Last week celebrated the end of one phase of a legislative process, which may impact the U.S. pensions, annuities and the Employee Retirement Income Security Act (ERISA) tax-qualified sales. In support of the National Association for Fixed Annuities (NAFA), I had the opportunity to join a group of associations in visiting the offices of Senator Orrin Hatch in Washington, D.C., for discussion and strategy to support his “Secure Annuities for Employee (SAFE) Retirement Act of 2013.” Much work was done by these groups in contributing to the bill’s language, including input from Creative Marketing. The purpose of the Act is to provide new solutions for public and private pensions in the U.S. and streamline ERISA provisions which are cumbersome and can inhibit savings.
The bill allows public pensions to use insurance companies to insure these lifetime-defined benefit plans. The hope is that many state and local governments, while trying to dig out from their highly underfunded and compromised pension plans, will adopt the new insurance company-offered SAFE plans which will guarantee benefits and premiums, thereby eliminating the budgetary temptation to project overly optimistic future investment returns to mask underfunding. For private pensions it makes starting a 401(k) easier, increases contribution limits and simplifies regulatory burdens.
The law seems like an obvious improvement to public pension systems and offers an expanded business opportunity for large insurance companies that decide to provide them. The ramifications of the bill’s passage may seem limited for individual life insurance and annuity agents like those partnered with Creative Marketing, but one final provision could have a dramatic impact. The U.S. Department of Labor (DOL) is in the process of re-issuing a proposal for a fiduciary standard for all qualified plans. If enacted, the DOL’s rule would require all qualified plans, including individual IRAs, to be held to a fiduciary duty standard of care, thereby requiring all actions to be in the best interests of the client and fee-only compensation. The Hatch bill would return authority for prescribing rules for the professional standard of care owed by brokers and investment advisors to the Treasury Department and require consultation with the Securities Exchange Committee (SEC).
The reason there would be two standards of conduct for exactly the same products, one qualified and one non-qualified, is solely a result of DOL’s authority over the former, but not the latter. Adding a fiduciary requirement could reduce access of the lower income and middle-market customers to financial products, services and advice, since commissioned agents could no longer provide them. Fifty-two percent of the total fixed annuity market is in qualified accounts. Besides, stringent suitability standard of care is already in place as a result of diligent work on developing regulations several years ago by insurance companies, regulators and NAFA. As a result, National Association of Insurance Commissioners (NAIC) Complaint Data shows that total Department of Insurance (DOI) complaints against indexed annuities dropped 81% between 2008 and 2011, and only one complaint per $660 million was filed in 2011, infinitesimal compared to securities and variable annuity complaints.
As you remember, flush from successfully defeating SEC’s benighted Rule 151a, via the Harkin amendment to the Dodd-Frank legislation, we predicted that more battles awaited which could require all of our lobbying and communication efforts that were successful back then. Already, some editorials have attacked the Hatch bill. Senator Hatch asked for our efforts to make public the benefits of the bill and counter those who would obstruct the benefits of enhancing U.S. pensions. We will keep you informed as we support our industry and the interests of all of our customers.
FOR AGENT USE ONLY. NOT FOR USE WITH THE GENERAL PUBLIC. 12917 – 2013/7/24