’s (EBSA’s) proposed rule that would allow retirement plan fiduciaries to consider non-economic factors such as environmental, social, and government (ESG) factors has drawn considerable comment. The comments are both pro and con and urge EBSA to clarify the proposed regulation.
The proposed ESG regulation would replace a Trump-era ESG rule that prohibited use of ESG factors in evaluating—from a fiduciary duty perspective—potential retirement plan investments unless those factors had a direct financial impact on the decision. The regulation, proposed last October, provides that consideration of ESG factors “may be required” when fiduciaries are selecting the plan investments from which plan participants may choose. The proposed regulation would also modify the “tie-breaker standard,” which deals with whether competing investments are indistinguishable based on consideration of risk and return. DOL said that the current provision could be interpreted too narrowly, and so the proposed standard would be broader and apply when a fiduciary faces competing choices that “equally serve the financial interests of the plan.”
A group of GOP Senators wrote a letter to DOL Secretary Marty Walsh noting that including ESG factors among those that fiduciaries must consider poses a risk to the financial well-being of plan participants. The proposal “imposes a de facto mandate on fiduciaries of retirement plans, requiring them to consider ESG factors that are not supported by DOL’s own regulatory impact analysis, and the steps needed to comply with the obligation are unclear and ambiguous,” said Sens. Patrick Toomey (R-PA), Mike Crapo (R-ID), Richard Burr (R-NC) and Tim Scott (R-SC).
Other commenters noted the ambiguity of the proposed rule’s language that says ESG factors “may be required” to be considered in evaluating plan investment choices. They urged clarification to avoid unintended legal risk to plan advisors who usually seek to avoid legal risk in their fiduciary decision-making.
“While nothing in the proposal gives fiduciaries license to pursue ESG objectives unmoored from or indifferent to an investment’s underlying economic merits, the American Retirement Association (ARA) is concerned that the phrase ‘may often require,’ included in the required considerations, taken together with the Proposal’s preamble, strongly implies that fiduciaries not only have the option to consider ESG investments but should be considering climate change and other ESG factors,” ARA said.
ARA said it agrees with the proposed rule’s intent to ensure plan advisers can direct investments into ESG options. But, it said, there is concern that the proposed language would impose a new burden on advisers to justify a decision to not select particular investments due to the regulation’s “may be required” ESG factor language. “That creates a slippery slope for advisers overseeing larger plans, who view avoiding the risk of litigation as a top priority in demonstrating prudence when selecting plans,” ARA said.
In other comments, ESG investors and a number of Democrats welcomed the rulemaking, saying the guidance will help satisfy retirement savers' growing appetite for ESG investments. Advisers also see the proposal as a way to get on the same level as retail and institutional investors that already look at ESG factors alongside traditional financial metrics.
Prospects: The ESG proposed regulation is now subject to EBSA’s review of comments. It will then go to the White House (to the Office of Information and Regulatory Affairs (OIRA) for its review. Finalization—likely with some modifications—will come after that. So, a final rule could be weeks, if not months, away.
NAIFA Staff Contact: Judi Carsrud – Assistant Vice President – Government Relations at jcarsrud@naifa.org; or Michael Hedge – Director – Government Relations at mhedge@naifa.org.
Gomez Re-Nominated to Head DOL’s EBSA
President Biden has renominated Lisa Gomez to head the Department of Labor’s (DOL’s) Employee Benefits Security Administration (EBSA), the agency with jurisdiction over retirement savings issues. Her nomination is not yet scheduled for a vote by the full Senate, but the Senate HELP committee renominated her on January 13th (Gomez advanced out of the HELP committee in December 2021 with a 12-10 vote but procedurally needed to be voted again in the 2nd session of the 117th Congress).
Gomez is a New York City lawyer whose career has centered on representing labor unions. As such, she is viewed with concern and some skepticism by many Republicans. At her confirmation hearing, she was questioned explicitly about EBSA’s initiative on the use of environmental, social, and corporate (ESG) factors in retirement investing.
Prospects: Gomez is seen as likely to win confirmation by the full Senate, although possibly by a close and partisan vote. Among the EBSA issues on which she will have considerable influence are the fiduciary rule, de-risking of defined benefit pension plans, and the ESG investment rule.
NAIFA Staff Contact: Judi Carsrud – Assistant Vice President – Government Relations at jcarsrud@naifa.org.
NAIFA Reappointed to the Insurance Compact Industry Advisory Committee
The Insurance Compact held an in-person Joint Meeting of the Management Committee and Commission's Annual Meeting on Sunday, December 12th, 2022, before the National Association of Insurance Commissioners (NAIC) Fall Meeting in San Diego, CA. The Management Committee considered the recommendation of the Compact Officers to fill four (4) of the open seats on the Industry Advisory Committee. Three members of the Industry Advisory Committee were reappointed, including NAIFA's Policy Director Maeghan Gale. One new member was appointed for a two-year term ending in 2023.
NAIFA Staff Contact: Maeghan Gale – Policy Director – Government Relations, at mgale@naifa.org.
NAIC & NCOIL Fall Meetings
This winter, the National Association of Insurance Commissioners (NAIC) and the National Conference of Insurance Legislators (NCOIL) held well-attended in-person meetings, which offered the opportunity for face-to-face encounters and allowed NAIFA to strengthen our relationships within both organizations. We continue to focus our efforts on the issues most important to NAIFA members while keeping a watchful eye on any new state regulations.
As we head into the new year, we look forward to working closely with the new NAIC and NCOIL leadership teams, including recently elected NCOIL President, California Assemblyman Ken Cooley, and NAIC President, Idaho Director, Dean Cameron, who is a former NAIFA-ID President. Representative Cooley is known for his bi-partisan collaborative insurance policy work within both organizations. At the same time, Director Cameron has outlined a new vision for the NAIC in response to regulator and industry concerns that the NAIC is overextended.
Director Cameron has released detailed priorities under his presidency, including;
- improving collaboration with NCOIL, other associations, and industry
- removing and eliminating access barriers to insurance products
- creating a slimmer and more efficient NAIC by evaluating the number of working groups and their purpose
- eliminating duplicative and unnecessary regulations and statutes
- increasing education and understanding of the products that NAIC regulates
- identifying strategies for attracting new talent into state insurance departments
- continuing defense of state-based regulation.
Technology and Innovation continue to be a strong theme running through both meetings. Both NCOIL and NAIC continue to scrutinize the use of AI in insurance, but mainly in personal lines coverages. The NCOIL Financial Services and Multi-Lines Issues Committee unanimously adopted the Remote Notarization Model Act, allowing remote notarization and verification of documents. NCOIL has introduced and began holding discussions on an Insurance Innovation Regulatory Sandbox Model Act based on Kentucky State Representative Bart Rowland's legislation (KY HB 386). The draft Model would allow insurers to BETA test products and enable regulators to provide an extended or limited safe harbor from administrative or regulatory action. In addition, the Model specifies that innovation applications must consider consumer value, public interest and be economically viable for the applicant with the appropriate consumer protections that do not pose an unreasonable risk.
The NAIC adopted the new Innovation, Cybersecurity, and Technology (H) Committee to educate, monitor, and make regulatory recommendations regarding cybersecurity, big data usage, emerging technology, and e-commerce. Moving forward, these working groups will report up through the new Committee.
One working group that will not continue is the Life Insurance Illustrations Working Group, which received its final report adoption and was subsequently disbanded. The report included recommendations and a disclosure template for states to explore when considering the possibility of enacting summary disclosure requirements.
And finally, on the producer licensing front, we continue to focus on implementing the NARAB Board. During the NAIC meeting, the government relations team met with NAIC President Mike Consedine and multiple Commissioners to garner interest and support for Commissioner participation. We plan to work collaboratively with the NAIC to identify Commissioner nominees for submission to the White House.
With spring meetings already on the horizon, NAIFA continues a strong presence at both the NAIC and NCOIL for 2022.
NAIFA Staff Contact: Maeghan Gale – Policy Director – Government Relations, at mgale@naifa.org.
Broker Compensation Disclosure Requirements Go into Effect
The Consolidated Appropriations Act (CAA) is a spending and coronavirus relief package that was signed into law on December 27, 2020 and expands ERISA’s existing disclosure requirements. It broadened the definition of a “covered plan” to include group health plans (previously it only included retirement plans).
This created new requirements for brokers and consultants to disclose any direct or indirect compensation they may receive for referring services to the plan. This new disclosure requirement applies to contracts entered into, extended, or renewed on Dec. 27, 2021.
The CAA requires covered service providers (CSPs) to provide plan fiduciaries with information they need to assess reasonableness of total compensation, both direct and indirect, received by the CSP, its affiliates and/or its subcontractors.
- For groups – the statute is self-effectuating, and agents need to make the disclosures for agreements made with the plan after 12/27. The trigger is the agent agreement with the plan to assist the plan, not insurance contract renewal dates. Many brokers believe that this will first really begin to apply to 2d quarter renewals (even end of the 2d quarter) when the work on those renewals begins.
- The Department of Labor (DOL) has specifically clarified that the implementation date of December 27, 2021 reflects the date by which a contract was entered into regardless of whether the plan year begins after that date. Any agreements signed prior to December 27, 2021 would not fall under the requirements for disclosure even if the plan year begins on January 1, 2022.
- For the individual markets – rules need to be in place before any disclosures are required AND the disclosure obligation is on the carriers, not the agents, to disclose what is being paid to the agents.
As the government elected not to provide a sample form for disclosures by filers, you may instead find a form here that can assist in navigating the filing process. The form is only advisory but may serve as a useful tool during this process.
The DOL has additionally released a bulletin providing further guidance on excepted benefits and the definitions of "covered plan" and "covered service providers." The DOL is not expected to release further guidance. The DOL’s bulletin and press release are available online.
Prospects: Although the DOL has stated that no further guidance would be offered to navigate the disclosure process, the DOL has also advised that service providers can use the DOL’s guidance on the compensation disclosure rules for retirement plans to help navigate complying with the new rules. While differences exist between group health plan compensation and retirement plan compensation arrangements, many concepts share similarities. As such, the DOL’s explanations of the disclosure requirements “may be useful” in interpreting the disclosure requirements for group health plans. You can read the DOL’s guidance on disclosure for retirement plans on the following links: Reasonable Contract or Arrangement Under Section 408(b)(2)—Fee Disclosure; and Reasonable Contract or Arrangement Under Section 408(b)(2)—Fee Disclosure
NAIFA Staff Contact: Michael Hedge – Director – Government Relations at mhedge@naifa.org.
Congressional Conference
Join us May 23-24, 2022, for the return of the in-person Congressional Conference. The Congressional Conference bolsters NAIFA’s prestige among lawmakers and industry partners and enhances our standing as the leading voice for insurance and financial professionals. It is crucial for ensuring lawmakers understand the essential roles NAIFA members play in:
- Providing products, services, and advice that improve the financial security of 90 million American families.
- Promoting financial literacy and self-sufficiency in diverse communities.
- Strengthening the U.S. economy and contributing to the financial health of communities in every congressional district.
- Representing the best interests of their clients and promoting the success of Main Street Americans and businesses.
The personal stories of insurance and financial professionals profoundly illustrate how public policies impact their clients. These are stories lawmakers want and need to hear. No one can tell them better than NAIFA members, and the Congressional Conference is our best vehicle for reaching a large, captive audience of policymakers.
The Congressional Conference offers a wonderful opportunity to get more NAIFA members to participate. Save your spot today and encourage your colleagues to join you.
The greater our numbers, the louder and more influential our voice!
NAIFA Staff Contact: 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.
