September 2022 Issue:
After August Recess Comes Government Funding, Politicking
After a July-early August featuring major bipartisan legislative achievements (along with a partisan reconciliation bill), Washington insiders are turning their attention to what comes next. In September, Congress will be focused on legislation to fund the government for fiscal year (FY) 2023, and on which party will control Congress in 2023-2024.
Congressional Democrats and Republicans have not agreed on a topline number for FY 2023 spending, and so of course that means there’s no agreement on agency-by-agency spending targets either. Both the House and Senate have made some partisan progress towards FY 2023 appropriations legislation, but without a bipartisan agreement, there is almost no chance any of these early proposals will be anything more than a starting point for negotiations.
Overshadowing the appropriations process will be intense lawmaker (and private sector) interest in the November mid-term elections. So, every legislative initiative will be viewed through the prism of its potential impact on election outcomes. Accordingly, most Washington insiders (both on and off the Hill) expect that Congress will do no more in September than extend current year funding/policy until late in the year (probably December 16), or perhaps even into 2023. This will be done via a “continuing resolution” (CR).
However, there is currently a boiling controversy over what (if any) additional items can be added to the CR. These include, potentially, a tax package (focused on extending expiring/expired tax rules), permitting (of construction projects) reform, same-sex marriage, “emergency” funding (for Ukraine, COVID/monkeypox response, disaster relief, etc.), and others. Whether any of these hot-button issues will win enough support to get into the September CR is not only “the question of the day,” but also raises the risk that negotiations will fail. If negotiations do fail, a partial government shutdown—just weeks before the mid-term November elections—would be the result. That’s something no one in Congress wants.
Politically, things Congressional are very fluid. History suggests that Republicans will gain seats in these elections (almost always, the party holding the presidency loses Congressional seats in the following mid-term elections). But there are factors in play this year that are unprecedented. Although President Biden’s approval ratings are low (44 percent), they are climbing. Inflation is high but is dropping. Recent polling suggests that voters are less concerned about inflation than they were just a few weeks ago.
Plus, this Congress has enacted several major new laws—all but two of which (the American Rescue Act last year, and the Inflation Reduction Act last month) were bipartisan. There’s the ongoing controversy over President Biden’s student loan relief plan. And perhaps the biggest wild card of all is the Supreme Court’s decision (in Dobbs v Jackson Women’s Health Organization) to overturn Roe v Wade. The decision inflamed voters on both sides of the abortion issue. Pundits are currently forecasting a much higher-than-usual voter turnout in November. This is true for voters on both sides of these issues.
Right now, pundits put the GOP’s chances of wresting control from the Democrats at 50-50 in the Senate, and while they say they still expect the House to flip, they add that the Democrats could keep control of the lower chamber if the current trends continue. The politics of the mid-terms seem to be changing on a nearly daily basis, and so far, the trend has favored Democrats.
The voters’ decision about which party controls Congress as of January will have a huge impact on the legislative agenda in 2023—and a lot of influence on the lame duck November-December session of this Congress, too. So, all Capitol Hill eyes are on the campaigns, polls, and political trends over the next two months.
Prospects: Even though things will still be fluid through September, it is likely we will have a better feel for what is capturing voter interest/energy around the country by the time you get the October issue of GovTalk. We will bring you the latest political news then.
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.
Senate Finance Committee Leaders Introduce EARN Act
On September 8, Senate Finance Committee Chairman Sen. Ron Wyden (D-OR) and ranking member Sen. Mike Crapo (R-ID) formally introduced the EARN Act, the tax-focused piece of the SECURE 2.0 retirement savings bill. The EARN Act is now in the process of being melded with the House-passed Securing a Strong Retirement Act and the Senate Health, Education, Labor, and Pensions (HELP) Committee’s ERISA-focused RISE and SHINE Act.
The melded product—generally referred to SECURE 2.0, although the name may well change as the package comes together—will contain scores of provisions aimed at further incentivizing employers to offer retirement savings plans to their workers, and workers to save more for their retirement.
Generally, the EARN Act contains:
- A new alternative method for meeting discrimination rule requirements for auto-enrollment retirement savings plans. Generally, the new alternative safe harbor discrimination test would allow for a small employer to establish a plan that would qualify for a tax credit (equal to non-highly-compensated employee deferrals of up to two percent of compensation for the first five years) if there are default contributions of at least six percent in the first year of the plan (going up by one percent per year for five years) and employer matching contributions of 100 percent of the first two percent of deferred compensation, 50 percent of the next four percent of deferred contributions, and 20 percent of next four percent of contributions. The rule would take effect in 2024. There are similar provisions in the other pieces of SECURE 2.0 legislation.
- A starter 401(k) plan that would allow for a new plan that uses an auto-enrollment plan design that requires a deferral rate of three to 15 percent of compensation. This provision would take effect in 2024.
- As of 2023, long-time part-time employees (those who work at least 500 hours/year) would be eligible to participate in an employer plan after two (down from current law’s three) years of service. A similar provision is also in the House-passed bill.
- Catch-up contribution rules would change—for example, as of 2023, catch-up contributions would have to be under Roth (after-tax contribution/tax-free distribution) rules. The EARN Act would also index the $1,000 IRA catch-up contribution, starting the year after enactment. It would also allow for more catch-up contributions (also under Roth rules) for those aged 60 to 63, effective in 2024.
- Expansion of the small employer retirement plan startup cost tax credit to 75 percent (up from 50 percent) for employers with 25 or fewer employees, as of 2024. The EARN Act would also allow this credit for employers who join a multiple employer plan.
- Authority for an employer to automatically transfer a terminated employee’s retirement account balances to the new employer’s retirement savings plan.
- Authority to allow for use of retirement plan money to pay for up to $2,500 in long-term care insurance (LTCi) premiums—subject to certain rules aimed at assuring that the LTCi is “high quality.” The money would be a taxable withdrawal, but would not be subject to the early withdrawal penalty tax. Treasury would maintain a website to provide consumer education about the kind of LTCi that would qualify for this tax-favored use of retirement account money to pay for the insurance. This provision would take effect three years after the date of enactment.
- Expansion of pooled employer plan (PEP) rules to allow 403(b) plans to participate in a multiple employer plan.
- A direction to the Treasury Department to modify its exchange traded fund (ETF) regulations to allow ETFs to be held in the segregated account of a variable life insurance contract. This provision would generally be effective in seven years.
- A change in the age at which a person is obligated to take required minimum distributions (RMDs)—the age would go to 75 (from 72), effective as of 2032. The House bill also phases in an increase in the RMD age to 75.
- Modification of qualifying longevity annuity contract (QLAC) rules to eliminate current law’s 25 percent of account balance threshold, allow up to $200,000 (indexed)—an increase from current law’s $135,000—of the account to go to a QLAC, and clarify that survivor benefits may be paid in the case of a divorce. This provision would take effect as soon as the legislation is enacted into law.
- Modification of current RMD rules that prevent plans from holding annuities that guarantee an increase in annuity payments of up to five percent/year and lump sum payments that reduce the annuity payment period. The EARN Act also eliminates the current law penalty that results from having to pay RMDs separately from the portion of the retirement savings account that holds the annuity and from the rest of the account. The modification would allow the account owner to determine RMD obligations from both portions of the account. The Act also reduces the penalty for failure to take RMDs from 50 percent to 25 percent (ten percent if errors are properly and timely corrected). These RMD modifications would be effective as of the date of enactment.
- Indexing of the annual IRA charitable distribution limit of $100,000, as of 2024, plus authority for a one-time $50,000 distribution to charities through charitable gift annuities, charitable remainder unitrusts, and charitable remainder annuity trusts, as of the date of enactment.
The EARN Act is revenue neutral. Its principal offset is to either require (in the case of catch-up contributions for those earning more than $100,000) Roth treatment of retirement plan catch-up contributions, or to permit Roth treatment (e.g., for catch-up contributions made by those earning less than $100,000, or for elective deferrals, or for SIMPLE and SEP Roth IRAs).
There are many more EARN Act provisions—a Finance Committee-prepared summary (the “section-by-section”) can be found here.
Prospects: There is wide bipartisan, bicameral support for a retirement savings package, but whether it can be enacted this year will depend on other political factors. As of now, the expectation is that the bipartisan, bicameral SECURE 2.0 package will be added to the year-end government funding bill that Congress intends to put together by mid-December. However, if the lame duck 117th Congress (those serving now, not those newly elected in November) fails to reach an agreement on government funding before year-end, chances for the enactment of SECURE 2.0 (by whatever name it ultimately gets) go down. Whether the new 118th Congress will enact it, if that happens, is something that can’t be predicted until we know the make-up (post-November elections) of the new Congress.
NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.
NAIFA Working to Mitigate CMS Medicare Advantage/Prescription Drug Marketing Rules
NAIFA is in discussion with, and has written to, the Centers for Medicare and Medicaid Services (CMS) about a new rule that would require health insurance agents to record all Medicare Advantage or prescription drug-related calls with prospects and clients. The requirements are part of a new CMS rule finalized this past May.
NAIFA is seeking an exemption from the rule for agents working with existing clients. In addition, NAIFA is working with a coalition of trade associations and other interested parties to allow for a delay of six to 12 months before implementing the final rule.
By way of background, 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 troublesome 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 contracts between TMPO and Plan, or TPMP and Plan’s FDR must ensure that the TPMO:
- Disclose to the MA organization any subcontracted relationships used for marketing, lead generation, and enrollment.
- Record all calls with beneficiaries in their entirety, including the enrollment process.
- Report to plans monthly any staff disciplinary actions or violations of any requirements that apply to MA plan associated with beneficiary interaction to the plan.
Further, when conducting lead-generation activities (directly or indirectly) for an MA organization, TMPOs must disclose to a beneficiary that their information will be provided to the licensed agent for future contact and that the agent can enroll them into the new plan. This disclosure must be provided as follows:
- Verbally when communicating with a beneficiary through telephone.
- In writing when communicating with a beneficiary through mail or other paper.
- Electronically when communicating with a beneficiary through email, online chat, or another 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.
In addition, the CMS rule codifies previous technical guidance included in the Managed Care Marketing Guidelines. This technical guidance includes:
- Technical standards for issuing ID cards, disclaimers regarding pharmacy access, and preferred cost-sharing policy.
- Requirements for specific website content.
NAIFA has received a great deal of input on this rule, including multiple 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.
NAIFA believes that 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.
Further, on August 11, NAIFA joined with joint trades partners to send 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.
Private Placement Life Insurance in Finance Committee Chairman’s Crosshairs
Senate Finance Committee Chairman Sen. Ron Wyden (D-OR) has opened an inquiry into the use of private placement life insurance as a way to avoid taxes. The inquiry began with a letter Sen. Wyden wrote to Blackstone Inc’s Lombard International. The letter included a request for information from the company.
“I am concerned that these insurance vehicles are being used without a genuine insurance purpose to invest in hedge funds and other investments while avoiding billions of dollars in federal taxes,” Sen. Wyden wrote in his August 15 letter. Lombard had $67.4 billion in assets under management as of the end of last year.
Sen. Wyden requested answers to his questions by the end of August. His questions include a request for information on the current level of its assets under administration in private placement life insurance, whether those assets are marketed as a way to avoid taxes, and whether Lombard’s parent company, Blackstone, refers possible clients to Lombard. Lombard released a public statement saying that the company fully complies “with all applicable legal, regulatory and fiscal requirements in the jurisdictions where they conduct business.”
Sen. Wyden says that his inquiry is not limited to Lombard and that he will be contacting more financial firms in the near future.
Private placement life insurance is a relatively complex product that is generally available only to the very wealthy. The typical private placement life insurance policy—which is subject to strict diversification rules and rules regarding qualification as life insurance—generally requires a minimum investment of at least $2 million, and often potential investors are advised to put $5 million or more into a private placement life policy. The policy can hold hedge funds and other investment products that will not be taxed currently (assuming the policy complies with all the rules that apply to private placement life) so long as those investments remain inside the policy. Private placement life insurance rules also include a requirement that owners of such policies have no day-to-day control over their policies’ investment decisions.
“By definition, these policies are only available to the wealthiest one percent of Americans and offer a myriad of tax advantages not available to most working Americans,” said Sen. Wyden.
Prospects: This inquiry into the use of private placement life insurance, and the marketing surrounding it, could result in adverse tax proposals if and when Congress returns to its “tax-the-rich” initiatives. As chairman of the Finance Committee, Sen. Wyden is in a position to promote changes that could significantly undermine the use of this product as a way to reduce investment taxes. Further, discussion (and potentially defense) of the product would be challenging because private placement life insurance is such a complex product, subject to complicated and extensive rules, and generally used only by very wealthy individuals.
NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.
Federal Paid Leave Could Get Congressional Attention
There are significant signs that both Republicans and Democrats in both the House and the Senate want to “do something” on federal paid leave. So far, there’s little in the way of agreement on just what to do, but there is growing pressure to find a federal solution to an ever-increasing patchwork. of state and local paid leave laws.
Most Congressional Democrats support a federal paid leave program that would require private sector employers to provide paid leave—at levels ranging from six weeks/year to 12 weeks/year—to their full-time workers. Proposed funding for such a program range from payroll tax payments by both employers and employees to general revenue government funding. Republicans are also interested in creating a federal paid leave program, but generally, they favor incentives rather than mandates, and funding that focuses on borrowing benefits from Social Security entitlements, or voluntary payments into a paid leave program.
Proponents of a federal paid leave program point out that the U.S. is the only developed nation in the world without federally guaranteed paid leave, and point to the 16 states that already have paid leave programs in effect, and the two more that have newly enacted paid leave laws that will soon go into effect.
Prospects: There is growing consensus that the federal government should address the paid leave issue. It is particularly important to big companies with employees in multiple states, requiring them to grapple with state and local laws that differ markedly (and thus impact a company’s employees differently, depending on where they live). The issue could potentially impact both employer-provided and individually purchased disability insurance., So far, consensus on how to provide a federal paid leave program has proved elusive, but depending on the strength of the majority of the party in power, it could come together in 2023-2024. We will be watching closely.
NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.
New ACA Thresholds to Avoid Employer Fines for Failure to Provide Affordable Health Insurance
Newly released is information for 2023 on the level of permissible worker contributions to the cost of their health insurance. The Affordable Care Act (ACA) imposes “shared employer responsibility payments” on employers who require greater than the allowable employee contributions, or who fail to offer affordable qualified health insurance.
The ACA requires employers with 50 or more employees (based on full-time equivalents) to offer affordable (and qualified—i.e., subject to minimum essential benefit rules) health insurance coverage to their full-time employees. Failure to do so triggers employer shared responsibility payments.
For 2023, coverage will be affordable (and therefore, the employer not subject to shared responsibility payments to the government) if the employee’s required contribution for self-only coverage on the employer’s lowest-cost, minimum value plan does not exceed 9.12 percent of the employee’s household income.
The law provides employers with the option of using safe harbors based on an employee’s W-2, rate of pay, or federal poverty level to comply with the ACA’s affordability requirements. In addition, employer shared responsibility payments are triggered only when an employee qualifies for premium tax credits for purchasing health insurance on an ACA exchange.
Employer shared responsibility payments are still only projected, but look to be $2,880 per employee for not offering coverage to 95 percent (on all but five) full-time employees, and $4,320 for offering coverage that is not affordable or does not comply with minimum essential benefits rules.
Prospects: The government is enforcing the ACA’s employer shared responsibility payment rules, although currently, enforcement efforts are focused on prior years (2019 and 2020). That enforcement is expected to continue for 2021, 2022, and into the future.
NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at mhedge@naifa.org.
NAIFA Supports Effort to Restrain DOL Access to PII
NAIFA has signed onto an industry letter asking the Department of Labor (DOL) to limit its demands for personally identifiable information (PPI). The letter points out that DOL has over-used its subpoena power over service providers to obtain, without their consent, plan participants’ confidential and personally identifiable information (PII).
The letter emphasizes that the industry supports DOL’s effort to protect retirement plan participants from bad actors’ actions. However, DOL’s right to request relevant information should not create unnecessary risks. Unfettered demands for such information as plan participants’ names, home addresses, phone numbers, email addresses, social security numbers, banking information, asset information, investment information, beneficiary information, and contribution levels create “substantial risk regarding participant data security,” the letter states.
The letter points out that DOL’s claim that “confidential information will help DOL identify any harm to specific participants, assess harms, and identify witnesses to potential breaches or violations” raises questions about whether PPI is needed “to determine whether a breach has occurred.” Instead, the letter says, redacted information would give DOL the information it needs “and, if necessary, the relevant confidential information could be released upon finding a breach.” The letter goes on to note that government systems have been breached, and that safeguarding plan participants’ PPI is “exceptionally important.”
The letter concludes by asking DOL to consider three particular factors when seeking PPI. These factors are recognition of security risks and the need to safeguard data, a commitment to demanding only necessary data, and the need to report data breaches (including notifying the public of them).
Prospects: NAIFA will continue to support industry coalition efforts to safeguard retirement plan participants’ personally identifiable information.
NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.
DOL Extends Comment Period on QPAM Rules
The Department of Labor’s (DOL’s) Employee Benefits Security Administration (EBSA) announced on September 6 that it would extend the comment period on its recently released Qualified Professional Asset Manager (QPAM) rules. The extension will give interested parties until November 17 to submit their comments. Prior to the extension, comments were due by late September.
EBSA will also host a public hearing on the QPAM proposal. That hearing is scheduled for November 17.
The QPAM rules (class exemption 84-14) delineate a QPAM’s obligations if it/he/she is to qualify for the exemption from ERISA’s conflict-of-interest rules. Details on the QPAM proposed rule are in the August 15 issue of GovTalk.
Prospects: The newly proposed QPAM rules have triggered considerable interest among retirement planning financial institutions. The extension of time to comment on the rules has been welcomed by the community.
NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.
Court Ruling Raises Doubt about Health Plans that Do Not Comply with ACA, State Rules
On August 17, the federal Fifth Circuit Court of Appeals returned to the trial court a case (Data Marketing. Partnership v United States Department of Labor) involving the question of whether a company can use ERISA to create a health plan that is not compliant with the Affordable Care Act’s (ACA’s) minimum essential benefits rules or with state rules if the plan allows individuals to join the plan if they agree to have their internet activity tracked.
The arrangement in question involves making plan participants “limited partners” of an entity (Data Marketing Partnership) and thus eligible to join the company’s employee health plan (run by a different company, L.P. Management Services). Plan participants become “limited partners” by allowing their internet usage to be tracked for more than 500 hours/year. The companies then sell the data tracked to third-party marketing firms.
The district court had ruled that the health insurance plans, with their “working owners,” must be deemed to be single employer health plans governed by ERISA. The Department of Labor (DOL), in an advisory opinion, argued that these “limited partners” are not actually “employees” or “bona fide partners” and challenged the plans.
The Fifth Circuit said that DOL’s advisory opinion is “arbitrary and capricious” but noted that the district court had not considered all the relevant facts and circumstances when it issued its opinion. The Fifth Circuit returned the case to the district court with instructions to look at these additional factors.
If a plan is a large ERISA plan, it is not subject to state insurance rules. Further, it need not comply with the ACA’s minimum essential benefits rules.
Prospects: It is impossible to predict how a court will rule, but it is likely that such factors as the degree to which the plan can pick and choose participants based on health history, solvency, reliability, and stop-loss insurance will be considered.
NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at mhedge@naifa.org.
NAIFA Attends NAIC and NCOIL Summer Meetings
During the NAIC and NCOIL Summer meetings, NAIFA met with various legislators and regulators to discuss matters of importance to our members. Our goal is to educate and influence state legislators and regulators about NAIFA and the vital work our members do to ensure consumers have access to products that will help them manage their financial investment portfolios and future retirement.
On the legislative front, we continued our participation and support of the NCOIL Corporate Industry Partnership Program (CIP). In addition, the CIP provides NAIFA an opportunity to sponsor NCOIL legislator participation, as well as educate lawmakers on emerging policy issues. But, more importantly, our membership fosters strong relationships with NCOIL legislators, including current President, California Assemblyman Ken Cooley, and other members of the Executive Committee.
At the NAIC, we are pleased to report that NAIFA agents and brokers have been well represented by NAIC President and Idaho Director Dean Cameron. Director Cameron shared with insurance legislators the essential work agents and brokers play in the insurance industry ecosystem. And he cautioned that excessive and burdensome regulation on commissions and compliance would only result in less consumer access.
Producer Licensing
NAIFA continues to prioritize our focus on implementing the NARAB board. In addition, to our extensive federal efforts, we will continue collaborating with the NAIC to identify Commissioner nominees for submission to the White House. Meanwhile, the NAIC Producer Licensing Task Force adopted the "Guidelines for Amending the NAIC Uniform Applications." These guidelines will be used to review and adopt substantive changes to the NAIC's Uniform Licensing Applications in support of the NAIC and National Insurance Producer Registry (NIPR) mission of maintaining stable and consistent NAIC Uniform Applications for producer licensing.
In addition, the National Insurance Producer Registry has embarked on new technology investment in NIPR systems that will significantly enhance agent licensing compliance for our members. For example, NIPR will roll out a new account-based system over the next two years, informing license holders and administrators of licensing due dates, upcoming compliance requirements, and a history of past actions. These new features are expected to save agents and brokers significant time and money on compliance matters.
NCOIL adopted a Resolution Regarding Recruitment, Retention, and Diversity within the Life Insurance Agent Profession. The Resolution encourages mentorship programs for life agents, expanding the life insurance and financial planning market in unserved communities, addressing prelicensing education requirements, and online licensure examinations. In addition, it encourages policymakers to examine the current licensing requirements to ensure there aren't any statutory impediments that inhibit the ability to recruit and retain a diverse and qualified group of financial professionals. Finally, supporters said it is vital that the NAIC also work on these issues from the regulatory perspective. If NCOIL and NAIC can work together on this, with NCOIL handling statutory issues and NAIC handling regulatory matters, this will be a win.
NAIFA Policy Director Maeghan Gale testified on behalf of NAIFA before the Committee supporting the Resolution. She provided an overview of how these measures would benefit NAIFA members. Specifically, she highlighted the importance of bolstering the agent workforce through commonsense licensing and education requirements rather than requiring outdated practices that impede young people from considering a career in life insurance and financial planning.
Life Insurance and Annuities
The NAIC Life Insurance and Annuities Task Force heard an update from the Accelerated Underwriting Working Group that they are collaborating with the other NAIC groups on developing regulatory guidance for state insurance regulators. They plan to meet in October to continue discussions. In addition, the Annuity Suitability Working Group continues to work on their frequently asked questions on the provisions of safe harbor/comparable standards in the revised Suitability and Annuity Transactions Model Regulation #275.
In particular, the Task Force is considering asking the Life Actuarial Committee to consider limited, targeted revisions to the Life Insurance Illustrations Model Regulation (#582) to address continual changes to the indexed universal life illustration actuarial guideline addressing product features causing aggressive illustrations. The Task Force also discussed and agreed to have the Life Insurance Online Guide (A) Working Group focus on updating life insurance information on the NAIC website.
Furthermore, they received an update from Workstream Four of the Special (EX) Committee on Race and Insurance. The Workstream plans to schedule future presentations about marketing and distribution in underserved communities from the agent's perspective. In addition, NAIFA will present before the Race and Insurance Committee during the NAIC Insurance Summit later this month.
Finally, NCOIL adopted a Resolution in Support of the Position Statement Recognizing Congressional Consent to the Interstate Insurance Product Regulation Compact. The position statement formally recognizes the applicability and implications of congressional consent to the Compact and, thus, the validity of Compact standards even when they conflict with state law. Congressional consent confers the status of federal law upon the Compact, with the result that its Uniform Standards prevail over conflicting state law.
Transparency in Underwriting
NCOIL continued their discussions on the NCOIL Insurance Underwriting Transparency Model Act, which has been under development since last year. The author, Representative Matt Lehman (IN), had hoped for more industry input because agents need more information on the reasons for rate increases. There are several outstanding issues, but he hopes to get a model adopted before the states and regulators begin issuing bans. APCIA and NAMIC said the draft is too broad and would expose propriety information. Rep. Lehman said the Model is relatively straightforward, such as the triggers to disclose an increase and sharing the factors.
Long-Term Care
The Long-Term Care Task Force learned the long-term care insurance multi-state rate review instructions and contact would be available this month. In addition, the program has several state insurance department regulator volunteers who have discussed analyzing reserves and risks. Future meetings will be scheduled. They also Received an update on industry trends that could impact the solvency of long-term care insurance (LTCI) companies and reserves. The Task Force will continue to monitor the impacts of cost-of-care inflation and other factors.
Finally, the Task Force heard a presentation on an NAIC Center for Insurance Policy and Research (CIPR) project on LTCI reduced benefit options (RBO). The project involved collecting feedback from financial planners on consumers' experiences with notices of rate increases and RBOs. The Task Force encourages states to utilize the adopted guidance and checklists in their RBO and consumer notice reviews. The Task Force discussed additional related research that the CIPR may consider in the future.
Paid Family Medical Leave Insurance
NCOIL continued its work on a Paid Family Medical Leave Model Act authored by Sen. Paul Utke (MN) and co-sponsored by Rep. Deborah Ferguson (AR). Rep. Ferguson stated that this Model establishes paid family leave as a class of insurance and would authorize state insurance departments to receive and approve paid family leave policies. In addition, it allows insurers licensed to transact life insurance or disability insurance business in the state to issue policies covering paid family leave. She said this Model would empower employers to give paid family leave to their employees. Rep. Ferguson reminded everyone the Model doesn't mandate that a state have paid family leave. It's just a private-public partnership avenue to do that.
Enhanced Cash Surrender Value Endorsements
NCOIL adopted a Resolution Identifying Certain Enhanced Cash Surrender Value Endorsements As Violating The Standard Nonforfeiture Law. The Resolution identifies certain enhanced cash surrender value endorsements as violating the Standard Nonforfeiture Law. The Resolution's prime sponsor, Sen. Travis Holdman (IN), who was not in attendance, but the Resolution's co-sponsor, Rep. Tom Oliverson, M.D. (TX), and NCOIL Treasurer, stated that this was an issue that Sen. Holdman brought to his attention. After listening to the conversation around it, he became very interested. Nat Shapo spoke on behalf of the Life Insurance Settlements Association (LISA) to say that enhanced cash surrender value issues are a violation of statutory law as well as a deviation from what they believe states have adopted as the standard nonforfeiture law. He also noted a provision of the Resolution says there are two similar types of products, but only one of which is the target of this Resolution. They are targeting a product designed to support the persistence of corporate-owned policies due to the tax benefits of treating this surrender of value as an asset. Accordingly, that's why the Resolution's title includes words such as "certain types" and is not calling for a blanket prohibition enhanced cash value surrenders with this Resolution.
Race and DE&I in Insurance
NAIC efforts surrounding DE&I continue progressing with several initiatives, including developing action steps for insurers and regulators. Regulators are still working on how they can evaluate the disparate impact and algorithmic bias and are looking to learn more about marketing, underwriting, and claims payments. In addition, there is a specific interest in access to life insurance for minorities. The NAIC has invited agent trades to present their efforts to improve access for these populations.
Much focus has been dedicated to health insurance access and the availability of culturally competent providers, as well as non-discriminatory benefit design. Patient advocacy groups have argued there is a lack of coverage or providers for certain conditions which are more common in minority populations. They have indicated that barriers to care, such as step therapy, prior authorization, and restrictions on drug coupons, are especially harmful to this population. The health workstream will offer state regulators guidance on improving health equity by actively reviewing a state's essential health benefits plan, including plan formularies and network adequacy.
Private Equity in Insurance
NCOIL Legislators heard a primer on private equity (PE) from Jeff Hooke, who argued there are two pathways for PE to expand into the insurance market. The first is to take over an insurer, where PE buys an insurer as an equity investment, holds it for five to six years, and then sells it. The second method is a PE fund that manages an insurance company's assets for a fee. The main concerns with PE involvement include the short time horizon, mercenary mindset, fee drain, and their ability to keep information secret from auditors and regulators.
On the flip side, NAIC Commissioners said they are evaluating the emergency of PE in insurance but are not sure if any action is appropriate. But, they also said it's not a "hair on fire" situation as regulators have been looking at PE investments since 2013. They also noted that PE investment has helped to get more capital in the sector, which could help support solvency in life insurance and other lines. Meanwhile, Commissioners are discussing financial regulatory requirements related to PE and adopted 13 considerations frequently attributed to but not exclusive to PE.
International Insurance Issues
NAIC Commissioners Gary Anderson (MA) and Dean Cameron (ID) updated legislators on the latest efforts regarding global capital standards. In 2013, the Financial Stability Board (FSB) charged the International Association of Insurance Supervisors (IAIS) with creating a global capital standard. The US has its own group capital calculation (GCC), which has been far better for the U.S. than other global capital standards. The IAIS continues to work with the NAIC and is developing a comparability assessment to inform their future work towards a global standard.
Furthermore, the NAIC adopted revisions to the Insurance Holding Company System Regulatory Act (#440) and Insurance Holding Company System Model Regulation with Reporting Forms and Instructions (#450). These revisions implemented the Group Capital Calculation (GCC) filing requirements for insurance groups as a starting point but provided methods by which the lead state could exempt groups. The revisions specifically exempted groups headquartered outside the U.S. if their groupwide supervisor "recognizes and accepts" the GCC for U.S. groups doing business in that jurisdiction. The NAIC list of jurisdictions recognizing and accepting the Group Capital Calculation was adopted without discussion or objection.
NAIFA Staff Contact: Maeghan Gale – Policy Director – Government Relations, at mgale@naifa.org.
