H.R. 7327 (Worker, Retiree, and Employer Recovery Act of 2008) unanimously passed the Senate last night after passing the House the night before, paving the way for White House approval. The White House remained silent this week after voicing concerns over funding provisions in weeks prior. Whether the White House will go along with overwhelming bipartisan congressional support is still undetermined.

The bill represents the first congressional action since September 30 to provide relief at the individual level rather than the corporate level. Taxpayers, age 70½ or over, with individual retirement accounts, would be granted a one-year reprieve from drawing their required minimum distributions in 2009 without penalty. Congress left the decision to Treasury as to whether the provisions would be relaxed for the 2008 tax year.

The bill also implements technical corrections to provisions of the PPA affecting pension plans. AALU is pleased that the provisions we supported in letters to Congress were included in the bill. The Joint Committee on Taxation issued a technical analysis of H.R. 7327 in a report released Dec. 11. We will cover the bill in depth in a forthcoming Washington Report Bulletin.

Best Regards,

David J. Stertzer, FLMI
AALU CEO

The congressional drive in the second lame duck session coupled with the transition to the 111th Congress and the new administration forecasts the flurry of activity we will see in 2009.

Two important developments for the advanced producer have emerged over the last 48 hours: the House Ways and Means Committee will have a new ratio of 26 Democrats to 15 Republicans, and Senate Finance Chairman Max Baucus (D-MT) has gone on record supporting a tax cut proposal in the stimulus bill or another bill shortly thereafter. In addition, the SEC now appears likely to consider and adopt some version of its equity indexed annuity proposal on December 17, after announcing late yesterday the proposal has been added to the meeting agenda.

Baucus indicated he would extend the 01/03 tax cuts for the middle class, index the estate tax at the 2009 levels ($3.5 million/45% rate), and raise the exemption levels for the AMT. If a decision is made on the estate tax in the early months of 2009, technical provisions, such as reunification, may be left out to try to ease passage.

For the advanced producer, here are the takeaways: five new members on the Ways and Means Committee will need to be educated on the products the advanced producer provides, and a decision on the estate tax would provide certainty for your clients. The wait-and-see approach would be over and the low AFR and 7520 rates would make planning advantageous for clients in this environment. AALU will work with our industry allies to educate the key decision makers on the Hill and we will continue to promote the important policy reunification provides.

Happy Holidays,

David Stertzer, FLMI
AALU CEO

The Senate’s amendments to the Pension Protection Technical Correction Bill of 2008 (H.R. 6382) include modifications to pension distribution requirements and expansion of some earlier tax breaks for small businesses. Industry trade groups continue to push for the bill, which has bipartisan congressional support, but the bill has been met with opposition from the administration. A summary of the bill can be accessed by clicking here.

The administration opposes relaxing the funding requirements claiming that most plans would not be affected until 2010 and estimating that delaying the funding could translate into $3 billion in new claims placed on the Pension Benefit Guaranty Corporation (PBGC) over the next decade.

Trade organizations continue to lobby the administration, urging them to reconsider and suggesting that failure to act would result in harsh consequences in 2009. Representative Earl Pomeroy (D-ND), an AALU Endorsed Candidate, expressed his concern over the administration’s position stating “PBGC and the administration have no plan to help workers and employers except to suggest that Congress should wait and see what happens to pensions over the next few years.”

AALU is hearing from lobbyists and Hill staff that congressional leadership across the aisles will work to push the bill through this week. If the bill is not signed into law, however, it would be pushed again in the January stimulus. AALU continues to work with other pension-minded organizations to support passing the relief provisions. If you have any questions or comments, please direct them to the AALU online forum. Also, if you have not yet signed up for the webinar, Impact of the Financial Crisis on an Upscale Life Insurance Practice, you can do so here.

Kind Regards,

David J. Stertzer, FLMI
AALU CEO

Last week I reported on the SEC’s proposed measures to increase transparency and accountability at credit rating agencies and to ensure that firms provide more meaningful ratings and greater disclosure to investors. On December 3, the regulations were unanimously adopted in a move that illustrates the trend toward increased transparency and broad government oversight of the financial markets.

“These comprehensive rules touch every aspect of the credit rating process – from conflicts of interest, to publication of ratings methodologies, to disclosure of ratings track records,” said SEC Chairman Christopher Cox. “The SEC’s examinations of credit rating agencies uncovered serious deficiencies that these rules will address, so that investors and markets will have better information to guide investment decisions.”

The SEC’s actions were informed by the agency’s extensive 10-month examination of three major credit rating agencies that found significant weaknesses in ratings practices. The proprietary nature of rating agencies has made it difficult for investors and insurance agents to ascertain the analysis behind ratings of companies and products. The increased disclosures, which we will cover in a forthcoming Washington Report Bulletin, may help AALU members explain ratings to their clients in the months ahead.

AALU is aware that regulatory oversight proposals are forthcoming from the Senate Budget Committee and the House Financial Services Committee. AALU created a committee to examine the proposals, suggest improvements and work toward the development of regulation that best represents the interests of our members and their clients.

As a reminder, on December 9, AALU is offering an Educational Webinar featuring Colin Devine, Dan Byrne, Dave Culley and Luther Lockwood, to address how the financial crisis has and will affect the upscale life insurance practice in 2009 [to register you can Click Here]. Furthermore, feel free to visit AALU’s online forum to read what other advanced producers have to say.

Thank you for your time,

David J. Stertzer, FLMI
AALU CEO

As the Dow drops below 8,000 and scrutiny mounts on the Treasury’s ability to handle the implementation and oversight of the broad authorities granted to it by the Emergency Economic Stabilization Act, our industry faces new developments. Recently, companies within the life insurance industry have applied for savings and loan charters so they can be eligible for the TARP’s Capital Purchase Program (CPP).

These applications ensure that companies have access to a wholesale line of credit as consumer confidence continues to wane and credit lending tightens. Life insurance companies provide trillions of dollars to the economy through bond holdings and it is important that they continue to provide liquidity in conjunction with the TARP program. The capital cushion will provide stability in a time of volatile and uncertain market conditions.

The deadline to apply for the program is December 8, 2008. Companies with pending thrift applications can apply to the Treasury’s program and may receive capital only if the thrift application is approved by January 15, 2009. Of the first $350 billion installment granted to the Treasury, $250 billion has been committed to banks ($160 billion of which has been allocated), another $40 billion has been allocated to AIG, and $60 billion remains. The Treasury has issued a FAQ sheet for private companies participating in the program. The program has clear guidelines and all companies must remain federally regulated for as long as the Treasury holds preferred stock and warrants.

On Tuesday, the House Financial Services Committee held a hearing to address the progress of the Treasury’s TARP program. The hearing is one of many scheduled to address broad regulatory reform of the financial services industry in 2009. AALU is creating a regulatory committee to oversee proposals, suggest improvements and work toward the development of regulation that best represents the interests of our members and their clients.

We will keep you apprised of any and all developments in Washington, D.C. In the meantime, please visit our Blog and also, please register for our December Webinar to hear from Colin Devine, Dan Byrne and Dave Culley on the impact, status and future of the sophisticated life insurance practice.

Sincerely,

David J. Stertzer, FLMI
AALU CEO

Secretary Paulson held a press conference today to address the Troubled Asset Relief Program (TARP). He prefaced his comments by saying we face complicated circumstances and a constantly changing environment. While much of the initial $350 billion authorized for implementation of TARP has been utilized, Paulson said that he feels “comfortable” that the overall $700 billion provided for under the Emergency Economic Stabilization Act would be enough. He noted that he has “no timeline for going to Congress to ask for the second $350 billion.” You can read Paulson’s statement here.

The original intent behind enactment of TARP pivoted on the problems in the financial sector. “Our primary focus was to get credit flowing and to restore credit lending throughout the marketplace,” said Paulson. The application of the Treasury’s programs, particularly the Capital Purchase Program (CPP), has been a point of contention for life insurance companies the last two weeks. In a Wall Street Journal op-ed, Frank Keating, ACLI CEO, pointed out that nearly half of the life insurance companies are eligible to participate in the CPP because “some 48% of industry assets are attributable to companies organized as bank or thrift holding companies.” You can read Keating’s letter here.

If the injection of capital extends to eligible life insurance companies by way of savings and thrifts, the Treasury’s goals of restoring liquidity and credit would be furthered because of the large role the insurance industry plays as a source of financing in the economy. “Life insurers are the largest source of bond financing for American corporations,” noted Keating. “They provide $2.5 trillion in liquidity to the economy and provide another $2.5 trillion in capital to the economy through investments in commercial mortgages, government bonds, and equities.” Keating added that “Life insurance companies that choose to participate in the CPP will quickly deploy funding to further the growth and development of American companies and help to restore liquidity and stability to the financial system of the U.S – the precise objective of the program.”

It is important that we convey to both clients and the public the important role the industry plays in the stability of our economy. For example, in 2006, life insurance premiums accounted for 4.2 percent of the U.S. GDP. This clearly indicates that life companies have a substantial impact on individual households and are a vital component of the U.S. economy. Furthermore, insurance companies employ about 2.2 million people either as direct employees or as agents and brokers.

AALU will keep you apprised of developments regarding the CPP. To read more about the restrictions placed on companies participating in the CPP, click here: Washington Report Bulletin 08-96. To get real-time insight from other advanced producers, we encourage you to visit AALU’s online forum here: www.aalu.org/blog. Also, AALU is preparing a webinar, “The Impact of the Financial Crisis on an Upscale Life Insurance Practice,” featuring Dan Byrne, Colin Devine, and Dave Culley. Stay tuned for more information on how to register for this important member service.

David J. Stertzer, FLMI
AALU CEO

Yesterday’s AALU Washington Report LIVE! webcast shed some light on the future of the advanced markets—from the transition to a new Administration, to the new congressional agenda, to the Treasury’s financial rescue plan. Your knowledge of these developments is crucial to the success of a high-end life insurance practice.

Our webcast panelists noted the next Secretary of the Treasury will soon be named and other political appointments will follow. These appointments will have serious implications for our industry. Steve Ricchetti, deputy chief of staff during President Clinton’s administration and closely tied to President-elect Obama’s camp, indicated the political appointees will be “well-seasoned” and “reasonable.” However, as AALU CEO David Stertzer aptly pointed out, there are many voices on Capitol Hill and we’re dependent on our grassroots efforts to make sure the insurance industry is not only heard, but also unified and active.

During the program, our friend in the industry, Mike Hunter, Executive Vice President and COO of ACLI, weighed in on the strength of the industry and the impact of the financial crisis on carriers. He said the industry is secure and the concern over the drop in company stock is a result of depressed market values. State regulatory requirements ensure companies have the assets to pay out all guaranteed death benefits.

Mike added that ACLI appreciates AALU’s partnership on many of the united industry efforts and supports a strong industry voice from the grassroots level. AALU’s members provide the products and security to Americans, the companies infuse the economy with capital, and together the life insurance industry provides $2.5 trillion in liquidity to the economy. It is critical that we deliver this unified message to Congress.

Our panelists agreed we will soon see regulatory reform proposals for the insurance industry and they will start with the enactment of the Optional Federal Charter. Other products, like nonqualified deferred compensation plans, annuities, and certain trust arrangements are susceptible to regulatory proposals. The threats posed by inexact regulations would limit the way you conduct business every day. In fact, AALU will be working with congressional offices and agencies to inform regulators how the industry would be impacted.

Staying informed helps you provide more value to your clients, and protecting your ability to plan for them is a job we all share. Your active participation enables AALU to provide timely information through these webcasts and printed Washington Reports. If you have not renewed your membership and you wish to continue receiving these benefits, please click here. I also charge each of you with bringing one new member to AALU. Simply direct your prospective member to AALU’s website to watch David Stertzer, Ken Kies, Steve Ricchetti, Marc Cadin, and Mike Hunter discuss the issues that affect our industry.

Thank you for your continued support of AALU.

Please share with us your feedback on the Webcast by filling out our online survey.

Sincerely,

Michael P. Corry, CLU
AALU President

November 4, 2008 proved a historic Democratic night, not just because Senator Barack Obama won, but because Democrats swept in as many as 25 additional seats in the House, picked up 5 in the Senate, and have the potential to pick up another two. Senate races in Oregon, involving Endorsed Candidate Gordon Smith (R-OR), and Alaska are currently very close, although Republican incumbents are currently leading by small margins in both.

In addition to 2 vacant Senate seats (Sens. Obama and Biden), it is widely speculated that a number of Senators and at least one prominent House member will be tapped to serve in the next Administration, paving the way for leadership changes. For example, observers are expecting Senator Chris Dodd (D-CT) to succeed Senator Biden (D-DE) as Chairman of the Senate Foreign Relations Committee, which would leave a vacancy in the Senate Banking Committee. Also, there will be a leadership shake up in the House Republicans; Conference Chair Adam Putnam (R-FL) has already announced that he is stepping down and many suspect that Endorsed Candidate Congressman Eric Cantor (R-VA) may be tapped to fill the role as House Minority Leader.

So much of this election was based on the uniqueness of Senator Obama. Both the magnitude of his victory and his ability to speak eloquently and directly with the American people will give him perhaps an unprecedented ability to chart the course for the years ahead. Yet the recession and uncertainty over the economy will play a large role in shaping the spending and tax promises of the campaign trail, particularly in light of Senator Obama’s commitment to a “Pay-As-You-Go” budget. Thus, it remains to be seen whether Obama will use a post-1994 Clinton model to govern from the center or a more expansive FDR-style government activism.

Election results allow us to put some uncertainty behind us, yet the life insurance industry faces a whole new order. With Senator Obama governing, we are likely to see an increase in the capital gains tax to 25%, a decision on the Estate tax at $3.5 million and 45%, and changes in the short-term to IRA distributions with the possibility of mandatory IRAs and 401(k)s for all workers moving forward.

To get the insiders’ take tune in to tomorrow’s webcast where I will moderate our panel of Washington experts Ken Kies, Marc Cadin, and Steve Ricchetti along with special guest Governor Frank Keating of ACLI. Questions continue to surface about insurers’ reserves, guarantees, stock prices and the Treasury’s programs, we are fortunate to have the Governor with us to address them. The webcast is free for both members and non-members and you can log on by clicking here. We can start the dialogue now by logging onto AALU’s online forum at www.aalu.org/blog to generate the discussion on the issues we face and how to best adapt these changes to successful business practices.

Best Regards,

David J. Stertzer, FLMI
AALU CEO

With less than a week to go before a historic election, Washington, D.C. continues to buzz with activity. Senator Obama continues to lead in the polls, including Gallup’s daily tracker. Since 1952, only one candidate led this poll with a week to go who did not win the Presidency (President Carter in 1980).

Yesterday, House Ways and Means Committee Chairman Charlie Rangel held a hearing to look at the credit crunch and consider alternatives for a possible stimulus package. The Governors of New York and South Carolina testified on the substantial deficits states are facing (totaling over $105 billion).

To address the impact the crisis has had on pension plans, AALU co-signed the attached letter along ACLI, ASPPA, the Chamber of Commerce, and a number of prominent business groups to urge the committee to enact legislation that would aid qualified plan sponsors; specifically, to include technical corrections to the Pension Protection Act that we believe implement Congressional intent, and temporary provisions that deal with the current crisis.

At 4:30 pm yesterday, the Treasury began executing the first part of its Capital Purchase Program (CPP), spending $125 billion to purchase preferred stock in banks like Bank of America, Citigroup, Wells Fargo and Merrill Lynch. Infusing capital directly at the retail level was an important first step to restoring the capital markets and now the Treasury Department is considering expanding the CPP to other important industries, including the automakers, bond insurers, and life insurers, among others.

After discussions with key industry partners, we believe it is important for Treasury to give serious consideration to make capital available at the wholesale level through life insurers. Life insurance companies are one of the largest purchasers of corporate bonds; to date, life insurance companies hold approximately 18% of the U.S. corporate bonds. They also have substantial investment in equities, commercial mortgages, government bonds and other assets.

The wholesale devaluation of virtually all asset classes combined with a frozen capital market has prompted life insurers, like banks, to choose to conserve cash and invest in U.S. Treasuries rather than conduct their normal business activities. Additionally, the access to capital would also help ensure that Americans continue the “flight to quality” we have seen to products that provide a safety net of guarantees and protection. No other private financial institution assumes the risks associated with premature death, outliving savings in retirement and paying expenses related to disability and long-term care. In these economic times, the role our industry plays is more important than ever.

As these developments continue to unfold, we will keep you apprised. To support our cause, please help by sponsoring a new member for membership, or help by supporting the LCP today. Thank you for your continued support!

-David Stertzer

The headlines over the weekend suggested that the Treasury Department is considering buying equity stakes in insurance companies as originally contemplated by the Emergency Economic Stabilization Act of 2008 (EESA). To date, the Treasury has not issued a formal statement to substantiate the headlines. The last formal statement issued by the Treasury was made on October 23 by the Interim Assistant Secretary before the Senate Banking Committee. To view the Department’s progress implementing their authorities under the Emergency Economic Stabilization Act (EESA), please click here.

To substantiate the stories, journalists alluded to a letter sent by the Financial Services Roundtable to the Treasury. To view the letter, please click here. The Roundtable urged the Treasury Department to expand the range of institutions eligible to participate in the Capital Purchase Program (CPP), consistent with the terms of EESA. Specifically, those institutions would be broker-dealers, insurance companies, and automobile companies, as well as institutions controlled by a foreign bank or company. We reported on the EESA in Washington Report Bulletin 08-86 and we are preparing a Bulletin that will be out shortly and details the Treasury’s programs, including the CPP.

While I am not in a position to speculate on what will happen, I want to provide you with the hard facts so that you are in a better position to field questions from your clients.

AALU is committed to bringing you the most up-to-date developments on critical matters that affect your industry. We are working with our industry allies to provide you with a white paper that offers a more detailed report on the industry. Also, please tune in for the post-election Washington Report LIVE webcast on November 6 at 2:00 pm EST where I will be asking our Washington insiders what is going on behind the scenes.

Sincerely,

David J. Stertzer, FLMI
AALU CEO