According to nationalunderwriter.com the bill would “impose new standards on sellers of corporate-owned life insurance” (COLI). This has been a controversial topic outside of the insurance industry because of a particular type of COLI that insures “rank-and-file” workers. COLI is life insurance owned by the company but taken out on the life of an employee. It comes in two different types, “Key Person” or executive policies and broad-based or “janitors” policies. The Key Person COLI is purchased to hedge against the death of a key employee while the “janitor” type is taken out on regular employees frequently without their knowledge. For more information about COLI read this MSN Money article.
The pension bill also “encourages insurers to sell life insurance policies and annuity contracts with long term care (LTC) riders starting in 2009.” I’m not sure how this encouragement will play out but the fact the government realizes the need for LTC insurance is an important step.
Here are some of the other provisions of the pension bill:
- Make permanent those provisions of a 2001 law -- "EGTRRA" -- aimed at boosting savings in 401(k)s, IRAs and other "tax-qualified" retirement savings vehicles;
- Let companies with excess pension assets to use the assets to pay for future retiree health benefits.
- Encourage employers to enroll workers in 401(k) plans automatically.
- Ease restrictions on programs that offer personalized investment advice to participants in defined contribution retirement plans.
- Allow employees age 62 and over to collect pension distributions while continuing to work for the same employer that sponsors the pension plan.
- Create new rules for donor-advised funds.
There were mixed feelings from James Klein, president of the American Benefits Council, “The pension bill passed by the Senate tonight is a very positive step for Americans participating in defined contribution retirement plans. However, as a result of the volatile pension funding rules enacted, I believe we will witness an unprecedented number of companies closing their well-funded defined benefit pension plans to new employees.” Defined benefit plans are definitely on the way out, being replaced by defined contribution plans.
On the other end was MetLife Inc. (MET)commenting through a spokesperson, “We believe it strikes an appropriate balance between protecting participants’ interests, ensuring that defined benefit plans are adequately funded, and providing certainty in the rules for employers who wish to maintain retirement plans.”
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