Consolidated Appropriations Act 2021

  • 2020 0521 - NAIC - Life Actuarial (A) Task Force Conference Call May 21, 2020

You’re caught into this box where you’ve got a product that, when you go back to that format, it’s an iteration of the product that can’t exist.

  • The intent is, if you’re selling this thing as a level premium permanent product, there should be a way of dealing with that.
  • I really think it’s just again hitting another flaw and another hole in how the UL model regulation applies to the real world today.

--  Craig R. Raymond

1999 - SOA - 1999 Valuation Actuary Symposium, (va99-44of), Edward L. Robbins, Society of Actuaries - 28p

  • 2021 0202 - Joseph Belth - No. 408: A Recent Change in the Federal Income Tax Law Designed to Benefit Wealthy Life Insurance Policyholders - [link]
    • The 1984 Change in the Tax Law
      • I asked representatives of the American Council of Life Insurers (ACLI), which had lobbied for the 2021 change in the tax law, whether they could provide me with material about the 1984 change.
      • They said they could not locate any such material.
      • Therefore, I will describe what happened, based on my memory.
  • WSJ - A Small Tax Change Is a Boon for Permanent Life Insurance - Insurers worried that a government rule from 1984 threatened certain products—and sought Washington’s help, Leslie Scism - [link]

In a memo to the ACLI Board dated March 5, 1982, two approaches to this were outlined.

  • The first proposed guideline measures and limits premium payments based on a guideline premium defined in the contract.
  • The second proposed guideline classifies life insurance cash values as amounts not in excess of the net single premium necessary to purchase the life insurance or to endow this contract after a stated period.

--  Christian Desrochers

1982 - SOA - Universal Life Update, Society of Actuaries (rsa82v8n34) - 26p

MR. MARKS: Do any companies have concerns regarding not being able to charge a premium that would be high enough to mature the policy on a current interest rate basis with the new guideline premiums being lower?

  • In other words, since the interest rates are being credited or say, in the 5 to 5.5 percent range, and there's a six percent interest rate in the calculation of guideline single premiums, would there be a concern that you couldn't even fund the policy on a guaranteed basis?

MR. BERLIN: I've heard of that issue.

  • Your guideline level is calculated at four percent.
  • This is just my feeling, but I don't think that we want to approach the Service to reduce the interest rates from four percent to say, 2.5 to 3 percent because then it opens 7702 up for scrutiny and a whole host of other issues.
  • Sometimes the evil you know is better than the evil you don't.

2002 - SOA - Implications of the New CSO Mortality Table, Society of Actuaries - 28p

NAIC - LAHTF

2020 - GOV (House) -The Heroes Act Summary - 90p

Sec. 308. Minimum Rate of Interest for Certain Determinations Related to Life Insurance Contracts.

In order to qualify as life insurance contracts for tax purposes, permanent life insurance policies must meet several requirements under Internal Revenue Code section 7702.

These requirements include two interest rate assumptions for determining the premiums that can be used to fund the contracts.

  • The interest rate assumptions were set by statute at 4 percent and 6 percent when the requirements were put in place in 1984.

At the time, the average long-term Treasury rate was around 12 percent.

  • The recent public health and economic crisis has prompted the Federal Reserve to reduce already persistently low interest rates to around 0 percent, and the daily long-term Treasury rate has hovered at 1 percent.

Without adjusting the section 7702 interest rates to reflect economic realities, consumer access to financial security via permanent life insurance policies—which represent approximately 60 percent of the individual life insurance market—could decrease significantly.

  • This legislation updates section 7702 to reflect the interest rate environment that has been exacerbated by the current crisis, and ensures that the rates will continue to appropriately reflect economic conditions, by tying the rates to either a floating rate prescribed in the National Association of Insurance Commissioners’ Standard Valuation Law or a floating rate based on the average applicable Federal mid-term rates over a 60-month period.

Taxpayer Certainty and Disaster Tax Relief Act of 2020

  • 2020 0512 - House - H. R. 6800 - [PDF-1815p]
  • 2020 0528 - JCT - JCX-16-20 - [LINK-DOWNLOAD]
    • 7. Minimum rate of interest for certain determinations related to life insurance contracts...... cia 12/31/20 --- -8 (2021) -38 -92 -160 -242 -334 -438 -553 -672 -791 -540 (2020-2025) -3,328 (2020-2030)
  • 2020 1019 - Congressional Record https://www.congress.gov/116/crec/2020/10/19/CREC-2020-10-19-pt1-PgS6075.pdf
  • 2020 1221 - Senate - RULES COMMITTEE PRINT 116–68 -TEXT OF THE HOUSE AMENDMENT TO THE SENATE AMENDMENT TO H.R. 133 - [PDF-5593p] - [PDF-p4923-3927]
    • TITLE II—OTHER PROVISIONS
      Sec. 205. Minimum rate of interest for certain determinations related to life insurance contracts
  • 2020 - H. R. 133 - [PDF-2124p]
  • 2020/1?? - ACLI - Consolidated Appropriations Act Updates to Internal Revenue Code Section 7702 - 3p
  • 2021 03 - SOA - Rightsizing the Floor Interest Rate Rules of Sections 7702 and 7702A, By Craig Springfield, Brian King and Robert Fishbein, Taxing Times, Society of Actuaries - [link]
  • 2021 02 - SOA - Recent Change to IRC § 7702 Interest Rates and Impact on Life Insurance Products, Society of Actuaries - [link]

2021 - H. R. 133 - 2124p]

SEC. 205. MINIMUM RATE OF INTEREST FOR CERTAIN DETERMINATIONS RELATED TO LIFE INSURANCE CONTRACTS.
(a) MODIFICATION OF MINIMUM RATE FOR PURPOSES OF CASH VALUE ACCUMULATION TEST.—
(1) IN GENERAL.—Section 7702(b)(2)(A) is amended by striking ‘‘an annual effective rate of 4 percent’’ and inserting ‘‘the applicable accumulation test minimum rate’’.
(2) APPLICABLE ACCUMULATION TEST MINIMUM RATE.—Section 7702(b) is amended by adding at the end the following new paragraph:
(3) APPLICABLE ACCUMULATION TEST MINIMUM RATE.—For purposes of paragraph (2)(A), the term ‘applicable accumulation test minimum rate’ means the lesser of—
‘‘(A) an annual effective rate of 4 percent, or
‘‘(B) the insurance interest rate (as defined in subsection (f)(11)) in effect at the time the contract is issued.’’.
(b) MODIFICATION OF MINIMUM RATE FOR PURPOSES OF GUIDELINE PREMIUM REQUIREMENTS.—
(1) IN GENERAL.—Section 7702(c)(3)(B)(iii) is amended by striking ‘‘an annual effective rate of 6 percent’’ and inserting ‘‘the applicable guideline premium minimum rate’’.
(2) APPLICABLE GUIDELINE PREMIUM MINIMUM RATE.—Section 7702(c)(3) is amended by adding at the end the following new subparagraph:
‘‘(E) APPLICABLE GUIDELINE PREMIUM MINIMUM RATE.—
For purposes of subparagraph (B)(iii), the term ‘applicable guideline premium minimum rate’ means the applicable accumulation test minimum rate (as defined in subsection (b)(3)) plus 2 percentage points.’’.
(c) APPLICATION OF MODIFIED MINIMUM RATES TO DETERMINATION OF GUIDELINE LEVEL PREMIUM.—Section 7702(c)(4) is amended—
(1) by striking ‘‘4 percent’’ and inserting ‘‘the applicable accumulation test minimum rate’’, and (2) by striking ‘‘6 percent’’ and inserting ‘‘the applicable guideline premium minimum rate’’.
(d) INSURANCE INTEREST RATE.—Section 7702(f) is amended by adding at the end the following new paragraph:
‘‘(11) INSURANCE INTEREST RATE.—For purposes of this section— "Consolidated Appropriations Act"

H.R.6800 - The Heroes Act - 116th Congress (2019-2020)

Sponsor: Rep. Lowey, Nita M. [D-NY-17] (Introduced 05/12/2020)
Committees: House - Appropriations; Budget; Ways and Means
Committee Meetings: 09/22/20 10:30AM 09/16/20 12:00PM 09/10/20 12:00PM (All Meetings)
Latest Action: Senate - 07/23/2020 Committee on Small Business and Entrepreneurship. Hearings held.  (All Actions)
Roll Call Votes: There have been 2 roll call votes

 

Sec. 307. Minimum rate of interest for certain determinations related 
              to life insurance contracts.
https://www.govinfo.gov/content/pkg/CREC-2020-10-19/html/CREC-2020-10-19-pt1-PgS6075.htm


[Congressional Record Volume 166, Number 178 (Monday, October 19, 2020)]
[Senate]
[Pages S6075-S6295]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




          STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTION

2020 Summer, NAIC Proceedings, 6-198  Attachment Six - Life Actuarial (A) Task Force

2. Exposed Amendment Proposal 2020-07

  • Paul Graham (American Council of Life Insurers—ACLI) said the Heroes Act, a bill passed recently by the U.S. House of Representatives, contains a revision to Section 7702 of the Internal Revenue Code (IRC), which for tax purposes provides the definition of life insurance.
    • The definition uses the cash value accumulation test (CVAT) to determine whether a policy qualifies as life insurance, allowing it to avoid being taxed as an investment.
    • The interest rate used in the Section 7702 CVAT is currently floored at 4%.
    • He noted that the 4% nonforfeiture interest rate floor in the Standard Valuation Law (#820) and the Valuation Manual was set to match the 4% floor in the Section 7702 CVAT.
  • Mr. Graham further explained that the Heroes Act changes the CVAT by replacing the interest rate floor from the 4% static rate to an indexed rate.
    • He said the change necessitates a similar change in the Valuation Manual for policies issued after the congressional bill is adopted by the U.S. Senate.
    • He said the challenge is that the timing of the Senate adoption is uncertain.
  • Brian Bayerle (ACLI) said amendment proposal 2020-07 (Attachment Six-C) removes Valuation Manual references to the 4% interest rate floor and replaces it with language that sets the nonforfeiture rate floor in the Valuation Manual to the rate determined by Section 7702, eliminating the need for future adjustment to align the two sets of requirements.
    • He reiterated that the change will not affect any existing policy.
  • Mr. Tsang said lowering the nonforfeiture rate will result in higher cash values.
    • He asked if there is a business reason for lowering the rate.
  • Mr. Graham said that as interest rates decline, premiums on new policies will increase.
    • He said providing higher cash values as premiums increase is a matter of equity.
  • John Norton (Globe Life) said Globe Life is not in favor of the change recommended in amendment proposal 2020-07.
    • He said Globe Life is concerned the change will lead to higher costs that will affect the affordability of basic life protection.
    • He said Globe Life is supportive of comprehensive reform of the nonforfeiture laws.
  • Jim Hodges (National Alliance of Life Companies—NALC) said that the NALC agrees with the Globe Life viewpoint.
  • Mr. Yanacheak made a motion, seconded by Mr. Tsang, to expose amendment proposal 2020-07 for a 21-day public comment period ending June 10.
    • The motion passed unanimously.

2020 1019 - Congressional Record - 221p

SEC. 307. MINIMUM RATE OF INTEREST FOR CERTAIN DETERMINATIONS RELATED TO LIFE INSURANCE CONTRACTS.
(a) MODIFICATION OF MINIMUM RATE FOR PURPOSES OF CASH VALUE ACCUMULATION TEST.—
(1) IN GENERAL.—Section 7702(b)(2)(A) of the Internal Revenue Code of 1986 is amended by striking ‘‘an annual effective rate of 4 percent’’ and inserting ‘‘the applicable accumulation test minimum rate’’.
(2) APPLICABLE ACCUMULATION TEST MINIMUM RATE.—Section 7702(b) of such Code is amended by adding at the end the following new paragraph:
‘‘(3) APPLICABLE ACCUMULATION TEST MINIMUM RATE.—For purposes of paragraph (2)(A), the term ‘applicable accumulation test minimum rate’ means the lesser of— ‘‘(A) an annual effective rate of 4 percent, or ‘‘(B) the insurance interest rate (as defined in subsection (f)(11)) in effect at the time the
contract is issued.’’.
(b) MODIFICATION OF MINIMUM RATE FOR PURPOSES OF GUIDELINE PREMIUM REQUIREMENTS.—
(1) IN GENERAL.—Section 7702(c)(3)(B)(iii) of such Code is amended by striking ‘‘an annual effective rate of 6 percent’’ and inserting ‘‘the applicable guideline premium minimum rate’’.
(2) APPLICABLE GUIDELINE PREMIUM MINIMUM RATE.—Section 7702(c)(3) of such Code is amended by adding at the end the following new subparagraph:
‘‘(E) APPLICABLE GUIDELINE PREMIUM MINIMUM RATE.—For purposes of subparagraph (B)(iii), the term ‘applicable guideline premium minimum rate’ means the applicable accumulation test minimum rate (as defined in subsection (b)(3)) plus 2 percentage points.’’.
(c) APPLICATION OF MODIFIED MINIMUM RATES TO DETERMINATION OF GUIDELINE LEVEL PREMIUM.—Section 7702(c)(4) of such Code is amended— (1) by striking ‘‘4 percent’’ and inserting ‘‘the applicable accumulation test minimum rate’’, and (2) by striking ‘‘6 percent’’ and inserting ‘‘the applicable guideline premium minimum rate’’.
(d) INSURANCE INTEREST RATE.—Section 7702(f) of such Code is amended by adding at the end the following new paragraph:
‘‘(11) INSURANCE INTEREST RATE.—For purposes of this section—
‘‘(A) IN GENERAL.—The term ‘insurance interest rate’ means, with respect to any contract issued in any calendar year, the lesser of— ‘‘(i) the section 7702 valuation interest rate for such calendar year (or, if such calendar year is not an adjustment year, the most recent adjustment year), or ‘‘(ii) the section 7702 applicable Federal interest rate for such calendar year (or, if such calendar year is not an adjustment year, the most recent adjustment year).
‘‘(B) SECTION 7702 VALUATION INTEREST RATE.—The term ‘section 7702 valuation interest rate’ means, with respect to any adjustment year, the prescribed U.S. valuation interest rate for life insurance with guaranteed durations of more than 20 years (as defined in the National Association of Insurance Commissioners’ Standard Valuation Law) as effective in the calendar year immediately preceding such adjustment year.
‘‘(C) SECTION 7702 APPLICABLE FEDERAL INTEREST RATE.—The term ‘section 7702 applicable Federal interest rate’ means, with respect to any adjustment year, the average (rounded to the nearest whole percentage point) of the applicable Federal mid-term rates (as defined in section 1274(d) but based on annual compounding) effective as of the beginning of each of the calendar months in the most recent 60-month period ending before the second calendar year prior to such adjustment year.
‘‘(D) ADJUSTMENT YEAR.—The term ‘adjustment year’ means the calendar year following any calendar year that includes the effective date of a change in the prescribed U.S. valuation interest rate for life insurance with guaranteed durations of more than 20 years (as defined in the National Association of Insurance Commissioners’ Standard Valuation Law).
‘‘(E) TRANSITION RULE.—Notwithstanding subparagraph (A), the insurance interest rate shall be 2 percent in the case of any contract which is issued during the period that— ‘‘(i) begins on January 1, 2021, and ‘‘(ii) ends immediately before the beginning of the first adjustment year that beings after December 31, 2021.’’.
(e) EFFECTIVE DATE.—The amendments made by this section shall apply to contracts issued after December 31, 2020.