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September 2020 Issue:

Coronavirus Crisis Aid Stalls

House, Senate and White House negotiators have apparently hit a wall on new coronavirus crisis aid legislation. The principal hang-up currently is the size of the package. Democrats want at least $2.2 trillion; Senate Republicans are offering a $500 billion package; the White House says it won’t go higher than $1.3 trillion.

August brought some small movement on this initiative. Speaker of the House Rep. Nancy Pelosi (D-CA) has talked with White House Chief of Staff (CoS) Mark Meadows and with Treasury Secretary Steven Mnuchin. But all of them say there have been no break-through’s in finding an agreement. Rep. Pelosi says the Democrats will not budge from their demand that the GOP “meet them in the middle”—i.e., agree to a package of about $2.2 trillion (down from their previous positions of first $3.5 trillion and then $2.4 trillion). For the GOP, CoS Meadows said President Trump will sign a package of about $1.3 trillion. Treasury Secretary Mnuchin says the Administration wants an agreement. Some say that’s progress. At least the difference—wide though it is—is narrower.

The Republicans are willing to negotiate now on specific proposals to include in the package—they’ve suggested liability protection for businesses, health care providers and schools; a $300/week federal supplemental unemployment benefit; more money for and reopening of a streamlined Paycheck Protection Program (PPP); child care assistance; and aid to reopened schools. Democrats say they will negotiate the particulars of the package after its size is determined.

New talks are possible throughout September, but CoS Meadows says he is not optimistic about getting an agreement prior to the end of the month. Treasury Secretary Steven Mnuchin is also less than optimistic about prospects for an agreement. But there is intense pressure on both Democrats and Republicans to enact a new aid package.

Insurance Issues: There has been no progress—and it’s likely there will be no progress until late September at the soonest—on the issues of particular concern to insurance. But when (if?) an agreement on the size of the package is reached, negotiators will consider whether to:

  • Expand/extend the Paycheck Protection Program (PPP)
  • Provide a market-based interest rate for calculating the investment potential of a whole life insurance policy (the 7702 issue)
  • Recharacterize life insurer-held bonds as ordinary rather than as capital assets
  • Protect businesses from COVID-related liability
  • Provide new federal supplemental unemployment benefits, with guardrails to be sure lower-wage workers can’t make more money from unemployment than from working
  • Provide subsidies for health insurance for the unemployed
  • Make it easier to apply for PPP loan forgiveness
  • Enhance tax credits for retaining employees
  • Modify paid sick leave rules

Other issues are also in play; e.g., stimulus payments to individuals, more aid to State and local governments, and certain industry-specific initiatives (like, for example, help to keep struggling airlines from having to make extensive staff cuts or cut service to smaller airports). 

Prospects: There is growing pressure on lawmakers to enact more coronavirus crisis aid legislation. However, partisanship—already intense—is reaching even more intense levels as election campaigns have shifted into high gear. This partisanship will complicate already difficult negotiations. Washington insiders are growing increasingly skeptical about whether Congress and the President can agree on a new aid package. There is now the beginning of talk about addressing the need for new coronavirus aid during a post-election lame duck session.

NAIFA Staff Contacts: 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

Senate Republicans Offer Smaller, Targeted Coronavirus Aid Package

On September 8, Senate Republicans offered a new, smaller coronavirus aid package. The new package, S.178, would protect businesses from being sued due to coronavirus-related reasons, expand the Paycheck Protection Program (PPP), and provide for new federal supplemental unemployment benefits.

The package is expected to total about $500 billion in new spending—that’s less than half the $1.3 trillion that President Trump says he is willing to allocate to new coronavirus crisis aid, and only a small fraction of the $3.5 trillion Democrats authorized in their Heroes Act or the $2.2 trillion the Democrats offered as a compromise.

Among the skinnied-down provisions in the new Senate GOP package are:

  •   Paycheck Protection Program (PPP): Small businesses—including non-profit organizations like NAIFA and its chapters—could take a second loan from the PPP if they employ fewer than 300 workers and have experienced at least a 35 percent loss in revenue over last year. The PPP provisions also streamline the rules for applying for PPP loan forgiveness, and include $250 billion in new PPP funding.
  •   Liability protection for businesses, hospitals and health care workers, and schools that might otherwise be sued by people claiming they contracted COVID-19 as a result of actions taken/not taken by the entity being sued. Under the provisions in the package, coronavirus-related lawsuits could proceed only if the plaintiff can prove gross negligence or willful misconduct, and that the plaintiff’s illness was a result of the defendant’s action/inaction.
  •   An increase in the above-the-line charitable contribution from $300 to $600 ($1,200 for married couples filing jointly)
  •   Reallocation of funds appropriated in the CARES Act for a Treasury business lending program, and the “old” PPP funds that have not yet been spent.
  •   Authority and funding for the States to choose whether to offer supplemental federal unemployment benefits of $300/week through December 27.

The package also includes childcare assistance funds, some new funding for coronavirus testing, and new loan money for the Post Office. It does not include new money for state and local governments, although it extends the time during which states, and local governments can use funds already allocated.

On September 10, the Senate took a cloture vote (on whether to debate and vote on S.178)—on a party-line 52 to 47 vote, the Senate said “no.” While this vote does not kill this bill, it does prevent Senate action on it. And so, coronavirus crisis relief is back to square one.  

Prospects: Democrats immediately panned the S.178, calling it “emaciated.” (Note: Republicans were equally dismissive of the Democrats’ $3.5 trillion Heroes Act passed by the House this summer.)  Republicans, however, believe that the 52 GOP votes for the package constitute a “message victory.” (That’s how the Democrats view their mostly party-line vote for the Heroes Act last May.) Ultimately, lawmakers and the White House will have to find a compromise between the two-party positions, or there will be no further coronavirus crisis relief.

In the meantime, while all parties agree that more federal aid is needed, there is no visible progress towards a package that can be enacted and signed into law. But Congressional Republicans and Democrats, along with the Administration, say they will keep trying to find an agreement.

NAIFA Staff Contacts: 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

DOL Issues LIDA Interim Final Rule

On August 18, the Department of Labor (DOL) issued an interim final rule that will help employers comply with the SECURE Act requirement that defined contribution (DC) plan sponsors provide annual illustrations of the monthly lifetime retirement payments that their plan participants may receive from their current retirement account balances.

The interim final rule (IFR):

  •   States that a plan sponsor will be shielded from ERISA liability for a lifetime income illustration that complies with the IFR’s specific rules and uses the IFR’s model language in plan participant benefit statements. This is important because illustrations may or may not reflect actual experience over the years. Plan sponsors need to know that they cannot be sued if actual experience varies from what is illustrated, so long as they follow the rules in the IFR.
  •   Provides model benefit statement language
  •   Specifies the assumptions that plan administrators must use to calculate the plan participant’s illustrated lifetime monthly benefits. These assumptions include the assumed start date of monthly benefits; the participant’s age at the time benefits payments start (normal Social Security retirement age (67) or, if the participant is older, his/her actual age); the assumed interest rate (10-year constant maturity Treasury rate); and how to calculate life expectancy (by use of the tax code’s gender neutral mortality table). The IFR includes an example of an illustration that complies with these rules.
  •   Includes special rules for annuities used in a retirement plan, including deferred income annuities.

The rule is now in a 60-day public comment period.

Prospects: NAIFA strongly supported the new monthly lifetime income disclosure rule because it will make clear to plan participants whether they need to make current adjustments to their savings for retirement. This interim final rule provides the information plan sponsors need to calculate projected monthly lifetime benefits. And, it does so in a way that protects plan sponsors from liability if projections—which are not guarantees—fall short. Actual experience, if it falls short of projections, could lead disgruntled employees to think about suing. The new law and this interim final rule protect the plan sponsor from this risk.

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

EBSA Proposes Streamlined Rule for Registering PEPs

On August 20, the Department of Labor’s (DOL’s) Employee Benefits Security Administration (EBSA) proposed a new rule that would allow businesses that participate in a PEP (pooled employer plan) to register only with DOL. The proposed rule provides that DOL registration would satisfy the statutory requirement that plan participants register with the Treasury Department as well as with DOL.

PEP rules were established in the SECURE Act, enacted into law last year. The SECURE Act authorizes pooled plan providers to being operating their PEPs on January 1, 2021. It also requires businesses participating in a PEP to register with both DOL and Treasury before they begin operations. This new proposed rule states that registration with DOL will satisfy the requirement to register with Treasury.

The proposed rule also provides a new form—EBSA Form PR (Pooled Plan Provider Registration). The new form would be the required format for registration. The registration process includes an initial registration, supplemental filings on specified reportable events, and a final registration if and when the PEP terminates and ceases operation.

Prospects: This new rule would streamline the process of participating in a PEP, making it easier and less expensive for unrelated businesses to offer their employees retirement savings opportunity through a PEP. EBSA will accept comments on the proposal for 30 days after the rule was published in the Federal Register—i.e., through the end of September.

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

SBA Releases Guidance on Seeking Forgiveness of PPP Loans

On August 24, the Small Business Administration (SBA) released guidance on how to handle certain business expenses when applying for forgiveness of Paycheck Protection Program (PPP) loans. The interim final rule covers rent/mortgage expenses and the owner-employee compensation cap.

The interim final rule makes clear that expenses attributable to the business operation of a loan recipient’s tenant or subtenant may not be forgiven. But, rent payments to a related party may be eligible for loan forgiveness, subject to a series of conditions. The guidance also makes clear that the cap on the amount of an owner-employee’s compensation that is eligible for loan forgiveness does not apply to owner-employees with less than five percent ownership in a C or an S corporation.

Prospects: While PPP borrowers can apply for loan forgiveness at any time during the 10 months after their coverage period ends, some experts are advising PPP loan recipients to wait for further legislative and regulatory clarifications/modifications. For example, the PPP provisions in the coronavirus crisis response legislation that is currently being negotiated between Democrats and Republicans would significantly streamline the forgiveness application process. Considerably less documentation and paperwork would be needed should these bipartisan proposals be enacted into law. Whether these new streamlined rules will be passed by Congress and signed by the President is, however, still an unanswered question. We will keep you posted.

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

Treasury Issues Guidance on Payroll Tax Deferral Option

On August 28, the Treasury Department and the Internal Revenue Service (IRS) issued guidance on how to implement President Trump’s August 8 order to allow employers to defer withholding and remitting their employees’ Social Security tax. Notice 2020-65 notes that this payroll tax deferral is available for employees earning less than $4,000 every two weeks between September 1 and December 31, 2020. The guidance answers many questions about how to implement this new benefit. Among them are:

  •   Employers will be liable for the deferred taxes (the employee’s share of Social Security taxes) if the employee does not pay them—e.g., if he/she leaves employment prior to the end of the deferral period, or before the deferred taxes are paid in full.
  •   The deferral is determined on a pay period basis—so, if an employee’s wages exceed $4,000 for a pay period, the employer must withhold (and remit) that employee’s Social Security tax liability, even if the wage level falls below the $4,000 level in subsequent pay periods, or fell below it in previous pay periods.
  •   Employers must withhold the deferred tax amounts ratably between January 1, 2021 and April 30, 2021. (Tax experts suggest this means double withholding (and remittance) of payroll taxes for the first four months of 2021.)
  •   The deferred payroll taxes must be paid between January 1, 2021 and April 30, 2021, or interest, penalties and additions to tax will begin to accrue as of May 1, 2021.
  •   Employers “may make arrangements to otherwise collect the total applicable taxes from the employee” if that is required.

 Deferral of payroll tax liability for the period between September 1 and December 31 for workers with wages of $4,000/two weeks is optional—i.e., an employer may choose to take advantage of this deferral, or instead to continue Social Security tax withholding. Employees do not have a choice about whether or not they want the deferral—it is entirely an employer decision. Many employers are saying they will not defer their employees’ payroll tax liability, citing the risk of liability for the taxes themselves, the adverse impact on employees who may face double their payroll tax liability in the first four months of 2021, and continuing uncertainty about the program’s implementing details.

 President Trump has promised to eliminate this deferred tax liability, but to do so would require enactment of legislation. Administration spokespersons say an amount equal to the deferred/forgiven taxes would be transferred from U.S. general revenues to the Social Security, trust fund. If the amounts are not transferred, forgiveness of the deferred payroll tax liability would result in depletion of the Social Security trust fund by 2023, the Social Security Administration said.

Prospects: The deferral program is in place and it is up to employers to decide whether to participate in it. Employers will have to assess the risk that they may have to pay the deferred tax amounts if their impacted employees leave their jobs without a way in place to collect the deferred taxes. They will also have to evaluate the impact on their workers of having to pay the deferred taxes in early 2021.

Chances do not appear good for forgiveness of the deferred tax liability—most lawmakers either do not support or outright oppose elimination of four months of employee Social Security tax liability. Forgiveness of the deferred liability cannot happen without Congressional approval in the form of enacted legislation. So, employers must balance risks: the risk of denying this tax benefit to their workers, especially if the deferred taxes are waived, against the risk of employer liability for the taxes and/or employee unhappiness if they have to endure double withholding in the first four months of 2021.

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

Presidential Nominees' Tax, Retirement Agendas

President Trump promises to cut taxes if he is reelected. Joe Biden, the Democrats’ nominee for president, supports rolling back the 2017 tax reform law, but says he will not increase taxes on individuals earning less than $400,000/year. Corporate tax increases, though, would be fair game. And, Biden’s agenda includes a provision that would replace current law’s annual deduction for a limited amount of retirement savings with a refundable tax credit. 

  •   Trump Tax Proposals: President Trump says he will cut taxes. He is heavily promoting a plan to eliminate, at least temporarily, the Social Security taxes paid by employees, and favors more Social Security tax relief for employers. He says he is looking into a cut in the capital gains tax, too.
  •   Biden Tax Proposals: Biden is looking to taxes for new revenue. Candidate Biden says he will not raise rates on those earning less than $400,000/year, but “closing loopholes” would be fair game. So, too, would be taxes imposed on corporations/businesses. He has said he will push for upping the corporate tax rate from 21 percent to 28 percent. And he also favors rolling back other tax cuts enacted late in 2017 in the Tax Cuts and Jobs Act (TCJA)—including the top individual income tax rate, the special deduction for closely-held business income, and estate tax rules.
  •   Biden Retirement Proposal: The retirement savings proposal would “equalize,” he says, the incentive for retirement savings by replacing the current deductions—which are more valuable for higher-income savers than for those with lower incomes—with a flat tax credit. The Urban-Brookings Tax Policy Center estimates that a 26 percent tax credit would be revenue-neutral as compared to current law. NAIFA supports the current system and is already working with industry partners to engage as necessary.

 Prospects: Expect major tax battles next year, regardless of who wins the Presidency, and which party controls the House and Senate. Despite the GOP’s historic support for tax cuts (or, at least for not raising taxes), the out-of-control federal deficit will likely rise to the top of the priority issues agenda once the economic fall-out from the pandemic comes clear. President Trump said on September 9 that addressing the deficit will be a top priority in his second term. And if Democrats win the White House, control of Congress, or both, the tax battle will erupt even sooner. 

 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

DOL Says Companies Must Track Teleworkers' Compensable Hours

On August 24, DOL’s Wage and Hour Division (WHD) issued guidance that clarifies an employer’s obligation to track the compensable number of hours put in by employees who are teleworking or otherwise working away from their offices. The guidance comes in Field Assistance Bulletin (FAB) 2020-5.

According to WHD, “In a telework or remote work arrangement, the question of the employer’s obligation to track hours actually worked for which the employee was not scheduled may often arise. While the guidance issued today responds directly to needs created by new telework or remote work arrangements that arose in response to COVID-19, it also applies to all telework or remote work arrangements.”

The FAB “reaffirms that an employer must pay its employees for all hours worked, including work not requested but allowed and work performed at home,” WHD said. “If the employer knows or has reason to believe that work is being performed, the time must be counted as hours worked.”

Prospects: This FAB addresses one of many questions about how employers must deal with the now-common work-from-home scenario. Another question, which Treasury is expected to address in the near future, is whether and when income tax must be paid in the work-from-home employee’s state and/or in the employer’s state.

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.

NAIFA-CA Helps Alleviate Concerns with HIV Modernization Bill

The California State Legislature recently passed a bill to prohibit life and disability income insurance providers from denying coverage to HIV-positive individuals. The bill, initially introduced as SB 961 by Sen. Lena Gonzales (D), was initially of concern to NAIFA. Together with the Association of California Life & Health Insurance Companies (ACLHICI) and the American Council of Life Insurers (ACLI), NAIFA worked with Senator Gonzales to amend the bill to give insurers more underwriting flexibility, while still prohibiting them from declining applicants based solely upon the results of an HIV test.

The bill's revised language allows insurers to use sound actuarial principles to refuse coverage, charge different rates or limit the coverage. Ultimately, the language in SB 961 was amended into the Senate Insurance Committee bill, SB 1255, to help to reduce the number of bills moving in a shortened legislative session.  The bill was sent to Gov. Gavin Newsome and is awaiting his signature.

“NAIFA-California was happy to work with ACLHIC and the Department of Insurance on the HIV modernization bill, SB 1255,” said NAIFA-CA Government Relations Committee Chair Marc Bregman. “Among other things, there were terms that simply didn’t apply 20+ years later that needed to be updated. It is important that we keep our Insurance Code current.”

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

NAIFA Invites Lawmakers to Recognize Life Insurance Awareness Month (LIAM)

As the industry focuses awareness efforts on the value of life insurance during September, NAIFA invites lawmakers to join us in helping consumers understand the role of life insurance in achieving financial security. You are encouraged to share your LIAM efforts, too.

NAIFA’s invitation to Congressional offices, state legislators, and insurance commissioners noted our members have been trusted resources for consumers for 130 years and encouraged them to direct consumers to NAIFA’s consumer website for additional information and to find licensed, knowledgeable, ethical professionals to assist with financial security planning.

You can join us in celebrating LIAM by sharing how you help families achieve peace of mind with life insurance. Write to your federal and state lawmakers, and remember to tag them in your social media posts along with #LIAM20 and #NAIFAProud.

NAIFA Staff Contacts: Julie Harrison – State Chapter Director – Government Relations, at jharrison@naifa.org or Maggie Buneo – Grassroot Director – Government Relations, at mbuneo@naifa.org.