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Congress passes pensions bill, estate-tax cut fails.

For the second time in two months, an attempt by the U.S. Senate to enact permanent changes to the federal estate tax failed to overcome a procedural challenge. But the chamber was able to declare victory on its final vote of the 2006 summer session, moving overwhelmingly to pass comprehensive pension-reform legislation.

By a 93-5 margin, the Senate approved H.R. 4, the Pension Protection Act, characterized by many as the most significant overhaul of the U.S. retirement security system since the Employee Retirement Income Security Act of 1974. Designed primarily to close the $450 billion in funding shortfalls of the nation's defined-benefit pension system, the bill grants a seven-year window for most plans to become fully-funded.

The measure, which passed the House July 28, was moved without amendment and was signed by President Bush on Aug. 17. Originally slated for an Aug. 4 vote, the bill was moved up on the calendar to late Aug. 3 after Senate Democrats pushed for an immediate cloture vote on H.R. 5970, the Estate Tax and Extension of Tax Relief Act.

Dubbed the "trifecta" bill by the Republican leadership, H.R. 5970 combined a proposal to permanently reduce the federal estate tax with provisions that would raise the minimum wage to $7.25 an hour and extend a number of other popular tax breaks--such as credits for research and development and state sales taxes--the leadership hoped would entice Democrats to vote for the bill.

The gamble failed, as it garnered just 56 of the 60 votes needed to close off debate and move to consideration of the measure, actually falling one vote shy of the 57 who voted in June to repeal the estate tax altogether. Repeal had been opposed by the American Council of Life Insurers, which didn't take a public stance on the proposal to permanently reduce the tax. The Independent Insurance Agents & Brokers of America favored repeal and also supported the effort to enact a permanent reduction.

Pension providers and life insurers welcomed the 900-page pension bill with open arms, as it includes a host of provisions long sought by the industries. In an e-mail, TIAA-CREF's chief executive officer, Herb Allison, called the measure "a major victory for the many Americans trying to meet long-term savings goals."

"The bill increases the amount of money Americans can save for retirement tax-free, promotes automatic enrollment in retirement savings plans and makes permanent the tax benefits of 529 college savings plans," Allison wrote. "By encouraging Americans to save for retirement and their children's education, this legislation helps to serve the greater good."

Among its major provisions, the bill would provide safe harbor from age-discrimination suits for employers that transition to so-called "hybrid" cash balance or DB/k plans, which combine annuitized defined-benefit payouts with 401(k) savings and investment features. Safe harbor from both discrimination complaints and state anti-garnishing rules also would be extended to 401(k) plans that automatically enroll employees, provided the plans match at least 50% of contributions and vest in no more than two years.

Another provision would allow insurers and investment firms to provide investment advice to 401(k) and Individual Retirement Account participants, even where their own products are among the investment options. To avoid conflicts of interest, the law calls for using certified computer models that match 401(k) investment choices to a participant's profile.

The final bill also opens the door to "life care annuities," hybrid products that combine the features of long-term-care insurance with life insurance and annuities. The provisions would allow both life insurance and annuity products to include riders for long-term-care coverage and would greatly expand the tax-free exchange of life, endowment and annuity contracts for long-term-care contracts.
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Title Annotation:Briefing: Highlights From BestWeek
Author:Lehmann, R.J.
Publication:Best's Review
Geographic Code:1USA
Date:Sep 1, 2006
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