Monthly LRA Update: April 2026

LEGISLATIVE DEVELOPMENTS

Louisiana Proposed Legislation for BOLI 1035 Exchange

A bill has been introduced in the Louisiana state senate (SB 509) that is directed toward BOLI exchanges – particularly exchanges of policies covering former employees. While we support the bill’s aim of clarifying that exchanges of policies covering former employees are permissible, as drafted, the bill has the following problems:

1. It requires the replacement policy to be “of the same type”;
2. It requires the replacement policy to have the same “death benefit amount”; and
3. It requires written consent of the former employee.

Same Type of Insurance

The bill doesn’t clarify what would be meant by being the “same type” of life insurance. One possible interpretation within BOLI would be the same structure (e.g., General Account, Hybrid, or Separate Account). Another possibility would be whole life versus universal life. In any event, this restriction doesn’t make sense, particularly since the IRS has specific regulations addressing what types of contracts can be exchanged under Section 1035.

Same Death Benefit Amount

A provision requiring the same death benefit amount is unworkable. Unless a policy has a death benefit that is greater than the amount required under IRC 7702, the policy’s death benefit will change based on the contract’s cash surrender value. Similarly, in a 1035 exchange, the new policy’s death benefit must comply with IRC 7702. Simply complying with IRC 7702 oftentimes results in a different death benefit (either higher or lower) amount under a 1035 exchange.

We suspect the drafter sought to ensure that a permissible exchange wasn’t being conducted to materially increase the amount of life insurance coverage on a former employee. We agree that such an action would be improper without the affirmative consent of the insured.

Written Consent Required

Consistent with our commentary above, we support a consent requirement if a 1035 exchange is going to include a material increase in the life insurance coverage that is validly in force on a former employee’s life. However, setting that aside, we don’t see any practical benefit to seeking or requiring an insured’s consent on a 1035 exchange. Such a request for consent may be quite confusing to the former employee – raising questions about how the transaction may affect the person individually (when it has no effect on the person).

Typically, some combination of the following facts exist:

• The insured (when employed) affirmatively consented to be insured under a BOLI policy
• The consent explicitly states that the bank will pay all premiums and be the sole owner of the policy
• The consent explicitly states that the bank will continue to own the policy after the employee’s employment terminates for any reason
• The BOLI policy was originally purchased in connection with supporting an employee benefit plan.

As such, an employee that consented to be insured fully understood that such coverage would be maintained beyond the employee’s employment period. Asking for a consent to exchange existing coverage for coverage that is better suited to the policyowner’s needs does not strike us as a necessary or worthwhile exercise.

Bill Status

As of 5/1/2026, the bill was nearing passage in the LA State Senate (potentially scheduled to be passed on 5/4/2026). Our understanding of the LA legislative process is as follows:

1. A bill that passes in the originating chamber (e.g., Senate in this instance) then gets transmitted to the other chamber (e.g., the House in this instance) for consideration.
2. The House can pass it as drafted, amend the bill, or not pass the bill.
3. If the bill is passed by the second chamber, a reconciliation process ensues.
4. A final, reconciled bill is presented to the Governor who may sign it, veto it, or allow it to become law without signature.

We have been in contact with the Louisiana Bankers Association and others to propose amendments to the bill that would better preserve banks’ rights in the state of Louisiana. We will continue to monitor this legislation.

Senator Wyden Releases Updated Proposed Legislation Targeting Private Placement Life Insurance

On April 13 Senator Wyden (re)released draft legislation targeting Private Placement Life Insurance (PPLI) contracts. Upon review, it appears to be virtually unchanged from a previous version we covered in our December 2024 LRA update.

Summary

• The proposal would add Section 7702C (“Treatment of Applicable Private Placement Contracts”) to the Internal Revenue Code. A contract that is deemed to be a Private Placement Contract (“PPC”) would not be treated as an insurance or annuity contract. Therefore, such a contract would be subject to tax on the inside build-up and on any death proceeds in excess of basis.
• In general, a PPC is defined as any private placement contract whose underlying segregated asset account does not support at least 25 private placement contracts owned by unrelated parties. Additionally, each asset of a separate account must support each underlying contract on a pro rata basis.
• The proposal would be effective upon the date of enactment, applying to existing contracts as well as new contracts. For existing contracts, all prior earnings must be taken into account. The proposal provides limited transition relief under which an existing contract has 180 days to be exchanged or converted to a non-PPC.
• In total, the proposal appears highly skeletal and looks to grant broad authority to the IRS to implement the proposal in a feasible manner.

Status

This legislation is not expected to progress in the current Congress.

A one-page summary of the proposal is available here. A section-by-section summary is available here. Legislative language is available here.

Florida Bill to Restrict Employer-Owned Life Insurance Dies in Committee

As an update to our November 2025 LRA Update, the proposed bill (HB 261) that would have been materially adverse to BOLI/COLI has “Died in Insurance & Banking Subcommittee.”

The related version of the bill in the FL Senate (SB 894) is also marked as dead.

REGULATORY DEVELOPMENTS

Agencies Issue Final Rule to Prohibit Use of Reputation Risk by Regulators

On April 7 the OCC and FDIC jointly issued a final rule that codifies the elimination of reputation risk from their supervisory programs. Under the final rule, the agencies will not criticize, formally or informally, or take adverse action against an institution on the basis of reputation risk. The rule defines “reputation risk” as follows:

Reputation risk means any risk, regardless of how the risk is labeled by the institution or regulators, that an action or activity, or combination of actions or activities, or lack of actions or activities, of an institution could negatively impact public perception of the institution for reasons not clearly and directly related to the financial or operational condition of the institution.

The final rule includes several specific conforming edits that remove “reputation risk” and related sentences from existing regulations. However, this final rule does not appear to expressly change existing supervisory guidance. We suspect that such portions of guidance are effectively moot given the overarching prohibition on regulators’ use of reputation risk in the supervisory process.

The final rule is set to become effective on June 9 (i.e., 60 days after publication in the Federal Register).

Agencies Issue Updated Model Risk Management Guidance

On April 17 the OCC (OCC Bulletin 2026-13), FDIC (FIL-15-2026) and Federal Reserve Board (SR 26-2) jointly issued updated model risk management guidance. The updated guidance serves in part to rescind prior model risk management guidance (including OCC 2011-12, among others) and to clarify that model risk management practices should be risk-based, tailored, and commensurate with a banking organization’s size, complexity, and extent of model use.

Under the updated guidance, the term “model risk” refers to the potential for adverse financial consequences associated with models, which may result from decisions made based on model output.

The guidance describes considerations and best practices relating to Model Development, Model Use, Model Validation and Monitoring, and Governance.

According to the press release, the updated guidance does not set forth enforceable standards or prescriptive requirements, and non-compliance will not result in supervisory criticism.