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May 2020 Issue:

House Democrats Introduce HEROES Act, Latest Coronavirus Response Bill

On May 12, House of Representatives Democrats introduced a partisan coronavirus response bill, H.R.6800, the HEROES (Health and Economic Recovery Omnibus Emergency Solutions) Act. The $3 trillion bill is offered as the Democrats’ starting position for bipartisan negotiations, which they hope will begin soon. Republicans immediately rejected the measure, calling it a “fairy tale” and a “Democratic leftist wish list.” It is likely the full House will debate it—and probably pass it on a party-line vote.

The mammoth bill would provide help for individuals and small businesses, as well as new funding for States’ and local governments’ coronavirus responses, the Post Office, broadband access, remote voting for federal elections, housing, and education assistance, and much more. Many of its provisions directly impact NAIFA interests. Below is a summary.

Health provisions: NAIFA supported most of the health provisions in the HEROES Act. Among the many health-related provisions in H.R.6800 are:

  • Rules that require coverage of COVID-19 treatment without cost-sharing (co-pays, deductibles, etc.) applicable to individual and group health insurance plans, government health plans (e.g., Medicare, Medicaid, Veterans Administration, etc.), and health care providers
  • A new two-month open enrollment period for health insurance purchased through an Affordable Care Act (ACA) exchange
  • Full premium subsidies for nine months for COBRA health insurance continuation coverage, applicable to individuals who have been laid off, furloughed and/or who have had their working hours reduced
  • Allows for a $2,750 carryover in unused cafeteria plans/flexible spending arrangement (FSA) funds from 2020 to 2021; permits a one-time election in 2020 to a health FSA; extends the cafeteria plan/FSA grace period to 12 months after the end of the 2020 plan year; and allows 
  • terminated employees to continue to get reimbursements from their unused contributions for the remainder of the plan year—the bill also allows plans to make retroactive amendments to allow for these new rules 

Retirement Savings: There are only a handful of retirement savings provisions in the bill. They include:

  • A waiver of required minimum distribution (RMD) rules for 2019 (the CARES Act, enacted into law last March, waived RMDs only for 2020)
  • Clarifications that CARES Act retirement savings relief provisions apply to money purchase plans, and clarification of self-certification requirements for coronavirus-related early withdrawals and/or hardship loans
  • Waiver of the 60-day rollover rules for rollovers made by November 30, 2020
  • Multiemployer (labor union) plan relief rules along with creation of a new type of composite plan for unions

Life Insurance Tax: H.R.6800 makes one of the two changes to life insurance tax rules sought by the industry and supported by NAIFA. They are: 

  • The definition of life insurance (Internal Revenue Code (IRC) section 7702) would change to allow a market-based interest rate to calculate whether a life insurance policy meets the cash value accumulation or guideline premium test that determines whether a policy is appropriately limited in terms of its investment-orientation as compared to the death benefit it provides
  • Excluded from the package is the sought-for provision that would have recharacterized bonds held by life insurers as ordinary rather than as capital assets

Small Business Assistance: The bill provides considerable new help to businesses, especially smaller one. Most of the changes are to the CARES Act’s Paycheck Protection Program (PPP). The bill:

  • Extends the PPP from its current June 30 expiration date to December 31, 2020
  • Eliminates the regulatory “75/25 rule” that requires PPP loan recipients to use at least 75 percent of the loan proceeds on payroll costs
  • Extends the period for which PPP loans can cover authorized expenses (payroll, mortgage/rent, utilities, pre-existing debt service) from eight weeks to 24 weeks
  • Allows businesses that take PPP loans to also use the employee retention tax credit (ERTC) and to qualify for the payroll tax deferral rules
  • Reverses Treasury’s April 30 guidance that denied an ordinary business expense deduction for expenses paid with forgivable PPP loan money—so, under this rule, such expenses would remain deductible
  • Includes specific clarification that forgiven PPP loan amounts are not taxable income to recipients
  • Expands PPP eligibility to include non-profit organizations (including 501(c)(6) trade associations like NAIFA and its chapters)
  • Allocates chunks of PPP funding for super-small (10 or fewer employees) businesses and to non-profit organizations
  • Provides a safe harbor for businesses that returned PPP loan money prior to May 7
  • Adds an additional $10 billion in funding for Economic Injury Disaster Loans (EIDLs); clarifies that EIDL grants are not taxable to their recipients
  • Expands the Employee Retention Tax Credit (ERTC) – the expansion increases the tax credit from 50 percent to 80 percent; changes the significant decline in revenue qualification test from a 50 percent decline in gross receipts to a decline of between 10 percent and 50 percent as compared to the same quarter last year; increases the wages taken into account in calculating the credit from $10,000/year/employee to $15,000/quarter/employee up to a maximum of $45,000. The ERTC provisions also include a change in the definition of larger employers to those with 1,500 full-time employees and gross receipts of $41.5 million in 2019. Also, in the ERTC package is a provision that clarifies that employer-paid health insurance costs for furloughed employees can be used to claim the ERTC even if wages are not being paid to those employees
  • Creates a new refundable payroll tax credit for 50 percent of qualified fixed costs for employers closed due to COVID-19 or who suffer a decline in gross receipts of at least 20 percent as compared to the same calendar quarter from last year—qualified fixed costs include mortgage/rent and utilities—eligible expenses are limited to 25 percent of qualified wages or 6.25 percent of gross receipts, up to a cap of $50,000. Employers with no more than 1,500 full-time equivalent employees or no more than $41.5 million in gross receipts in 2019 are eligible for the credit
  • Provides a refundable self-employed business interruption individual income tax credit for individuals earning $60,000 or less—the 90 percent tax credit is for self-employed individuals who have experienced a significant loss of income. The credit can be claimed for lost income that exceeds a 10 percent reduction from 2019 to 2020, scaled using the ratio of net earnings from self-employment to gross income from self-employment in 2019. The amount of self-employment income taken into account cannot exceed the taxpayer’s adjusted gross income from 2019 to 2020 and is capped at $45,000.
  • Makes non-profit organizations eligible for the Federal Reserves’ Main Street Lending program 

Paid Leave: H.R.6800 expands the Family First Coronavirus Response Act’s (FFCRA’s) paid leave rules, as follows:

  • Extends the rules for an additional year, through the end of 2021
  • Imposes the rules on large employers, but does not provide for a refundable payroll tax credit for large employers—i.e., the federal government does not pay for these new required paid leave benefits for large employers
  • Increases the Family and Medical Leave Act (FMLA) paid benefit from up to $200/day to up to $511/day for leave taken due to coronavirus-related closure of children’s schools or daycare; makes coronavirus-related paid FMLA leave available to all workers by suspending the FMLA’s 1,250-hour eligibility requirement; and reduces the time a worker must wait to become eligible for FMLA leave from 12 months to 90 days, until December 31, 2022.
  • Increases the refundable payroll tax credit (the mechanism by which the federal government is paying for these paid leave requirements for employers with 500 or fewer workers) to a maximum of $12,000 (up from the FFCRA’s $10,000 cap)
  • Denies Department of Labor (DOL) regulatory authority over FFCRA paid sick and FMLA leave rules—specifies that any such regulation will have no force or effect

Unemployment Benefits: The HEROES Act extends through January 31, 2021 the CARES Act’s unemployment benefits (both the $600/week in federal benefits and the extension of time to 39 weeks when unemployment benefits are available)

Direct Stimulus Payments: The HEROES Act also authorizes another round of direct stimulus payments to lower and middle-income individuals—the payments would be $1,200 per individual ($2,400 for a married couple), with an additional $1,200 per qualifying child (including children to age 18 and full-time students to age 24) for up to three children.

Miscellaneous Provisions: The HEROES Act repeals the CARES Act’s net operating loss rules and limits the loss carryback rules to tax years beginning on or after January 1, 2019. The bill also denies eligibility for loss carryback relief to businesses with “excessive executive compensation or excess stock buybacks and dividends.” 

requires the Fed’s Main Street Lending Program to provide no-cost loans to non-profit organizations.

The bill also suspends the state and local tax (SALT) deduction limit enacted in 2017 for 2020 and 2021. It provides $900 billion in aid to State and local government coronavirus response efforts. It provides $190 billion in grants to employers with which to pay essential workers (at the rate of $13/hour, up to a maximum of $10,000, for work performed from January 27, 2020 until 60 days after the end of the public health emergency). Other provisions include $25 billion to help the financially strapped U.S. Postal Service, $75 billion in housing assistance, $1.5 billion to expand broadband hotspots, and money to the States to design remote-voting processes for federal elections.

Prospects: It is virtually certain that this bill will not be enacted into law in its current form—although Senate Democrats were consulted and are supportive of the House package, both the White House and Congressional Republicans have rejected it. However, parts of it may find their way into a compromise package later this summer. Some Senate Republicans are working on their own “wish list” package—reportedly it will include liability protection for employers reopening under government guidelines, and a fix of the “incentive to not work” in the current unemployment rules. Timing is uncertain—Democrats view the need for a new coronavirus response bill as urgent, but Republicans counsel a “pause,” both to assess the effectiveness of the already-enacted new coronavirus response bills and to consider the impact on the debt/deficit of current and future coronavirus aid measures. Additional action, therefore, seems likely but not until after Memorial Day at the soonest.

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.

 Paycheck Protection Program May Be Modified

Congress is likely to modify the widely popular Paycheck Protection Program (PPP) in the next coronavirus response bill. Lawmakers are working on that next bill now. Potential modifications include expanded eligibility, along with new restrictions to discourage larger businesses from applying for PPP loans; extension of the program’s timing and easing of some of the rules that must be complied with in order for the loans to be forgiven. 

The program, now funded at $660 billion (with $60 billion earmarked for small businesses working with smaller community banks), currently looks like it will have enough money to lend to borrowers seeking PPP loans at least until June. Despite that, however, observers believe the program will need yet more funding next month. 

Also likely are changes to eligibility for PPP loans. There has been considerable outrage over big corporations crowding out the small businesses the PPP is intended to help. Many of those big companies have given back their loans, although some have kept them. Treasury says any loan in excess of $2 million will be audited, and notes that large companies with access to other sources of capital are unlikely to meet the condition for PPP loans that requires the borrower to certify that it needs the loan money to remain in business. 

Lawmakers are also discussing whether to extend the time covered by a PPP loan (currently it’s eight weeks), and possibly also an extension of the program itself. Currently, the PPP expires as of June 30. Another potential change is the current rule (imposed by regulation) that requires that for a PPP loan to be forgiven, at least 75 percent of it must be spent on payroll costs. For many small businesses, rent/mortgage, utilities, and debt service costs exceed 75 percent of the total loan amount needed. Congress is looking at proposals to eliminate the 75 percent requirement, or to lower it to 50 percent. 

Prospects: The PPP’s potential for saving small business jobs has earned it wide bipartisan support in Congress as well as support from President Trump. Most lawmakers support providing as much more funding as the program needs (some estimate that amount at north of $1 trillion), as well as for the modifications needed to be sure that the PPP money is actually going to small businesses that need it to survive this public health crisis. 

Accordingly, prospects are good for the PPP to get the additional funding and programmatic changes it may need, probably in the emerging coronavirus response bill.  

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

Congress Considers Expansion of Paid Leave Rules 

 Paid leave is a subject of ongoing legislative efforts. Some in Congress want to expand and/or extend the paid leave rules—currently, they are in effect only through the end of the year, and only for coronavirus-related leave. Others are resisting efforts to broaden the rules. 

Under current paid leave rules (enacted in the Families First Coronavirus Response Act (FFCRA) in March), employers with 500 or fewer employees must provide two weeks (80 hours) of paid sick leave, at 100 percent of the worker’s regular rate of pay; and up to 10 weeks of paid Family and Medical Leave Act (FMLA) time (at 2/3 salary) to their workers who cannot work or telework for a specified coronavirus-related reason. Employees with fewer than 50 employees can apply for an exemption if paying for the leave would jeopardize the business’ ability to keep going. Large businesses (over 500 employees) are not impacted by this rule.

Experience with these new FFCRA rules has raised a number of issues with which Congress is currently grappling. They include:

  • Whether to lengthen the time during which impacted employers will be required to provide paid leave – the HEROES Act extends paid leave rules through the end of 2021
  • Whether to impose the rules on large employers, with or without government funding of the benefits—the HEROES Act does impose the rules on large employers, without government funding of the benefits

Prospects: Expansion (and other changes) to the paid leave rules are very much in the mix as negotiators try to craft a new package. 

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

Lawmakers Consider Expanding Employee Retention Tax Credit 

 Lawmakers working on a new coronavirus response bill are discussing whether and how to expand the employee retention tax credit (ERTC). Among the possibilities are an increase in the amount of the credit, and clarification that the credit is available for the employer-paid cost of health insurance. It is also possible Congress will decide to let employers claim the ERTC even if they are getting a Paycheck Protection Program (PPP) loan. 

 Generally, the refundable and temporary ERTC (it expires at the end of the year) is available to a company that experiences a “significant decline in receipts” or a full or partial suspension of operations due to government orders. The credit is equal to 50 percent of $10,000 in employee pay. The tax credit is calculated by looking at the average number of full-time employees employed during 2019 and is limited to $10,000 for each employee during all calendar quarters during 2020. (That creates the $5,000/employee tax credit cap.) 

The specific changes under discussion, which are included in the House’s HEROES Act, include:

  • Expansion of the ERTC to 80 percent of qualified wages
  • An increase in the cap to $15,000 per calendar quarter
  • A change that would make the ERTC available to employers with more than 1,500 employees or gross receipts that exceeded $41.5 million last year
  • A change to the qualifying test related to a significant decline in gross receipts—currently, to qualify for the ERTC a business must either have fully or partially shut down due to coronavirus crisis-related government orders, or due to a significant decline in receipts over last year—a significant decline in receipts is currently defined as receipts that are less than 50 percent of the business’s gross receipts in the same calendar quarter last year. The HEROES Act changes the significant decline in receipts standard to a decline of between 10 percent and 50 percent in receipts over the same time last year.
  • Resolution of the current disagreement in regulatory/legislative interpretation of whether amounts paid for health insurance for furloughed employees can be used to claim the ERTC—the HEROES Act clarifies that health insurance payments for furloughed employees can be used to claim the ERTC. The Treasury Department, after considerable input from key lawmakers as well as impacted businesses, has said it will change its guidance on the ERTC to reflect Congressional intent that amounts paid for furloughed employees’ health insurance can be used to calculate a company’s ERTC amount. That could obviate the need for the legislative change.
  • Authority to let a business claim the ERTC and also to apply for a PPP loan. 

 Prospects: The ERTC enjoys considerable bipartisan support, along with support from the Administration. Thus, chances for inclusion of at least some of these changes in the upcoming new coronavirus response bill are reasonably good.

 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.

New Coronavirus Response Bill May Include Subsidies for Unemployed Persons’ Health Insurance Costs

 Among many lawmakers’ top priorities for the emerging new coronavirus response bill is a way to help the 30+ million newly unemployed with their health insurance coverage. There are a variety of proposals under discussion, but one of the most likely is a subsidy for COBRA coverage.

There had been apparent consensus between key Congressional Democrats and Republicans to include a provision subsidizing COBRA coverage for those who have lost their jobs due to the coronavirus crisis, but a so far unbridgeable dispute over whether to restrict coverage of abortion services has stymied a final agreement on the proposal. The HEROES Act includes a subsidy for the full amount of COBRA premiums, for nine months.

Other proposals are also pending. They include:

  • Allowing people who are unemployed to enroll in Medicare coverage
  • Opening up exchange-based health insurance to the unemployed, perhaps with greater subsidies—this is included in the House Democrats’ HEROES Act
  • Expanded eligibility for Medicaid (possibly with new funding for cash-strapped state Medicaid programs)
  • Aid to employers paying for all or part of their workers’ health insurance coverage
  • Enhanced subsidies, at least for the duration of the economic emergency caused by the coronavirus crisis, for exchange-based health insurance for all, not just those who are newly unemployed
  • Eliminating new deductibles and co-pay requirements for people who shift from lost employer-sponsored coverage to Obamacare coverage (such a shift restarts deductible and copay obligations)
  • COBRA coverage (subsidized) for those who have not lost their jobs, but whose hours have been reduced below the level at which they qualify for employer-sponsored coverage

Some observers believe the current debate over how to help the economic victims of the coronavirus crisis will inevitably lead to a renewed debate over whether to sever the link between health insurance and employment. However, even the most ardent of Medicare-for-All supporters do not think that debate will come to a head during the crafting of this next coronavirus response bill.

 Prospects: Aid to those who have lost health insurance coverage due to job and/or hours loss as a result of the coronavirus crisis is a key issue, and one very likely to be addressed in the next bill. However, the most possible solution—subsidies for COBRA coverage—is mired in the very difficult abortion debate question. These abortion debates are familiar, and usually Congress, after much gnashing of teeth, finds a way to get to a consensus—perhaps by walling off abortion coverage in a COBRA plan and denying a subsidy for that walled-off coverage. But it is almost always among the last of the issues to be resolved and is one about which both sides feel very deeply and strongly. It remains to be seen how lawmakers will resolve the issue this time.

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

Business Interruption Insurance Bills Introduced

 As people discover that virtually all business interruption insurance excludes coverage for losses due to a pandemic, there has been a hue and outcry about making such insurance available. In Congress, two bills to accomplish that have been introduced. Across the country, eight states have introduced bills that would require business interruption insurance policies to retroactively provide coverage for losses that occurred as a result of the coronavirus.

The first Congressional bill, H.R.6497, is the bipartisan “Never Again Small Business Protection Act.” It would require that business interruption insurance—carried about 35 percent of businesses—provide coverage for losses that result from a government-ordered shut-down of business after the declaration of a national emergency. H.R.6497 requires the coverage if the business interruption lasts for at least 30 days and that the business insured keeps their employees on the payroll and maintains their health insurance coverage. The bill’s sponsors are Reps. Gil Cisneros (D-CA), Brian Fitzpatrick (R-PA), Will Hurd (R-TX), and Tom Suozzi (D-NY).  

The second Congressional bill, the Business Interruption Insurance Coverage Act, was offered by a bipartisan group of 10 House Members, led by Rep. Mike Thompson (D-CA). H.R.6494 prohibits denial of claims under a business interruption insurance policy due to viral pandemics, forced business closures, mandatory evacuations, and public safety power shut-off’s. This bill allows denial of coverage for failure to pay premium but does not require the insured business to maintain its employment roster or to cover its workers’ health insurance cost.

Insurance groups question the affordability of business continuation insurance under either of these bills. As Sean Kevelighan, CEO and president of the Insurance Information Institute, said, “You just can’t underwrite risk like that. It’s not affordable.”

Prospects: Lack of business interruption insurance coverage for a pandemic, even when such exclusion of coverage is clearly spelled out in a policy, is an emotional issue. So, these bills are getting considerable attention. However, the reality of the challenge of underwriting such coverage—and/or the potential expense of such coverage—may overcome the emotional response. It is possible that pandemic-type coverage will wind up being treated much as terrorism insurance coverage is handled—by a special program involving a partnership between the government and the private sector. But this is a debate that will take significant time before a resolution is reached.

Across the country, eight states have bills that would mandate retroactive business interruption coverage - Louisiana, Massachusetts, New York, New Jersey, Ohio, Pennsylvania, South Carolina, and Washington, DC. A bill in California is expected soon. Of all states, only two legislatures have acted on the bills. In New Jersey, it passed through a committee but isn’t expected to move. In DC, however, the possibility of passage is real. The Council removed the business interruption insurance section from its emergency omnibus package on May 5, but the Council plans to debate the issue again in coming weeks.

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

SEC Clarifies when the Term “Advisor” Can Be Used

 In recently updated Frequently Asked Questions (FAQs) or download the PDF concerning its new Regulation Best Interest (Reg BI), the SEC provided clarification on when it would be permissible for broker-dealers and their registered representatives to use the terms “advisor” and/or “adviser” as part of their name or title once Reg BI goes into effect on June 30, 2020. 

The SEC, in Reg BI, did not specifically prohibit the use of these terms by broker-dealers and their reps, and the FAQs indicate that a broker-dealer can use these terms when acting as a municipal advisor, a commodity trading advisor or “in a role specifically defined by federal statute”.  

With respect to providing advice or making recommendations to individual consumers, however, the bottom line is that as a general matter if a broker-dealer or its reps uses these terms when providing investment advice to a retail customer (i.e., for example, when they are advising a client on what mutual fund to buy for the consumer’s own account), they will be presumed to be in violation of Reg BI unless the BD is also a state or federal registered investment adviser and the registered representative is an investment advisor representative. A broker-dealer being affiliated with a registered investment adviser is not sufficient; the BD must also be a registered investment adviser in order to be able to use the terms “advisor” and/or “adviser”. (Please note: these restrictions only apply to broker-dealers and their registered representatives; if someone is only licensed as an insurance producer, the rules regarding the use of “adviser”/ “advisor” do not apply). 

NAIFA raised concerns about these restrictions in our meetings with SEC commissioners, and the final version of Reg BI does allow some flexibility for BDs that are not also investment advisers to use these terms if they are not used as part of the firm’s or individual’s name or title. A broker-dealer and its reps are able to use these and similar terms in marketing communications (such as “I have been a trusted financial advisor for over 20 years”), and a registered representative can still use these terms to indicate membership in a professional organization, such as writing on your business card “Member of the National Association of Insurance and Financial Advisors”. Broker-dealers that have the word “Advisor” or “Adviser” in their name and are not also registered investment advisers will be required to change their name; NAIFA’s continued use of its name is not impacted by this since NAIFA is not a broker-dealer.

 Prospects: Reg BI takes effect on June 30. NAIFA stresses that registered representatives should know and follow the advice and instructions given by their broker-dealers in complying with Reg BI.

NAIFA Staff Contacts: Gary Sanders—Vice President and Counsel—Government Relations, at gsanders@naifa.org; or Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org.  

IRS Says Employers May Choose whether to Offer CARES Act Plan Loan/Withdrawal Relief

On May 4, the Internal Revenue Service (IRS) posted frequently asked questions (FAQs) stating that the retirement savings withdrawal and loan relief rules enacted in the CARES Act this past March are voluntary. An employer may choose to amend its plan to provide for coronavirus-related distributions and/or loans, the IRS said.

The CARES Act contains provisions that increase the retirement savings plan borrowing cap from $50,000 to $100,000. It also waives the early withdrawal penalty tax for pre-retirement withdrawals. 

The IRS indicated that the early withdrawal/loan provisions “are meant to provide flexibility. An employer is permitted to choose whether, and to what extent, to amend its plan to provide for coronavirus-related distributions and/or loans,” said the IRS. 

Prospects: The IRS indicated more guidance on the CARES Act retirement savings provision are in the works, and said the upcoming guidance is likely to track the rules formulated for taxpayers who were adversely impacted by Hurricane Katrina when it hit New Orleans in 2005.

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

Fed Loan Program Expanded

The Federal Reserve is expanding its Main Street Lending Program, the loan program for small and medium-sized business. The Fed action is designed to provide more credit to businesses struggling in the aftermath of the economic devastation caused by the coronavirus crisis.

The program’s expansion will give access to the Fed’s Main Street Lending Program to businesses with up to 15,000 employees or up to $5 billion in annual revenue. The employee cap is 50 percent bigger than it was under the original program. The revenue limit is twice what it was. 

The Fed also announced that it would broaden access to its Paycheck Protection Program Liquidity Facility so that more lenders, such as non-depository institutions, can participate in the program. It also broadened the collateral that borrowers can pledge.

Prospects: The Fed has taken an aggressive role in providing more access to credit for businesses hammered by the economic fall-out from the national shut-down of commerce due to the coronavirus crisis. All indications are that even more such aid is likely if and when economic conditions dictate it is needed.

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


IRS Proposes Estate Tax Deductions Regulation 

On May 7, the Internal Revenue Service (IRS) issued a notice of proposed rulemaking that makes deductible certain expenses related to administration of an estate, despite the 2017 tax law provision that disallows deductions for miscellaneous deductions. Under the proposed regulations, permissible deductions will be permitted for costs that would not have been incurred had the property not been held in trust or estate, for the personal exemption of an estate or non-grantor trust, and for trust income distributed to beneficiaries.

The new rules come under the authority of Internal Revenue Code (IRC) section 67(e). But in 2017, in the Tax Cuts and Jobs Act, Congress added IRC section 67(g) to the Code, which suspends miscellaneous itemized deductions from 2018 through 2025. The addition of section 67(g) raised questions about whether the 67(e) deduction would be available for the specified estate/trust costs.

The IRS stated that estates, non-grantor trusts, and their beneficiaries may rely on the proposed rules for tax years beginning in 2018.

Prospects: The proposed reg is open for comment for 45 days after publication in the Federal Register—so until about July 1. The IRS “strongly encourages” comments to be submitted electronically. Submit electronic submissions via the Federal eRulemaking Portal at www.regulations.gov (indicate IRS and REG-113295-18).

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

NAIFA Analysis of What the NAIC’s New Enhanced Standard of Care for Annuity Transactions Means and Requires

 The NAIC recently adopted amendments to its Suitability in Annuity Transactions Model Regulation, which regulates producer and insurer recommendations for all annuities. The revised NAIC Model requires producers and insurers to act in the best interest of annuity purchasers and to not put their own financial interests ahead of the consumers’ interest. The amended Model, which aligns well with the SEC’s Regulation Best Interest, will raise the standard of care required of financial professionals while preserving consumers’ access to valuable financial advice, services, and products. NAIFA was an active participant in the development of these revisions and supports the amended Model regulation. The adoption by the states of these amendments is a top advocacy priority for NAIFA. 

To help our members understand the changes made to the Model and the new requirements they place on producers, NAIFA’s state advocacy staff has prepared a detailed analysis of the revised Model, which can be reviewed here.

 NAIFA Staff Contact: Gary Sanders—Vice President and Counsel—Government Relations, at gsanders@naifa.org.

Oklahoma Moves Suddenly to Pass State-Run Retirement Bill

In early March, the Oklahoma State Senate passed the Oklahoma Prosperity Act, a bill that the insurance industry refers to as a “Secure Choice Plan.” It is similar to laws recently enacted in California and Oregon that are wrought with problems. The Oklahoma State House moved suddenly the evening of May 11, the bill bypassed the committee process, and it currently awaits a full vote. 

NAIFA advocates and coalition partners acted swiftly to convince House leadership to postpone the vote, yet it is unclear how long the hold on the vote will last. The legislation is rife with legal and economic challenges. It is critical for lawmakers to refrain from passing such a bill considering the current pandemic. The other states that have enacted these bills have done so with significant expense. Oklahoma is currently facing a massive budgetary shortfall, NAIFA advocates are sending the message to state representatives that now would be a terrible time for deficit spending to pay for future promises. 

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