Financial Regulatory Reform
On October 1st, Representative Kanjorski (D-PA) released discussion drafts of three pieces of legislation aimed at tackling key parts of reforming the regulatory structure of the financial services industry. The draft bills included the Investor Protection Act, the Private Fund Investment Advisors Registration Act, and the Federal Insurance Office Act. The Federal Insurance Office would be an information collecting office designed to provide policymakers with access to information and resources to respond to crises and mitigate systemic risk.
The House Financial Services Committee has adopted an amendment to exempt insurance companies and their products from oversight by the proposed Consumer Financial Protection Agency (CFPA). Federal Reserve Chairman Bernanke testified before the House Financial Services Committee this month and voiced his concerns about removing the consumer-protection role from the Fed and creating the proposed CFPA. Bernanke also suggested that legislation be introduced to ensure that systemically important financial firms are subject to effective consolidated supervision, whether or not the firm owns a bank. He also supports the establishment of an oversight council made up of the agencies involved in financial supervision to monitor and identify emerging risks to financial stability across the entire financial system.
On October 29th, the Financial Services Committee held a hearing entitled “System Regulation, Prudential Matters, Resolution Authority and Securitization” which consisted of three panels with representatives from Treasury, all four banking regulators, NAIC, trade associations as well as consumer organizations. Treasury Secretary Geithner reiterated support for special resolution authority for failing firms to be placed into an FDIC-managed receivership to unwind, dismantle, sell or liquidate the firm in an orderly way. The proposed resolution authority would also restrict the government from putting money into a failing firm unless that firm was in government receivership and on the path to being unwound, sold or liquidated.
H.R. 3669 – Employer Owned Life Insurance Limitation Act
As reported in an Ad Hoc LRA, H.R. 3669 was introduced last month and would prohibit employers from carrying insurance on the lives of employees with salaries of less than $1 million. It would also require mandatory cancellation within 30 days after a covered employee’s employment terminated. There has been a significant response from insurance and trade organizations addressing this bill as well as negative media reports including a joint association brochure on the benefits of corporate owned life insurance and the adequacy of existing regulations.
NY SB 6236 – COLI/BOLI Franchise Tax
Last week, NY Senator Diaz introduced state legislation that would impose an annual 50% franchise tax on companies that receive death benefits from life insurance policies obtained on its employees and/or retirees. The bill states that the tax would be for the privilege of conducting any of the following activities in the state of New York for all or any part of a taxable year: exercising a corporate franchise, doing business, employing capital, owning or leasing property in a corporate or organized capacity, or maintaining an office. If the measure passed, the tax would apply to taxable years beginning on or after January 1, 2010. We have reached out to members in the industry including carriers and have been informed that a number of lobbying efforts have been expended to block this bill from passage. A similar bill was introduced several years ago in IL and never gained support.
IASB to Issue Accounting Standards Ahead of FASB
The International Accounting Standards Board (IASB) is expected to issue revised IAS 39 standards on financial instruments by November. The IASB is expected to give companies more flexibility to use historical cost in valuing financial instruments rather than requiring them to use fair value measurement. This approach would be at odds with the Financial Accounting Standards Board (FASB), which has been moving toward expanding fair value accounting to encompass loans as well as financial instruments and assets. The two boards plan to meet on a monthly basis in order to achieve the goal of converging accounting standards by June 2011.
Employee Benefit Provisions Remain Unchanged for 2010
The Internal Revenue Service has been considering whether the various employee benefit provisions that are annually adjusted for cost of living would actually go down if the relevant annual cost of living itself has gone down as compared to the prior year. The Service decided that an annual benefit adjustment can either go up or remain level, but cannot go down, irrespective of a downward trend of the actual cost of living. Therefore all limitations for 2010 will remain unchanged including the $110,000 limitation for determining who is a highly compensated employee under Internal Revenue Code section 414(q)(1)(B).
Ad Hoc LRA – October 2, 2009
H.R. 3669 – Employer Owned Life Insurance Limitation Act
Attached please find a copy of HR 3669 introduced on Tuesday (Sept. 29) by Representative Gutierrez (Democrat from IL). The bill, titled, The Employer Owned Life Insurance Limitation Act, seeks to prohibit employers from carrying life insurance on “rank and file” employees by prohibiting employers from carrying insurance on the lives of employees with salaries of less than $1 million. According to Chicago public radio station WBEZ, Congressman Gutierrez was inspired to introduce the bill by the new Michael Moore film, Capitalism: A Love Story, which, as we reported in our monthly LRA, devotes a segment to a Wal-Mart COLI related law suit.
Despite the inflammatory and inaccurate references to COLI in the movie and corresponding press coverage, according to industry trade groups, HR 3669 has little chance of progressing (similar to the Bill introduced by Representative Green which resurfaces from time to time).
Ad Hoc LRA – October 16, 2009
Joint News Release – COLI: Helping U.S. Workers with Jobs & Benefits
In response to Michael Moore’s movie “Capitalism: A Love Story,” five insurance and financial services organizations released a brochure in a joint press release this week entitled COLI: Good for America. The intent of the brochure is to debunk some of the COLI mischaracterizations included in the Moore film and in subsequent media reports. The brochure outlines the workforce benefits of COLI, the limitations of COLI’s use and legislation affirming the legitimacy of COLI (specifically the Pension Protection Act of 2006).