In a typical week-before-recess rush of activity, there was quite a lot of newsworthy action last week. Here’s a summary.
Fiduciary: The new proposed Department of Labor (DOL)/Employee Benefits Security Administration (EBSA) fiduciary rule was released last week. It is described in detail in the GovUpdate sent to all NAIFA members on June 30, so here suffice to say that the proposed class exemption from ERISA’s prohibited transaction rules retains the five-part test for what constitutes advice that makes the advisor a fiduciary, imposes on a fiduciary a standard of conduct derived from the Impartial Conduct Standards applicable to all investment advice fiduciaries, and generally permits the sale of proprietary products, most forms of compensation—including commissions—and retains Prohibited Transaction Exemption (PTE) 84-24 governing annuities and other life insurance products.
The proposed new regulation governs retirement advice, including rollovers from retirement savings plans to IRAs. It is open for comment, and NAIFA does plan to submit comments. Generally, the proposed reg tracks with the Securities and Exchange Commission’s (SEC’s) Regulation Best Interest (Reg BI) that applies to advisors of non-retirement investors.
Taxes: The tax world on Capitol Hill is active, but so far, there is little in play that is of concern to NAIFA interests. The House passed an infrastructure bill last week that includes some tax-related bond issues. There are tax issues—including the interest rate used in calculating whether a life insurance policy will qualify as life insurance under Internal Revenue Code (IRC) section 7702 and whether insurer-held bonds can be characterized as ordinary rather than capital assets—that will be addressed in the new coronavirus crisis response bill (see below for more details on that). But generally, for us, tax legislation is on the back burner.
PPP: On July 4, President Trump signed into law a quick-passed measure (S.4116) that extends until August 8, the time frame during which businesses can apply for Paycheck Protection Program (PPP) loans. Both the House and the Senate passed the measure by unanimous consent (UC). There is other PPP legislation also pending. One bill would extend through the end of the year the time during which PPP loans can be applied for. Another, the Paycheck Program Recovery Act, would make several changes to the program. That bill was subject to a UC request to pass it in the Senate, but UC was not forthcoming. So, the bill is still pending. It would:
Expand the definition of payroll expenses to include more employer-provided group insurance benefits than just health insurance coverage.
Expand eligibility for PPP loans to certain trade associations (501(c)(6) organizations) with 50 or fewer employees for loans of up to $500,000 so long as the trade association is not principally engaged in lobbying and so long as none of the loan money is used for lobbying activities.
Make covered supplier costs and covered worker protection expenditures allowable and forgivable uses of PPP funds. “Covered supplier costs” are expenditures to a supplier pursuant to a contract for goods that are essential to the PPP recipient’s operations. A “covered worker protection expenditure” includes adaptive investments to help a loan recipient comply with federal health and safety guidelines related to COVID-19 during the period between March 1, 2020, and December 31, 2020.
Permit a PPP borrower to choose a covered period ending at the point of the borrower’s choosing between eight weeks from loan origination and December 31, 2020.
Create a simplified loan application process—the process for loans under $150,000 would not require borrowers to submit certain documentation but instead attest to a good faith effort to comply with PPP loan requirements and retain relevant records for one year. The process for loans between $150,000 and $2 million would not have to submit CARES Act-specified documentation but instead would have to complete the certification required by the CARES Act. They must also retain relevant records and worksheets for two years, and they may complete and submit demographic information.
Create new “recovery draw” loan products based on the borrower’s revenue size or on whether it will be a short-term loan.
The bill also addresses seasonal employment and lender issues relevant to the PPP. Its provisions would take effect as if they were originally enacted in the CARES Act (i.e., as of March 25, 2020).
While it is possible that PPP change legislation will pass on its own, the high likelihood is that it will be rolled into the next coronavirus crisis response bill. Negotiators – the leadership of Congressional Republicans and Democrats from both the Senate and the House, and the Administration (probably led by Treasury Secretary Steven Mnuchin) – plan to start hammering out the next bill on or around July 20.
ACA Expansion: The House passed an Affordable Care Act (ACA) expansion bill last week. It is a partisan “message” bill that is unlikely to see any Senate action (in fact, Senate Majority Leader Sen. Mitch McConnell (R-KY) said the Senate will not take up the measure).
Among other things, H.R.1425 would make short-term limited-duration (STLD) health insurance available for three months, overturning the STLD regulation that makes such insurance available for up to one year. It would also bar future regulations that are substantially similar to the STLD regulation the bill overturns. It would also expand ACA subsidies and premium tax credits, provide funding for States to set up their own ACA exchanges, and incentivize State expansion of Medicaid programs. The bill also revises prescription drug cost rules and adds more money for navigator programs.
The bill highlights a key election campaign issue. The Supreme Court (SCOTUS) is currently considering a case alleging that the ACA is unconstitutional, due to the repeal of the penalty (a tax, SCOTUS ruled) for failure to comply with the ACA’s individual mandate. SCOTUS ruled that the ACA’s constitutionality is grounded in Congress’ power to tax and so repeal of the individual mandate penalty/tax destroys the constitutional grounds on which the ACA rests, argue the States seeking a finding that the ACA is unconstitutional.
Experts think SCOTUS will not resolve the question of the ACA’s constitutionality prior to the November elections. Access to affordable health care polls as among the top issues on the minds of voters, who in November will vote to elect both the next President and a new Congress. So, we expect considerable debate, although probably no legislative action, on health care access and affordability issues between now and the fall, when Congress adjourns for the elections. We’ll keep you posted on any developments.
Retirement Savings: Reps. Richard Neal (D-MA) and Kevin Brady (R-TX), leaders of the House Ways & Means Committee, did not make their pre-Independence Day target date for introduction of their new SECURE 2 retirement savings bill. They say they hope to introduce it soon after the currently ongoing 4th of July Congressional recess. It is possible that at least some of SECURE 2’s provisions will make it into the new coronavirus crisis response bill. It is really just too soon to tell.
Health Insurance: There is still interest in moving surprise billing legislation “as soon as possible,” but movement on the issue has seemingly stalled. But this is one of those issues that could pop to the top of Congress’ priority agenda at any moment. We’re watching it carefully.
Employer Liability Protection: Sen. John Cornyn (R-TX) is working on a proposal to protect businesses from coronavirus-related lawsuits. His proposal will be the GOP’s starting point for negotiations on the next coronavirus crisis response bill. He says his proposal will give employers their choice of which government guidelines to use in reopening and operating in the current pandemic context. So long as the businesses operate under government guidelines, they would be shielded from lawsuits claiming the businesses are liable when someone gets COVID-19 at their place of business. Democrats are remaining relatively quiet on this issue, as they are awaiting the details of the Cornyn/GOP plan. But some kind of employer liability protection is likely, probably in the next coronavirus crisis response bill.
Next Coronavirus Crisis Response Bill: As noted above, Administration, House, and Senate negotiators plan to sit down later this month to craft another coronavirus crisis response bill. Key issues are shaping up to include whether to extend supplemental federal unemployment benefits ($600 week, currently scheduled to expire on July 31), whether to substitute or add “back-to-work” bonuses, funding for State/local government response to the coronavirus crisis, and more money for coronavirus testing/contact tracing. Some health insurance issues—like subsidies for COBRA or ACA coverage and eased HSA/cafeteria plan rollover rules—are also in play.
It looks like there will be a tax title in the bill. NAIFA is lobbying (in conjunction with and in support of life insurer interests) for the section 7702 tax definition of life insurance interest rate change, and for a change in the rules to allow life insurers to better match their assets and liabilities by recharacterizing insurer-held bonds as ordinary rather than capital assets.
Negotiations are expected to begin on or around July 20, when Congress returns to Washington from its Independence Day recess. The expectation (which may be more hope than expectation) is that the negotiations will go swiftly and smoothly and that a new coronavirus crisis response bill (which may or may not be called CARES 2) will be ready for House and Senate votes by the last week of July.
NAIFA’s Monday Morning Memo is a weekly update memo prepared for NAIFA’s Government Relations Leadership by Danea M. Kehoe, of Counsel to NAIFA. Comments contained in the Monday Morning Memo will be topical, timely, frank and – as they are intended solely for the members of the Government Relations Leadership – Confidential and Privileged. All Government Relations Leaders with questions or comments may e-mail firstname.lastname@example.org.