January 2014


NY COLI Franchise Tax Bills

As has become an annual custom, NY State Representative Marcos Crespo and NY State Senator Ruben Diaz have reintroduced the companion Assembly (AB 3896) and Senate (SB 388) bills for the 2014 session.  The bills would impose a franchise tax on any company receiving benefits from life insurance policies it has obtained on its employees and/or retirees.  The tax would be equal to 50% of the gross receipts from all proceeds received from such policies.

Both bills have been referred to committees.  Historically, the bills have not received any further legislative action and it is unlikely they will garner any discussion this year.  We will continue to track this proposal.



Basel III Leverage Ratio Update

In January 2014, the Basel Committee finalized its revisions to the Basel III leverage ratio.  Basel III’s leverage ratio is defined as the “capital measure” (the numerator) divided by the “exposure measure” (the denominator).  The capital measure is currently defined as Tier 1 capital and the minimum leverage ratio is 3%.

In the final version, the Committee adopted a package of amendments, which pertains to the leverage ratio’s exposure measure.

The Committee will continue to monitor banks’ leverage ratio data on a semiannual basis in order to assess whether the design and calibration of a minimum Tier 1 leverage ratio of 3% is appropriate over a full credit cycle and for different types of business models.

U.S. bank regulators have stated that they will consider whether to revise the proposed U.S. supplementary leverage ratio (originally proposed in July 2013) once the Basel Committee has finalized its revisions to the Basel III leverage ratio.


OCC Proposes Guidelines for Large Bank Risk Governance Framework

On January 16, the OCC released proposed guidelines, to be issued as Appendix D to part 30 of its regulations, establishing minimum standards for the design and implementation of a risk governance framework for large institutions.  The proposal generally would apply to supervised institutions with total consolidated assets of $50 billion or more.

The proposed guidelines consist of three parts:

  • Part I provides an introduction to the Guidelines, explains its scope, and defines key terms used throughout the Guidelines.
  • Part II sets forth the minimum standards for the design and implementation of a Bank’s risk governance framework (Framework).
  • Part III provides the minimum standards for the board of directors’ (Board) oversight of the Framework.

The background section of the proposal indicates that the OCC developed a set of heightened expectations in the aftermath of the financial crisis and has been using them in its examination process with large banks for the past couple of years.

The comment period will be open for 60 days following the date the proposal is published in the Federal Register.


FFIEC Approves Changes to Call Reports

The FFIEC has approved several revisions to the Call Report (FFIEC 031 and FFIEC 041) for implementation as of March 31, 2014, and March 31, 2015.  The FFIEC has also approved revisions to the FFIEC 101, the regulatory capital reporting for advanced approach institutions, which will take effect March 31, 2014.  With few exceptions (none of which appear to impact BOLI), the changes proposed in August 2013 were adopted as proposed.

FFIEC 031 and FFIEC 041 (Schedule RC-R)

Part I.B. has been approved to collect regulatory capital components and ratios for advanced approach institutions in 2014.  This form will also become applicable to standardized approach institutions in 2015.  Total Risk-Weighted Assets (Line 40.a.) continues to be the “Basel I” RWA during 2014.  Line 40.b. captures the total RWA for advanced approach institutions as reflected in FFIEC 101 Schedule A (item 60).


As revised, FFIEC 101 Schedule A, Advanced Approaches Regulatory Capital, incorporates the capital disclosure template adopted by the Basel Committee on Banking Supervision in June 2012 and includes certain additional items, such as the supplementary leverage ratio.  In addition, changes have been made to nine of the risk weighted assets schedules in the FFIEC 101 to implement the revised rules that apply to advanced approaches institutions in 2014.

Required Changes for Standardized Approach Risk-Weighting

In the first quarter of 2014, the agencies expect to request comment on a proposal to implement a revised version of Part II of Schedule RC-R in March 2015 that would incorporate the standardized approach for calculating risk-weighted assets under the revised regulatory capital rules.

(Links: FFIEC 031 and 041 Draft Form; FFIEC 031 and 041 Draft Instructions; FFIEC 101 Draft Form; FFIEC 101 Draft Instructions; Federal Register Notice)



Simmons v. Bristol-Myers

As we reported last month, a COLI-related complaint was filed in the Northern District of Illinois – Eastern Division in November 2013.  Gigi Simmons, on behalf of her late husband Bruce Simmons, asserted that Bristol-Myers insured her husband, a rank and file employee, for an amount exceeding several million dollars.

On January 30, the plaintiff voluntarily dismissed the matter.  No specific rationale was provided for the dismissal; however, we had noted that the allegations did not seem to be consistent with industry practices.



COLI in the News – Orange County Newspaper’s Proposed COLI Plan

On January 28, the Los Angeles Times posted an article discussing a rival newspaper’s contemplated COLI purchase (The O.C. Register’s supremely ghoulish financial strategy).  The article reports that staff of the Orange County Register received an email requesting consent to purchase life insurance.

According to the article, the company’s communication with employees has “caused a fair amount of confusion and consternation among the employees…” and that the newspaper’s internal Facebook page was “brimful of questions and comments on an idea that sounds like it’s designed to allow the company to profit from the deaths of its own staff.”


Bipartisan Budget Act of 2013 – Update regarding SSA DMF Restriction

Last month, we reported that the Bipartisan Budget Act of 2013 had passed both chambers of Congress and been sent to the President for signature.  The President signed the Act on December 26, 2013.  Section 203 of the Act prohibits the Secretary of Commerce from disclosing information contained on the Death Master File with respect to any individual for a period of three calendar years from the date of the individual’s death.  However, the Act describes a Certification Program to be established by the Secretary of Commerce that would allow entities with a legitimate need for the information to maintain ongoing access.

We have ensured that our clients’ major insurance carriers are aware of this new law and have received updates regarding the approach that each is taking.  Additionally, on January 22, 2014, New York Department of Financial Services Superintendent Benjamin Lawsky submitted a letter to the Secretary of Commerce seeking to ensure that life insurance companies will continue to have access to the DMF.

Mr. Lawsky’s letter discusses New York’s law that requires life insurers to check the DMF on a regular basis for the purpose of paying life insurance benefits.  The letter also states that life insurers operating in New York meet the basic criteria set forth in the Act’s Certification Program.