Monthly LRA Update
Monthly LRA Update
TAX DEVELOPMENTS
Biden Administration Releases Fiscal Year 2023 Budget Proposal
On March 28 the Biden Administration released its Fiscal Year 2023 budget proposal. Primary tax policy proposals include a new 20% minimum tax on households with more than $100 million in wealth and an increase in the corporate tax rate to 28%.
The summary table includes a few other notable tax proposals, along with estimates of each proposal’s impact on the deficit:
| Proposal | 10-Year Budget Impact |
| Increase corporate tax rate to 28% | $1.3 trillion |
| Impose a minimum tax on the wealthiest taxpayers | $361 billion |
| Increase the top marginal tax rate for high earners | $187 billion |
| Expand pro rata interest expense disallowance for business-owned life insurance | $6.8 billion |
| Require employers to withhold tax on failed NQDC plans | $6.8 billion |
While the budget proposals provide some insight as to the Administration’s objectives and preferences, actual legislation often differs materially from the proposals outlined in the budget materials. We will continue to monitor for tax-related legislation.
JUDICIAL DEVELOPMENTS
Leonard v. John Hancock – Attorneys’ Fees Awarded in COI Litigation
On March 17 the US District Court for the Southern District of New York signed an order awarding attorneys’ fees and expenses to Class Counsel (Susman Godfrey) in connection with this class action settlement. Class Counsel was awarded $34.4 million plus a pro rata share of interest earned on the Settlement Fund.
In this litigation, Plaintiffs alleged that John Hancock improperly increased cost of insurance (COI) charges for certain universal life policies issued between 2003 and 2010. As we noted in our October 2021 LRA Update, an interesting aspect of this case and subsequent settlement is that the COI provisions in these policies provided John Hancock with discretion to base COI rates on various factors in addition to “expectations of future mortality” experience. The factors expressly included “investment earnings” or “future investment earnings.”
The Settlement Agreement included the following primary terms:
- A cash Settlement Fund of up to $123 million, which is equal to 91.25% of all COI overcharges collected by Hancock from the Class Policies through August 31, 2021.
- “COI overcharge” refers to the amount a Settlement Class member paid in COI charges in excess of what would have been paid had Hancock not implemented the COI increase.
- A total and complete freeze on any new COI increase for a period of five years following Final Approval of the Settlement.
- Hancock has agreed not to challenge the validity and enforceability of any eligible policies owned by participating Class members on the grounds of lack of an insurable interest or misrepresentations in the application for such policies.
As noted previously, the fairness hearing is set for May 17.
LEGISLATIVE DEVELOPMENTS
Utah Passes Consumer Privacy Law
On March 24 Utah Governor Spencer Cox signed the Utah Consumer Privacy Act (“UCPA”) into law. This law is reportedly similar to laws enacted in Virginia and Colorado.
Under the UCPA, a “Consumer” is defined as an individual who is a resident of Utah “acting in an individual or household context” and expressly excludes an individual “acting in an employment or commercial context.”
The UCPA also includes exemptions for a “financial institution… governed by, or personal data collected, processed, sold, or disclosed in accordance with Title V of the Gramm-Leach-Bliley Act and related regulations.”
We do not expect Utah’s privacy law to have direct or indirect implications for BOLI programs.