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Advisor Today has the largest circulation among
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July 2021 Issue:


 

Two “Infrastructure” Bills Begin to Take Shape, One with Tax Increases

There is a bipartisan agreement on a framework for a traditional infrastructure bill that does not include any tax increases. There is also a separate-track Democrat-only (probably) “human infrastructure” reconciliation bill that will likely contain a slew of probably adverse tax increase provisions. Congress plans to tackle both later this month.

Traditional Infrastructure: A group of 20 Senators, evenly split between Democrats and Republicans, has agreed to a framework of $1.2 trillion (over eight years) in traditional (roads, bridges, rail, etc.) spending. The package is offset without any tax increases, although observers warn that some of the proposed offsets are “illusory,” and/or some are already triggering concern, if not outright opposition. President Biden supports the framework.

The framework is currently in drafting to put its provisions into legislative language. It is expected to be ready for discussion and voting as early as July 19. It is already drawing opposition from both the right and the left, but the real test of whether it can win enough votes to pass will come after detailed legislative language is released.

One key issue among lawmakers is whether acceptance of the bipartisan plan will ease passage of the second reconciliation bill (that will contain tax increases) or hurt the odds for approving it. There is also concern about the size and scope of the legislation.

Reconciliation/“Human” Infrastructure: The second bill in this two-track, but inter-related, process is a reconciliation bill that will address “human infrastructure” issues like federal paid leave, free community college, child care assistance, climate change, etc. That bill’s size has not yet been determined, but could be as big as $6 trillion or as small as $1.5-$2 trillion, with about half of that offset. And the offsets are virtually certain to come in the form of tax increases.

The second reconciliation bill is still in its formative stages, but is on something of an accelerated track. Congressional leaders hope to have something ready to propose by the end of July, although Hill insiders predict it could be August, or even after Labor Day before this legislation is ready for committee and floor action.

The reconciliation bill process will start with a budget resolution for fiscal year (FY) 2022 which will contain authorization for use of the reconciliation process. Reconciliation legislation bypasses the Senate’s filibuster rules, and thus a reconciliation bill becomes enactable with a simple majority (51 votes), but also must comply with a series of tricky rules (including, for example, a rule that requires that each provision in the bill must have more than an incidental impact of federal outlays or receipts). But as a reconciliation bill, the measure could pass without any Republican votes. That means Democrats will have to agree among themselves, without losing a single Democratic vote in the Senate and with only three or fewer Democrats voting “no” votes in the House.

It is not yet known what tax increases will be proposed, but all signs point to:

  • An increase in the corporate tax rate, possibly to 25 percent.
  • An increase in the top individual tax rate, potentially to 39.6 percent.
  • An increase in capital gains tax liability for taxpayers with annual earnings of $400,000 or more—this could be via a rate increase, or it could come in the form of tax liability on gains each year, even if the taxpayer’s assets are not sold—the latter could adversely impact permanent life insurance.
  • Changes in trust rules, especially in estate planning contexts.
  • Changes in international tax rules.

Other tax change proposals that are more controversial (among Democrats), but still have a better than even chance of being included in the package include modification or even elimination of the Section 199A 20 percent deduction for non-corporate business income, a switch from step-up to carryover basis in estate tax rules (with exceptions for surviving spouses and family-owned-and-operated businesses), wealth taxes (that could be a tax surcharge on ultra-rich taxpayers’ income and/or assets), and a financial transaction tax (FTT). There are other, unrelated-to-financial planning, tax proposals in the mix, too.

The tax committees (House Ways & Means and Senate Finance) are currently working on the offset package, with discussions happening between House and Senate tax writers. But until a decision is made on how big the tax package must be, the scope of the tax increase proposals will remain unknown. But tax writers are braced for the potential of having to write a tax increase package that could go as high as $1 trillion.

Specific details are unlikely prior to Labor Day, although it is possible the process will accelerate.

There is also an outside chance that the reconciliation bill could contain provisions that might ultimately have to be dropped because they cannot pass muster under the reconciliation process rules. These provisions—which will have to be lobbied intensely to prevent them from being enacted into law—include the labor union reform bill, the PRO Act, which contains the adverse worker classification “ABC test” provision. Another possible provision that would likely ultimately have to be dropped from a reconciliation bill is an increase in the federal minimum wage to $15/hour.

Prospects: Winning near-unanimous agreement among Congressional Democrats, particularly in the midst of concerted opposition by Republicans, will be a tall order. But this reconciliation bill is the top priority for the Biden Administration and for most, if not all Democrats. The bill’s new spending programs (especially federal paid leave, childcare assistance, and climate change) are strongly supported by most Democrats. Thus, it would be unwise to bet against it, even as it appears to be an extraordinarily difficult task. And, it is highly likely that NAIFA members will be called on to defend against adverse provisions that could hurt the ability of Americans to provide financial security for their families and businesses.

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


 

SCOTUS Again Leaves ACA in Place

For the third time since enactment of the Affordable Care Act (ACA) in 2010, the U.S. Supreme Court (SCOTUS) has upheld the law. The ruling, issued on June 17, was based on the court finding that the plaintiffs did not have standing to challenge the law. The 7-2 SCOTUS ruling did not address the merits of the claims made by the plaintiffs (several Republican-led states and two individuals).

The Trump Administration had filed a brief in support of the challenge. Medical care providers, insurers, and advocates for patients filed briefs in support of finding the ACA constitutional.

Generally, the plaintiffs claimed that when Congress eliminated the tax penalty for failure to comply with the ACA’s requirement that individuals carry qualified health insurance, the ACA lost its constitutional base (SCOTUS had ruled in 2012 that the ACA is constitutionally based on Congress’ constitutional power to tax). The individual mandate is so central to the overall law, the plaintiffs argued, that if it is unconstitutional, then the entire law would have to be invalidated on constitutional grounds.

SCOTUS did not address these claims. Instead, the seven-justice majority ruled that because neither the states nor the two individual plaintiffs suffered any direct and immediate harm from an unenforceable (due to repeal of the penalty tax) mandate, they had no legal standing to bring the case. The court noted that the constitution requires that plaintiffs have standing in order to sue.

“To find standing here to attack an unenforceable statutory provision would allow a federal court to issue what would amount to an advisory opinion without the possibility of any judicial relief,” wrote Justice Stephen Breyer for the majority. The two dissenters were Justices Samuel Alito and Neil Gorsuch.

Prospects: The SCOTUS ruling was key to the current health insurance market. Even though SCOTUS did not comment on whether repeal of the tax for failure to comply with the individual mandate invalidated the law based on there no longer being a tax penalty, its ruling on standing was pervasive enough that most observers see little chance of any further broad challenges to the ACA’s constitutionality.

There may well be legislative efforts to expand the ACA, or—if the political makeup of Congress changes—to repeal it. But most observers believe broad judicial challenges to the law’s constitutionality are now pretty well settled, until and unless the government tries to enforce the individual mandate. That is unlikely (at least while there is no tax penalty for failure to comply with the individual mandate).

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


 

NAIFA Encourages Congress to Leave Section 199A Unchanged

NAIFA joined more than 100 other trade associations in signing a letter to Congress’ lead tax writers urging them not to change the Section 199A 20 percent deduction for non-corporate business income. The letter, sent on June 22, went to the Senate Finance Committee’s chairman, Sen. Ron Wyden (D-OR), and ranking member, Sen. Mike Crapo (R-ID); and to the House Ways & Means Committee’s chairman, Rep. Richard Neal (D-MA), and ranking member, Rep. Kevin Brady (R-TX). There have been multiple reports indicating that both committees are considering changes to the deduction, set to expire in 2025, but the deduction is of considerable help to many NAIFA members and their small business clients, and making it permanent is what we are asking of the tax writers.

The letter emphasized that “Section 199A provides critical tax relief to individually and family-owned businesses organized as pass-throughs, which are 95 percent of all business, and are the backbone of the economy,” the 103-member coalition wrote. Many of these businesses suffered considerably during the COVID-19 pandemic, the letter pointed out.

“Proposals to limit or repeal the deduction would hurt Main Street businesses, and result in fewer jobs, lower wages, and less economic growth in thousands of communities across the country,” the letter states. “Such changes would amount to a direct tax hike on America’s Main Street employers, a key reason why the tax plan released by the White House in March left the deduction fully intact.” The deduction is scheduled to expire in 2025.

Prospects: Enactment of Section 199A in the 2017 tax reform law was predicated on finding a way to make tax relief for pass-through businesses on a par with the tax relief afforded corporations by the cut in the corporate rate to 21 percent. If, as is expected, the still-under-construction reconciliation bill proposes increasing the corporate rate, there would be justification (in the minds of tax policy purists) for an accompanying change to Section 199A. However, the pass-through business income deduction is widely popular, and lobbying to preserve and to make it permanent (it is set to expire at the end of 2025 under the terms of the 2017 law) is intense. Prospects for making Section 199A permanent are mixed.

NAIFA Staff Contact: Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org


 

Medicare Changes in Play in Reconciliation Bill

The emerging reconciliation bill may include changes to Medicare, including new dental and vision benefits and lowering the buy-in age to 55 or 60. There are also some in Congress who want to add a public option to the Affordable Care Act (ACA) exchange insurance choices. And, key Democrats—including Speaker of the House Rep. Nancy Pelosi (D-CA)—want to add prescription drug price controls.

These provisions are among the many provisions under consideration for inclusion in the “human infrastructure” reconciliation bill (the American Families Plan (AFP)) that is the subject of intense lobbying by President Biden and many Congressional Democrats. Some of them have drawn concern if not outright opposition from private sector interests and from some lawmakers.

From the private-sector comes worry that a public option in exchange-based health insurance menus could drive up costs for employers as younger and healthier individuals choose what supporters say will be less expensive public option health insurance from ACA exchange menus. Employers also fear that they will face higher taxes even as they contend with an increase in the cost of employer-sponsored health insurance plans.

There has also been considerable concern expressed about whether a public option plan would in fact be less expensive—in Washington State, which already offers a state-based public option, costs have not been contained as plan sponsors had hoped/predicted. A number of other states are considering creating a public option for their exchanges. And Washington State is considering expanding its existing program, despite its failure to control premium costs to the extent that program designers had hoped/expected.

President Biden supports the public option as a matter of policy, but did not include it in his AFP proposal. The proposals to add dental and vision benefits to Medicare, and to allow individuals as of age 55 or 60 to buy into Medicare seem to have won widespread approval among Congressional Democrats, subject to the proposals’ cost. The costs have not yet been estimated.

Prospects: While prospects for the reconciliation bill itself are only about 50-50, odds are good that the provisions adding dental and vision benefits and allowing younger (age 55 or 60) people to buy Medicare coverage will make it into the final package. It could go either way on prescription drug price controls. It appears at this juncture that a federal public option will not be part of the emerging reconciliation bill.

NAIFA Staff Contacts: Michael Hedge – Director – Government Relations, at mhedge@naifa.org; Julie Harrison – State Chapter Director– Government Relations, at jharrison@naifa.org; or Maeghan Gale – Policy Director – Government Relations, at mgale@naifa.org


 

Key House Democrat Introduces Bill to Create Government LTC Program

On June 30, Rep. Tom Suozzi (D-NY), a member of the House Ways & Means Committee, introduced H.R.4289, the Well-Being Insurance for Seniors to be at Home (WISH) Act. The WISH Act would create a federal payroll-tax-funded long-term care (LTC) benefit program.

The elements of the WISH Act are:

  • Eligibility for Benefits: Benefits would be payable to individuals who have contributed to the LTC trust fund, are at least age 65, have completed a waiting period (ranging from 1 to five years, depending on income level), are unable to perform at least two activities of daily living, or have severe cognitive impairment, and are expected to have their disability for at least a full year or until death.
  • Amount of Benefits: The program’s cash benefits would be equal to the estimated median cost of six hours per day of paid personal care—currently, that amount is estimated to be $3,600/month.
  • Conditions payment for hiring a caregiver on the beneficiary complying with all state and federal laws relating to payment of minimum wage and withholding of employment taxes.
  • Requires an annual statement (to the Social Security Administration) affirming continued eligibility for the program’s benefits.
  • Creates a new federal LTC trust fund into which both employers and employees contribute 0.3 percent of wages; the self-employed would contribute 0.6 percent of their self-employment income.
  • Specifies that 100 percent of the new payroll tax would be payable to the LTC trust fund.
  • Appropriates initial start-up funding ($12 million/year for the first three years, along with $50 million for public education related to long-term care)—this start-up money would have to be repaid within ten years.

The bill also requires extensive reporting to Congress, at regular intervals, on the effectiveness of the program, and on any still-to-be-met needs for long-term supports and services. The reports are to be done by the Government Accountability Office (GAO). The GAO will also be required to evaluate the impact of the program, and to recommend any potential need for geographical adjustments to benefits paid under the program.

Prospects: It is possible that the WISH Act will be considered in upcoming legislation—perhaps the reconciliation bill, or maybe the year-end government funding bill. But it faces stiff competition from other high-priority issues (for example, federal paid leave and/or climate change). And the GOP is likely to be skeptical about a new government program that could be characterized as a new entitlement.

NAIFA Staff Contacts: Michael Hedge – Director – Government Relations, at mhedge@naifa.org; or Maeghan Gale – Policy Director – Government Relations, at mgale@naifa.org


 

House and Senate Democrats Introduce New Wealth Tax Bill

Adding fuel to the “tax the rich” fire, a bicameral pair of Democrats have introduced a new wealth tax bill. Introduced on June 11 by Sen. Chris Van Hollen (D-MD) and Rep. Don Byer (D-VA), S.2028 would impose a ten percent surtax on wages and investments that exceed $1 million ($2 million for married taxpayers filing a joint return). The surcharge would be in addition to regular tax liability. Sen. Van Hollen says the bill would raise $634 billion over ten years and would impact only the top 0.2 percent of taxpayers.

In addition, Ways & Means Committee member Rep. Tom Suozzi (D-NY) is exploring a one-time wealth tax that he expects could raise $450 billion over ten years. The proposal that Rep. Suozzi is looking at would be a 2.5 percent tax on accumulated wealth in excess of $50 million, and a five percent tax on assets valued at more than $100 million.

Prospects: There are numerous wealth tax proposals pending at the current time, and it is a concept under serious consideration as the tax writers work on a package of tax increases to offset the cost of Democrats’ “human infrastructure” reconciliation bill. It is too early to tell which of the pending proposals—if any—will be included in the reconciliation bill tax package, but it is clear that the concept is in play. So far, President Biden has shied away from supporting a wealth tax, but that could change as lawmakers confront the difficulty of raising what could be as much as $1 trillion from new tax rules. As with all these proposals to be considered under reconciliation, we remind you that reconciliation rules are complex, and the majority margins are very very slim.

NAIFA Staff Contact: Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org


 

HHS Issues Interim Final Rule on Surprise Billing

An interim final rule implementing last year’s law that prohibits charging patients unexpected (and often substantially higher) out-of-network fees was issued by the Biden Administration on July 1. Generally, the rule was well-received by employers and insurers. Medical care providers were less pleased with the interim final rule.

The interim final rule (RIN 0938-AU63) was released jointly by four agencies—the Department of Health and Human Services (HHS), Treasury, the Office of Personnel Management (OPM), and the Department of Labor’s (DOL’s) Employee Benefits Security Administration (EBSA). It is open for comments until 60 days after it was published in the Federal Register (September 1).

Generally, the interim final rule lays out how charges to patients will be calculated when a patient receives unexpected out-of-network services (usually in an in-network facility). The calculation is based on a health insurance plan’s median contract rate for similar services in a specific geographic area, adjusted for inflation by reference to the consumer price index. The “No Surprises Act” prohibits health care providers from billing the patient for amounts in excess of this amount, even when they have received care (without notice and consent) from out-of-network providers.

The rule also:

  • Requires health insurance plans to treat certain services from out-of-network providers and facilities as if they were in-network for purposes of assessing cost-sharing (e.g., deductibles and coinsurance) charges to patients
  • Forbids out-of-network providers from engaging in balance billing for amounts in excess of the participant’s in-network cost-sharing responsibilities (subject to the plan participant’s option to waive this protection under certain circumstances)
  • Bans high out-of-network cost-sharing for emergency services by requiring the health plan to treat emergency services provided by out-of-network providers as in-network for purposes of billing for cost-sharing charges.
  • Bans out-of-network charges for ancillary care (e.g., anesthesia, pathology, radiology, lab work, etc.) at an in-network hospital or ambulatory surgery center—this ban cannot be waived by the beneficiary
  • Bans other out-of-network charges without advance notice when services are provided in an in-network facility, although out-of-network providers in these situations may balance bill the plan participant for their services if the participant is given notice and consents to the balance billing before the services are provided

The interim final rule also contains notice and consent requirements for use in those situations where a patient can waive the ban against balance billing.

More information on the rule is available on the Centers for Medicare and Medicaid Services (CMS) website.

Generally, the surprise billing rules enacted in the No Surprises Act on December 27, 2020 take effect on January 1, 2022.

Prospects: This is the first interim final rule. At least one more is expected prior to year-end. Still to be released is a rule on how to resolve disputes about appropriate payment levels between health plans and employers and health care providers. That rule, on the independent dispute resolution process, must be completed by December 27, 2021.

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


 

House Committee Holds Hearing on Generation-Two Retirement Savings Bill

Witnesses told a House Education and Labor Subcommittee that more legislation is needed to increase the ability of workers to build their retirement savings through employer-sponsored plans. On June 23, the House Education & Labor Committee’s Subcommittee on Health, Employment, Labor and Pensions (HELP) held a hearing on generation-two retirement savings legislation. Specifically, the subcommittee looked at H.R.2954, the Securing a Strong Retirement Act (popularly known as SECURE 2.0 on Capitol Hill). Lawmakers from both parties agree that momentum is building for bipartisan retirement security legislation that builds on the popular SECURE Act that was enacted into law in December 2019.

Both Democratic and Republican members of the HELP Subcommittee voiced support for SECURE 2.0, although there was some partisan bickering about already-enacted multi-employer plan rescue legislation. The “multi’s” provisions, designed to protect retirees in bankrupt or near-bankrupt labor union pension plans, was enacted into law in the American Rescue Plan earlier this year.

Witnesses at the hearing largely expressed support for H.R.2954, although some also called for yet more, specifically a universal access, government-run retirement savings plan (which some call an expansion of Social Security). And, other witnesses questioned whether there really is a “retirement crisis” because of the significant progress the U.S. has made in rules that encourage more and more robust retirement savings, particularly among middle and lower-income workers. However, nearly everyone agreed that the retirement savings rate needs yet more improvement, and said that SECURE 2.0 would contribute to that outcome.

Among the specific provisions highlighted by witnesses and committee members alike were the provisions in SECURE 2.0 that would create an automatic enrollment requirement for new 401(k) plans, and enhancement incentives so that most if not all long-term part-time employees can participate in employer-sponsored plans.

There was also considerable discussion about the role of state-sponsored retirement savings plans, especially the automatic IRA model. Witnesses were in agreement that the state-sponsored plans are better than nothing, but that traditional 401(k) plans—especially those with an automatic enrollment feature—are vastly superior. As one witness noted, participation rates among new hires went from 47 percent with voluntary enrollment to 93 percent in plans with automatic enrollment features.

Prospects: The House Ways & Means Committee unanimously approved H.R.2954 on May 5. The House Education and Labor Committee plans to mark it up (approve it for a vote by the full House) prior to Labor Day. A vote by the full House has not yet been scheduled. The Senate Finance Committee also expects to hold a hearing on generation-two retirement savings proposal, hopefully before Labor Day, although that timing may slip. But committee approval and a Senate vote are not expected until later this year, or—due to competing priorities—perhaps next year.

NAIFA Staff Contact: Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org


 

DOL Tells Financial Advisors to Expect Rulemaking on ESG, Fiduciary Rules

The Department of Labor’s (DOL’s) Employee Benefits Security Administration’s (EBSA’s) Acting Assistant Secretary told the ERISA Advisory Council on June 25 that in September EBSA will issue new rulemaking on environmental/social/corporate governance (ESG) retirement investing, and that the agency plans to revise its fiduciary rule by the end of the year.

Ali Khawar said EBSA is taking a fast-track approach to both rulemaking initiatives because of pressure from the White House. He said President Biden has directed the agency to revise both the ESG and fiduciary rules promulgated by the Trump Administration. On the ESG rule, Khawar said, “It’s a high priority for us that’s indicated in the aggressive date we have. We are very actively engaged in stakeholder outreach.” On the Trump-era fiduciary rule, which the Biden Administration has allowed to take effect this year, Khawar said that EBSA is eager to stop the “ping-ponging” between Democratic and Republican Administrations. He said he is eager to put the issue to rest for good.

Separately, the House on June 16 approved legislation that would require public companies to report environmental, social, and government metrics. Supporters of the bill—which passed on a very close 215-214 vote, said that shareholders could and would use that information to pressure corporations on such issues as climate change. The legislation faces tough headwinds in the Senate, though, where GOP and industry opposition will likely stall the measure. Thus, the EBSA regulatory initiative may prove most impactful on the issue.

Other issues on the EBSA rulemaking agenda include a regulation on lifetime income disclosure—that rule is required by statute by the end of September 2021, and cybersecurity issues relevant to the retirement savings system.

Prospects: The EBSA ESG rule is expected to focus on the treatment of ESG investments rather than on the general process of investment selection. On fiduciary, EBSA is looking to meet with operations and compliance company experts to understand the challenges presented by implementation of prohibited transaction exemption (PTE) 2020-02. EBSA personnel say they will consider delaying the scheduled expiration of DOL’s current non-enforcement policy beyond December 20, 2021, if industry provides specific, real-world examples and explanations of compliance and implementation struggles. There are also indications that the new proposed fiduciary rule will narrow the five-part test of what constitutes a fiduciary so that it is harder to evade, and modifications to a number of PTEs to make sure they create a level playing field. Khawar also said there will be no “best interest contract” in the new proposal and asked for input on how to treat the independent producer business model while still effectively protecting consumers.

NAIFA Staff Contact: Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org


 

Industry Pushes Back on Self-Directed Brokerage Window Regulations

Private-sector retirement plan service providers are weighing in with the ERISA Advisory Council on whether the Council should recommend more federal rules on self-directed brokerage windows. The ERISA Advisory Council began an investigation into self-directed brokerage windows this past April. The service providers generally do not believe more rules are needed. They say that standard industry practices on informing plan participants about risks to their savings in the open market are sufficient.

The ERISA Advisory Council is comprised of 15 industry representatives, appointed by the Department of Labor (DOL), to advise DOL about issues related to ERISA. The Council has no ability to write regulations or otherwise make rules, but can influence DOL regulation-writers and policymakers.

In connection with its investigation, the Council is gathering data and interviewing witnesses. The research grew out of concern at DOL’s Employee Benefits Security Administration (EBSA) about the increasing use of brokerage windows, which allow plan participants, if they choose this option, to buy and sell individual securities outside of the menu of choices provided by the plan. EBSA had issued a request for information (RFI) on the topic in 2014, but has indicated the agency did not get “robust feedback” from the RFI from retirement industry personnel.

Witnesses testifying before the Council on June 25 said they see no need for additional regulation. “Participants are subject to rigorous disclosure rules that are sufficient to enable participants to make informed decisions about both the initial choice to participate in brokerage windows and the investments in them,” said one witness from an international bundled independent recordkeeper.

Another concern raised by retirement plan professionals is whether a new regulation might reinstate a fiduciary requirement that they monitor brokerage window investments as they do for designated investment alternatives. No fiduciary has a system that enables them to monitor what participants in brokerage windows invest in, said one retirement specialist attorney in Washington, DC. It would mean a plan sponsor fiduciary could have to monitor practically the entire stock market. So, a fiduciary duty to monitor these independent investments would have to be done manually and would be prohibitively expensive, he said. It would effectively eliminate brokerage windows as a viable inside-the-plan investment option.

This concern was shared by a number of witnesses, including the ERISA Industry Committee (ERIC), a group that represents large plan sponsors. Plan Sponsor Council of America added that only about one percent of optional plan assets are invested in brokerage windows, although brokerage windows are offered by around 25 percent of plan sponsors so that they can offer their workers a broader range of investments without creating a too large, unwieldy investment menu.

Prospects: It is unclear whether EBSA will initiate a rulemaking process on brokerage windows, or even if the ERISA Advisory Council’s research will support such a move. NAIFA will monitor the situation and keep you informed.

NAIFA Staff Contact: Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org


 

NAIFA Comment Letter to FINRA Offers DEI Recommendations

The Financial Industry Regulatory Authority (FINRA) issued a request for comments as part of its efforts to support dialogue for greater diversity and inclusion within the financial industry. NAIFA submitted comments to Regulatory Notice 21-17 that highlighted our commitment to Diversity, Equity, and Inclusion (DEI) as part of the NAIFA 2025 strategic plan, the mission of our DEI Council, and the importance of cooperation among the industry to drive change.

NAIFA also offered FINRA more detailed recommendations on where regulators could adjust current policies and practices. These recommendations covered licensing exam availability, U5 filing time restrictions, public disclosures, background reporting, and marketing and communications material compliance.

NAIFA looks forward to continuing this important dialogue with FINRA as part of the industry’s collective work towards enacting policies that foster a more diverse, equitable, and inclusive financial services workplace.

NAIFA Staff Contact: Maeghan Gale – Policy Director – Government Relations, at mgale@naifa.org


 

NAIFA Trustee Havir Testifies Before NAIC Committee

NAIFA Trustee Win Havir, CPCU, CLF, LUTCF, FSS, AIC, LACP, a founding member of NAIFA’s Diversity, Equity, and Inclusion (DEI) Council, testified on behalf of NAIFA before the National Association of Insurance Commissioners (NAIC) Committee on Race and Insurance.

“NAIFA represents Main Street, and we are continually looking for ways to remove the barriers that stand in the way of access to financial literacy and the products and services that provide financial security, independence and freedom for all,” Havir told the committee. “NAIFA members do this every day and celebrate many diverse cultures and are represented in every congressional district.”

She reaffirmed NAIFA’s commitment to working with the NAIC and being a resource to remove barriers “and create greater access to our industry for both consumers and producers.”

In a previous comment letter to the NAIC, NAIFA outlined the work it has done and continues to do within the industry on DEI issues and pledged to work with the Committee on Race and Insurance on several of its specific charges, including to:

  • Continue research and analysis related to insurance access and affordability issues, including: the marketing, distribution, and access to life insurance products in minority communities, including the role that financial literacy plays.
  • Make referrals for the development of consumer education and outreach materials as appropriate.
  • Explore the availability of producer licensing exams in foreign languages, steps exam vendors have taken to mitigate cultural bias, and the number and locations of producers by company compared to demographics in the same area.
NAIFA Staff Contact: Maeghan Gale – Policy Director – Government Relations, at mgale@naifa.org

Three More States Enact Consumer-Protection Rules Based on the NAIC’s Annuity Transactions Model

Alabama, Maine, and Virginia have joined 12 other states in adopting consumer-protection regulations or legislation based on the National Association of Insurance Commissioners’ (NAIC’s) Suitability in Annuity Transactions Model. The NAIC model requires financial professionals to work in the best interests of their clients during annuities transactions and aligns with the federal Securities and Exchange Commission’s Regulation Best Interest. It also preserves the ability of consumers to work with agents and advisors offering a variety of successful business models and avoids restrictions that would likely make it impossible for financial professionals to work with Main Street investors and retirement savers.

NAIFA strongly encourages every state to adopt the NAIC model. Members and leaders in NAIFA state chapters, working with advocacy partners including the American Council of Life Insurers (ACLI), have been instrumental in promoting passage of the laws and regulations.

“We set a goal of having a dozen states pass laws or regulations based on the NAIC model during the first half of this year,” said NAIFA Senior Vice President for Government Relations Diane Boyle. “Six months in, we’re up to 15 states enhancing consumer protections without placing undue barriers between insurance and financial advisors and their clients. It’s a testament to the strength of NAIFA’s state advocacy, the hard work of our members, and our partnership with ACLI and other coalition members, as well as the good work done by the NAIC in creating the annuity transactions model. This remains a top advocacy priority for NAIFA state chapters, and we expect additional states to follow suit.”

For more information, read the article in ACLI’s Impact blog by Curt Leonard, ACLI’s Regional Vice President for State Relations, and Sallie Bryant, Chair of the NAIFA-AL Government Relations Committee. Also available are news releases by ACLI President and CEO Susan Neely and NAIFA-Maine President Terri Wright and Neely and NAIFA-VA President Susan Campbell.

NAIFA Staff Contacts: Maeghan Gale – Policy Director – Government Relations, at mgale@naifa.org; or Julie Harrison – State Chapter Director – Government Relations, at jharrison@naifa.org


 

NAIFA-LA Secures Financial Professional Exemption in State Independent Contractor Law

Louisiana Governor John Bel Edwards recently signed a NAIFA-supported misclassification of workers bill into law. The bill, SB 244, outlines a 12-point definition for “independent contractor” developed by the Louisiana Association of Business and Industry which classifies an independent contractor as anyone who can meet seven of the 12 points. According to the new law, independent contractors could include workers who can’t set their hours, are not allowed to work for other businesses, and are directly managed or supervised by the contracting party.

NAIFA-LA was diligent in ensuring that insurance producers and financial advisers would not inadvertently be unable to meet the seven-point requirements to be considered independent contractors. Though the bill sponsor assured NAIFA-LA that the legislation intended to exclude the financial industry, NAIFA-LA along with the American Council of Life Insurers, helped secure inclusion of language to explicitly exempt insurance producers and financial advisers.

The exemption in the bill states:

"Section 2. The provisions of this Act shall not apply to any person or organization licensed by the Louisiana Department of Insurance, any securities broker-dealer, or any investment adviser or its agents and representatives who are registered with the Securities and Exchange Commission or the Financial Industry Regulatory Authority or licensed by this state."

NAIFA members are professionals who generally operate their small businesses. An ongoing survey of members indicates that they oppose attempts to reclassify them as employees. Early results indicate:

  • Approximately 90% receive income reported on a 1099.
  • 94% do not want to be treated as an employee for union organizing.
  • 95% operating as an independent contractor want to remain so.
The top concerns of members should they be reclassified as employees include:
  • Loss of business deductions.
  • Loss of ability to set one’s own schedule.
  • Loss of renewal income if current clients were reassigned.
  • Nullification of existing agent contracts.
  • Diminished product offerings due to inability to offer products outside of a primary carrier.

“Insurance and financial advisors have a long history of successfully working as independent contractors with insurance carriers and financial firms to serve the financial services needs of consumers,” said NAIFA CEO Kevin Mayeux.

NAIFA Staff Contact: Julie Harrison – State Chapter Director – Government Relations, at jharrison@naifa.org


 

NAIFA Attends CMS/HHS Agent Listening Session for No Surprises Act

On May 26, the Centers for Medicare and Medicaid Services (“CMS”) held a listening session with agent/broker trade associations to discuss the new compensation disclosure and reporting requirements for the individual market. The No Surprises Act requires compensation disclosure to enrollees of individual market coverage. Specifically, under Section 202 of the CAA, health insurers offering individual health coverage or short-term limited duration insurance must disclose direct and indirect compensation provided by the insurer to an agent or broker associated with enrolling individuals in such coverage. CMS is currently undertaking the formal rulemaking procedure and must finalize the timing, form, and manner of disclosure by January 1, 2022. This listening session marks the first step in the rulemaking process.

NAIFA was represented by Government Relations Chair Hyatt Erstad of Idaho and Policy Director Maeghan Gale.

During the listening session, CMS inquired about:

  • The types of compensation that agents/brokers typically receive,
  • Specific challenges faced by the individual and short-term markets,
  • Differences between the individual and short-term markets (e.g., whether they have a similar commission structure),
  • Whether overrides are a complicating factor,
  • Whether existing disclosure requirements could be leveraged and/or whether there are any current state/federal/voluntary reporting requirements related to commissions,
  • How to calculate direct and indirect compensation (and the timing relative to the contractual period),
  • Whether agents/brokers will collaborate to meet the new requirements and whether insurers will try to pass on their disclosure obligations to agents/brokers, and
  • Once the reporting format is finalized, how long agents/brokers will need to comply.

As a general matter, participants stated that since the disclosure obligation for the individual market rests with the insurers, they do not necessarily expect much disruption for agents/brokers (though there is a risk that insurers will pass the disclosure burden on to the agents/brokers). Rather, they noted that their primary concern is with the second portion of Section 202, which requires the disclosure of direct and indirect compensation by brokers/consultants contracting with group health plans. This provision, however, falls within the jurisdiction of the Department of Labor (DOL), and, therefore, was not addressed by CMS. NAIFA continues to meet with DOL and will submit formal comments.

Finally, while many participants were hesitant to comment prior to seeing guidance from CMS, some expressed a need for safe harbors or other compliance leniencies, given the statute’s approaching effective date and current administrative burdens (e.g., the COBRA subsidy program).

NAIFA Staff Contact: Maeghan Gale – Policy Director – Government Relations, at mgale@naifa.org


 

 

Administrator Recognizes the Agent/Broker Community

In a video released by the Centers for Medicare & Medicaid Services (CMS), Administrator Chiquita Brooks-LaSure spoke about the importance of agents and brokers in serving uninsured and underinsured communities across the country.

The administrator praised agents and brokers for improving the lives of marketplace consumers across the country and stated that the work of agents and brokers is crucial for educating consumers and ensuring they can successfully enroll in quality health care coverage.

Open enrollment for plan year 2021 was the strongest year to date for agents and brokers enrollment in the marketplace coverage. Overall agents and brokers assisted over 55% of the more than 6.5 million consumers that made an active plan selection during the open enrollment period.

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