House Committee on Financial Services Subcommittee on Housing and Insurance Hearing on The Federal Government s Role in the Insurance Industry

Transcription

1 House Committee on Financial Services Subcommittee on Housing and Insurance Hearing on The Federal Government s Role in the Insurance Industry Testimony of Catherine Weatherford President and CEO, Insured Retirement Institute October 24, 2017

2 Chairman Duffy, Ranking Member Cleaver, and Members of the Subcommittee, my name is Cathy Weatherford and I am the President and CEO of the Insured Retirement Institute. I am pleased to provide our perspective on federal government s role in the insurance industry. I commend you for holding this hearing, and I welcome the opportunity to provide testimony to the Subcommittee. Summary of Testimony Consistent with our consumer focused mission, my testimony today will address two (2) key points: 1. The Federal Insurance Office (FIO) should use its expertise and industry knowledge in collaboration with state insurance commissioners to educate federal regulators on the importance of enacting common-sense retirement security policies, such as those laid out in IRI s 2017 Retirement Security Blueprint. These policies include amending DOL s annuity selection safe harbor for employers, establishing annuity portability for workers in workplace retirement plans, and lifetime income estimation disclosures for the benefit for all workers. 2. Appointments should be made to the National Association of Registered Agents and Brokers Board (NARAB) as soon as possible. The establishment of a national clearinghouse for insurance licensing will maintain important consumer protections, retain states authority to regulate the marketplace, and ultimately remove a barrier that is impeding broker-dealers ability and financial advisors willingness to sell lifetime income products. However, the board cannot begin functioning until its members are appointed.

3 About IRI As you may know, I have over 30 years of regulatory experience, including over half of that time as an elected Insurance Commissioner and Insurance Department staff in the State of Oklahoma. Prior to joining IRI, I served as CEO of the National Association of Insurance Commissioners for 12 years, where I worked with over 50 state insurance commissioners to craft important consumer protections, including critical measures aimed at safeguarding our senior citizens. I joined IRI because my life s work is perfectly aligned with IRI s mission. IRI exists to vigorously promote consumer confidence in the value and viability of insured retirement strategies, bringing together the interests of the industry, financial advisors and consumers under one umbrella. Our mission is to: encourage industry adherence to highest ethical principles; promote better understanding of the insured retirement value proposition; develop and promote best practice standards to improve value delivery; and to advocate before public policymakers on critical issues affecting insured retirement strategies and the consumers that rely on their guarantees. IRI is the only national trade association that represents the entire supply chain for the insured retirement strategies industry. We have over 200-member companies, including major life insurance companies, banks, broker-dealers, and asset management companies. Our member companies represent more than 97 percent of annuity assets, and include the top 15 distributors ranked by assets

4 under management. We offer education, research and advocacy resources to more than 180,000 financial advisors and more than 6,000 home office professionals affiliated with our member companies. Our members are represented by hundreds of thousands of registered financial advisors across the country, and therefore, we bring a perspective from Main Street America to the Congress today. After my many conversations with these financial advisors, I have developed a deep level of appreciation for the long standing relationships they have with their clients and friends ten, twenty or even forty years. Our financial advisors consider that relationship to be a sacred trust and as such, they are intensely committed to helping their clients reach their retirement income objectives, which involves a series of the most significant financial decisions a person ever makes over a very long lifetime. America s Retirement Income Crisis and the Roles of Insured Retirement Products & Professional Financial Advice Americans today are at risk of outliving their assets. The longevity risk has never been greater. The shift from defined benefit to defined contribution plans, longer life spans, and the rising costs of health care are among the challenges that will put a significant retirement savings and income burden on the shoulders of individual consumers, in particular middle-income Americans. This reality underscores the critical importance of a regulatory environment that provides consumers access to products that meet their need to protect against longevity risk. Insurance companies and their distribution partners are the only providers of guaranteed lifetime income products.

5 Background The Dodd-Frank legislation established the Federal Insurance Office (FIO) within the Treasury Department. The FIO is charged with monitoring all aspects of the insurance industry. The Dodd-Frank law mandated that the FIO conduct a study and submit a report to Congress on how to modernize and improve the system of insurance regulation by January of The FIO was mandated to coordinate with each relevant Federal agency and state insurance regulator...and any publically available sources to determine if the information to be collected is available from, and may be obtained in a timely manner by, such Federal agency or state insurance regulator or publically available source, according to Section 313 of the Dodd-Frank law. Congress enacted the National Association of Registered Agents and Brokers Reform Act (NARAB II) in January 2015 to create a national insurance licensing clearinghouse for financial professionals operating in multiple states. By making the licensing process more streamlined and compliance with licensing regulations less onerous, NARAB will encourage broker-dealers and advisors operating in multiple states to offer insurance products such as annuities with lifetime income guarantees. Role of the Federal Insurance Office As the only federal office with extensive knowledge and understanding of the insured retirement industry, the FIO in collaboration with state insurance commissioners is uniquely positioned to advocate for and assist federal agencies and the Congress to develop policies to improve the current state of

6 retirement savings readiness in America. IRI believes the FIO should focus on sharing its expertise with other federal agencies to assist them in developing a regulatory environment that will facilitate and encourage broader access to and use of retirement savings opportunities and guaranteed lifetime income solutions. IRI s 2017 Retirement Security Blueprint recommends a number of policy changes to achieve this goal, including the three examples below. IRI shared its recommendations on these issues with the FIO in a letter sent in A copy of the letter may be accessed here. Amending the DOL Annuity Selection Safe Harbor for Employers Current DOL rules provide a safe harbor that employers can follow to satisfy their fiduciary responsibilities regarding the selection and monitoring of annuity providers. Unfortunately, plan sponsors have not generally taken advantage of this safe harbor, due primarily to the fact that the safe harbor requires them to determine whether the annuity provider will be able to satisfy all their obligations under the contract. During the last Congress, the Senate Finance Committee, on a unanimous bi-partisan basis, approved S.3471, the Retirement Enhancement and Savings Act (RESA), sponsored by Chairman Hatch and Ranking Member Wyden, which contained revisions to the safe harbor that would enable retirement plan sponsors to satisfy their fiduciary obligations by obtaining a certification from the provider that it meets certain state insurance regulatory standards (e.g., licensed in 26+ states; not operating under an order of supervision, rehabilitation or liquidation), and has been working with DOL to advance this proposal.

7 The FIO should provide assistance to the DOL in amending its annuity selection safe harbor rule, to adopt these requirements. Enable Annuity Portability for Workers In addition to expanding coverage for American workers, retirement programs need to ensure that workers in an increasingly mobile economy can carry their benefits with them across an entire career. Congress should amend a technicality in the tax code to make a record keeping change a distributable event for annuities with lifetime income benefits. This change will ensure that workers do not lose the lifetime income guarantees they have already paid for if their employer decides to change annuity products or service providers. Unfortunately, to avoid this possibility, many employers simply choose not to offer lifetime income options to their workers. Necessary changes to the tax code regarding lifetime income portability were included in S. 3471, the Retirement Enhancement and Savings Act of 2016, during the 114 th Session of Congress and would help to solve this problem. The FIO should support and advocate for the passage of this legislation. Lifetime Income Disclosure on Benefit Statements for Workers To help workers save appropriately for retirement, they need to be aware of how much monthly income their nest egg will generate in retirement. In 2013, DOL published an Advance Notice of Proposed Rulemaking that describes a draft rule that would require benefit statements to provide estimated

8 lifetime income payments based on a plan participant s accrued benefits and projected future accrued benefits. IRI launched and completed a research project designed to provide DOL with additional guidance as to how the illustrations rule should be constructed. The Lifetime Income Disclosure Act (H.R. 2055/S. 868) was reintroduced by Representatives Luke Messer and Mark Pocan in the House of Representatives and by Senators Johnny Isakson and Chris Murphy in the Senate. It was also included in S. 3471, the Retirement Enhancement and Savings Act of 2016, sponsored by Chairman Hatch and Ranking Member Wyden which was introduced and unanimously approved by the Senate Finance Committee during the 114 th Session of Congress. The bill would ensure that employers provide 401(k) participants with a projection of their monthly income at retirement, based on the current balance of the account. Research by IRI found that more than 90 percent of workers want these estimates and find them helpful, while a full 75 percent of workers said they would increase their savings level by a few percentage points or more after seeing these retirement income estimates. The FIO should assist DOL with the development of rules requiring lifetime income disclosure and advocate for the passage of the Retirement Enhancement and Savings Act. Complete implementation of NARAB II Legislation for Insurance Agents The National Association of Registered Agents and Brokers Reform Act (NARAB II) established a onestop, federal licensing clearinghouse for financial professionals holding state insurance licenses in

9 multiple states. Financial professionals who have passed background checks in their home state will be able to apply for NARAB membership to sell guaranteed lifetime income products in other states without the burden of dealing with multiple state insurance departments. This common-sense policy maintains important consumer protections, retain states' authority to regulate the marketplace, and ultimately removes barriers that impede broker-dealers' ability and financial advisors' willingness to sell lifetime income products. Before NARAB can commence operations, the President must nominate, and Senate confirm a 13- member Board, comprised of eight current state insurance commissioners, three representatives of the property/casualty industry and two representatives from the life and health sectors. Although many nominations were made during the previous administration, they failed to be considered by the Senate in time before the nominations expired. IRI respectfully requests the members of this committee urge both the President to move expeditiously to nominate members of the board and your colleagues in the Senate to speedily confirm those nominees. The nomination and confirmation of the NARAB board members will enable the FIO complete implementation of the law and establish NARAB as the one-stop federal licensing clearinghouse for financial professionals holding state insurance licenses in multiple states. Financial professionals who have passed background checks in their home state will be able to apply for NARAB membership, enabling them to sell guaranteed lifetime income products in other states and reduce the regulatory burden of dealing with multiple state insurance licensing processes, while ensuring clients have access

10 to a full suite of lifetime income options. The law maintains important consumer protections, retains states authority to regulate the marketplace, and improves consumer choice. Conclusion Thank you again for the opportunity to present this testimony. We hope you will find it useful, and we would welcome the opportunity to work with the Subcommittee in the future as you consider additional legislative and regulatory changes to help all Americans achieve real retirement security.