Monthly LRA Update: March 2024

TAX DEVELOPMENTS

Senate Finance Committee Report on Private Placement Life Insurance On February 21 Senate Finance Committee Chairman, Ron Wyden (OR) issued a press release and a Democratic Staff Investigation report detailing the findings of their investigation into the Private Placement Life Insurance (“PPLI”) marketplace. We covered his announced intentions to investigate this industry in our August and September 2022 LRA Updates.

The report characterizes PPLI as a tax shelter for the wealthiest Americans that is not available to middle-class families. Chairman Wyden directly expressed support for the continued tax preferences for “ordinary” life insurance and annuity products, noting:

Most Americans use life insurance to ensure that a mortgage is paid or that children can go to college if a primary breadwinner dies prematurely. Similarly, annuities provide longevity insurance so that American retirees can feel safe that they will have a steady stream of income even if they outlive all their other assets. The tax preferences afforded to life insurance and annuity contracts are provided to encourage the purchase of these products, and they do – as evidenced by the more than 90 million American families [who] own some type of life insurance or annuity. These tax preferences must be preserved so that ordinary Americans can protect themselves and their families. Ordinary life insurance and annuity policies used by most Americans have nothing to do with PPLI, an abusive investment product that is only available to the ultra-wealthy.

However, the report encourages Congress to enact legislation that will “eliminate the use of PPLI to side-step U.S. tax laws” and notes that the Committee is working on a legislative proposal. The following principles were identified (among others) as priorities:

• Legislation “must provide that PPLI … will not be treated as life insurance … under federal tax laws…” which would result in all earnings of such contracts being taxed currently;
• Strong information reporting obligations would be enacted to ensure the IRS has the ability to identify abuses and seek to better enforce investor control rules; and
• The legislation would be effective no later than the date of enactment and would apply to existing policies in addition to newly issued policies.

While this report focuses solely on the high-net-worth PPLI market, we will continue to monitor for any legislative proposals, as they could inadvertently present issues for COLI/BOLI markets.

OTHER DEVELOPMENTS

Deferred Compensation Administrator Data Breach

A data security breach has been reported relating to a deferred compensation administrator. A number of firms have filed notifications with states and have indicated that credit monitoring services will be offered to potentially affected individuals.

According to the filed notices, on or around November 3, 2023 Infosys McCamish Systems LLC (“IMS”) was impacted by a cybersecurity event when an unauthorized third party accessed IMS systems, resulting in the non-availability of certain IMS applications.

The Attorney General’s offices of Maine and California each maintain listings of data breach notifications that have been submitted.

Note that the Northwestern notices referenced IMS as the actual source of the reported data breach.