A cadre of Senators, backed by life insurance and retirement product associations and interest groups, have introduced a resolution that calls for maintaining the tax incentives in place now that spur retirement savings.
The resolution comes at a time when the fiscal cliff negotiations to reduce the deficit could strike at the heart of various tax treatments of savings products underwritten by life insurers and sold by producers nationwide to individuals as well as in retirement plans.
Sens. Richard Blumenthal (D-Conn.) and Johnny Isakson (R-Ga.), introduced the resolution, stating that tax incentives for retirement savings play an important role in encouraging employers to sponsor and maintain retirement plans and encouraging employees to contribute to their plans, as others in Congress have done before them.
“A reformed and simplified tax code should include properly structured tax incentives to maintain and contribute to such plans and strengthen retirement security for all Americans,” Sens. Blumenthal and Isakson said in the resolution.
“In 2009, 79 percent of federal tax incentives for defined contribution plans were attributable to taxpayers with less than $150,000 of adjusted gross income, and 65 percent were attributable to taxpayers with less than $100,000 of adjusted gross income,” the resolution states.
The potential elimination of many life insurance-friendly tax preferences is one facet of today’s fiscal cliff discussions that is often overlooked. Current proposals include provisions that could result in the imposition of taxes and the elimination of deductions for both individual and corporate-owned life insurance policies, the proceeds of which are received tax-free under existing law, noted authors Robert Bloink and William H. Byrnes for National Underwriter Advanced Markets, a LifeHealthPro partner.
Members of the Senate joining Sens. Blumenthal and Isakson as co-sponsors include Sens. Chuck Grassley (R-Iowa), Rob Portman (R-Ohio), Jon Tester (D-Mont.), Daniel Akaka (D-Haw.), Sherrod Brown (D-Ohio), Benjamin Cardin (D-Md.), Jeff Bingaman (D-N.M.), Kay Hagan (D-N.C.) and John Boozman (R-Ark.)
Sens. Blumenthal, Isakson, Brown, Tester, Grassley, and others have been very supportive of life insurance industry interests recently, signing a letter to top federal banking regulators, including Ben Bernanke, chairman, Board of Governors of the Federal Reserve System, warning them that the application of a bank-centric capital regime to the insurance industry would fundamentally alter the nature of the business, undermine prudential supervision and unintentionally harm insurance policyholders, savers and retirees.
That issue involves looming capital standards directed at insurers as well as banks from a regulatory smorgasbord of new rules that grew out of the 2010 Dodd-Frank Act (Dodd-Frank).
The Coalition to Protect Retirement, which includes the American Benefits Council and the American Council of Life Insurers (ACLI), praised the resolution as a strong reaffirmation of the importance of the private-sector retirement plan system and the role it plays in assuring the financial security of Americans when their working days are over.
“Suggestions to help fix the nation’s financial mess through new taxes on retirement savings make no sense,” said ACLI CEO Gov. Dirk Kempthorne, in an email statement. “We should establish a national goal; indeed, a national priority, of encouraging people to prepare for retirement. The better people can prepare for retirement, the less likely they are to become a burden on the same government that is struggling to resolve the national debt.”
Prudential, a significant U.S. player in the retirement products area and one championing retirement savings across all platforms to meet the needs of an aging population and its challenges, is also concerned.
“At Prudential Retirement, we strongly support maintaining the current incentives for retirement savings. Eliminating these incentives would have a devastating effect on the ability of millions of middle class Americans to reach their retirement goals,” said Christine Marcks, President, Prudential Retirement. “Reducing current taxes is a significant incentive that encourages workers to participate in employer-sponsored plans. Furthermore, withdrawing these incentives will be an additional obstacle for small businesses looking to establish plans for their employees.”
The Coalition warned that “actions taken to reduce the national debt and reform the tax code should not be done at the expense of workers and retirees. Tens of millions of baby boomers will reach retirement age in the coming years. Government policy should focus on helping them achieve financial security and independence in retirement. The incentives in the current tax code are an investment in the future, helping assure that retirees will not suffer from financial need and look to the government for help.”
“The current incentives for retirement savings represent good economic and tax policy, and they benefit the people who need it most. That’s why we strongly encourage all members of the Senate to support this resolution,” the Coalition said.
Members of the Senate joining Sens. Blumenthal and Isakson as co-sponsors include Sens. Chuck Grassley (R-Iowa), Rob Portman (R-Ohio), Jon Tester (D-Mont.), Daniel Akaka (D-Haw.), Sherrod Brown (D-Ohio), Benjamin Cardin (D-Md.), Jeff Bingaman (D-N.M.) and Kay Hagan (D-N.C.) and John Boozman (R-Ark.).
The Coalition also includes the American Society of Pension Professionals and Actuaries, ERISA Industry Committee, ESOP Association, Insured Retirement Institute, Plan Sponsor Council of America, Securities Industry and Financial Markets Association, and the Society for Human Resource Management.