WASHINGTON -- The life insurance industry intends to lobby lawmakers next year for legislation to encourage workers who quit their jobs to take monthly retirement benefits for life instead of lump-sum payments.
The American Council of Life Insurers, Washington, intends to ask lawmakers to introduce legislation that would tax annuities at preferential rates to make them more attractive.
Like individual retirement accounts, earnings on annuities are tax-deferred until individuals begin collecting the payout when they retire. Under current law, however, the payouts are taxed as ordinary income, not capital gains. Because the capital gains tax rate of 20% is lower than the income tax rate most individuals pay, the trade association intends to seek legislation that would tax as capital gains the monthly retirement benefits individuals collect.
The association's proposal is prompted by concerns that because of higher life expectancy, many Americans might outlive their retirement savings unless they buy annuities, which pay a fixed monthly benefit for life.
"People used to worry about dying too soon. Now they worry about living too long," said James A. Mitchell, chief executive of IDS Life Insurance Co. and head of the association's retirement security committee.
"The focus of our proposal is to convert (individuals') assets into a stream of payments they cannot outlive," said Doug Bates, ACLI director of federal relations.
The trade group's proposal is at the top of its retirement issues wish list for next year.
The association also intends to push for the revival of legislation that passed the House and Senate this year but died on President Clinton's desk. Provisions in that legislation include letting individuals and employers contribute more money to retirement plans and letting older workers contribute more money to make up for those years when they couldn't. The legislation also would seek to reduce the paperwork burden on pension plan sponsors, and lift the restrictions on how much money employers can contribute to traditional pension plans.
Also on its legislative agenda are provisions that would repeal the "top-heavy" rules that discourage small, family-owned businesses from offering pension plans and reduce the Pension Benefit Guaranty Corp. premiums small pension plan sponsors would need to pay.