Legislature(2015 - 2016)BARNES 124
04/15/2015 03:15 PM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| HB12 | |
| HB159 | |
| HB185 | |
| SB71 | |
| SB47 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 12 | TELECONFERENCED | |
| += | SB 47 | TELECONFERENCED | |
| += | SB 71 | TELECONFERENCED | |
| *+ | HB 159 | TELECONFERENCED | |
| *+ | HB 185 | TELECONFERENCED | |
SB 47-LIFE INSURANCE/ANNUITY EXEMPTIONS
5:34:42 PM
CHAIR OLSON announced that the final order of business would be
SENATE BILL NO. 47, "An Act relating to exemptions for cash
surrender values, accrued dividends, and loan values of life
insurance and annuity contracts."
5:36:32 PM
GERMAN BAQUERO, Intern, Senator John Coghill, Alaska State
Legislature, stated that Section 1 of SB 47 would repeal and
reenact one AS 09.38.025 (a), which will essentially repeal the
$500,000 cap on the exemption of un-matured life insurance
policies, and reenacts it as a full exemption regardless of the
value limit. Section 2 of the bill clarifies the applicability
date.
5:37:27 PM
MR. BAQUERO said this bill came about when some members of
insurance industry and trust industry found more private
employees are turning to life insurance and life insurance
policies as new estate and retirement tools. He said that
granting a full exemption was a means to treat all retirement
funds as secured, just as public employee retirement accounts or
union accounts, which are completely shielded by the federal
government and not subject to garnishment. He stated that a
zero fiscal note was attached to HB 47. He said that this bill
does not shield life insurance policies from any type of
criminal action, but refers to civil litigation. He directed
attention to members' bill packets to [AS 09.38.065] claims
enforceable against exempt property that provides the list of
exceptions to the exemptions ranging from being able to levy
against property to enforcing child support claims.
5:39:36 PM
MR. BAQUERO He read a portion of paragraph (3), which read, "(3)
a creditor may make a levy against exempt property of any kind
to enforce the claim of a victim, including a judgment of
restitution on behalf of a victim of a crime or a delinquent
act, ...." He interpreted this to mean that this bill would not
stop someone from trying to seek just restitution in a criminal
situation. He said that the bill has opposition from the Alaska
Bankers Association, who expressed concern that this could
create a means to shield assets that could be garnished by a
bank, but the sponsor found that interpretation a little
wanting. For one thing, the exemptions under AS 09.38.030
[(c)], related earnings and liquid assets clearly states a
creditor can levy upon the earning of an individual if the
creditor's claim is enforceable under an order of a court of
bankruptcy under the Bankruptcy Reform Act of 1978. Therefore
the concerns of the banking industry are not quite accurate in
terms of a debtor trying to hide or commit fraud. Finally, this
bill does not interfere assigning a policy as collateral to a
bank for a loan. He directed attention to AS 34.40.010, related
to invalidity generally, basically says that anyone who assigns
any of their property as collateral means that the person is
assigning the property to them, subject to garnishment on any
default. He said there really is not any fraudulent intent that
could come along, but can help make life insurance policies more
secure tools for estate planning while the policies remain un-
matured.
5:42:57 PM
REPRESENTATIVE LEDOUX related a scenario involving criminal
action, but noted the standards of proof in a criminal action
and a civil action are different. She asked for further
clarification that regardless of the amount of damages, they can
keep the insurance policy that may be valuable.
MR. BAQUERO answered that the intent of the bill is not to
harbor savings, earnings, or investment of an insurance policy;
instead, the intent is to secure the investments a person makes
in an insurance policy while the policy is un-matured. Once the
policies have matured and the assets have transferred over to
the beneficiary, the assets become the property of the
beneficiary and are attachable. This bill was trying to put AS
09.38.025 in line with exemptions for retirement plans under AS
09.38.017.
5:45:53 PM
REPRESENTATIVE LEDOUX asked whether retirement plans were
exempt.
MR. BAQUERO answered there was no numerical value limit since
they are fully exempted.
REPRESENTATIVE LEDOUX remarked she had some problems with that,
too.
5:46:19 PM
REPRESENTATIVE HUGHES suppose someone owes $500,000 to the
creditor. She asked whether the creditor can come after the
debtor.
MR. BAQUERO stated that currently under AS 09.38.025, when the
policy has matured the assets are attachable. This legislature
pertains to un-matured life insurance and once the insurance was
matured, the assets are accessible to garnishment. In further
response to Representative Hughes, he said that once the value
of the policy exceeds $500,000, it is subject to garnishment.
5:48:11 PM
REPRESENTATIVE HUGHES related her understanding that was current
law, but if this bill passes it could not be garnished.
MR. BAQUERO answered that if the bill passed it would exempt all
un-matured life insurance and annuity contracts regardless of
the value limit.
5:48:37 PM
REPRESENTATIVE KITO asked for the reason to make these changes.
MR. BAQUERO answered that the trust and life insurance industry
has found that once clients were buying policies up to $500,000,
they found that clients wanted more protection similar to the
protections that public employees have with respect to social
security or the state's supplemental annuity plan. In fact the
top ten highest gross retirement plans in the state's
supplemental annuity were over $1 million and were shielded from
garnishment. This bill was a means to level the playing field
from private employees trying to find a new estate planning
tool.
5:50:27 PM
REPRESENTATIVE KITO asked for further clarification that in
creating additional security with the policy does it decrease
the cost to consumer for that policy.
MR. BAQUERO deferred to the trust industry to respond.
5:50:55 PM
RYNNIEVA MOSS, Staff, Senator John Coghill, Alaska State
Legislature, echoed that the sponsor found that many people who
wanted to invest money in a retirement system were limited to
$500,000 to obtain the same benefits the union and public
employees have. In addition, the sponsor was interested in
building a trust industry in Alaska that helps to diversify the
economy and potentially result in $58 million in taxes to the
state in 2016. One disadvantage in getting people to invest
more than $500,000 into a life insurance or annuity program is
that money is not secure and is un-matured. Currently, the
Alaska Trust Industry in Alaska has $50 million deposited in
Northrim Bank since it is the limit for funds secured by FDIC
[Federal Deposit Insurance Corporation]. The rest of their
funds are invested in money markets and other investments. In
conclusion, she recapped that the sponsor would like to create
an industry and incentive people to invest in larger life
insurance policies since the state assesses premium taxes on the
life insurance policies.
5:52:44 PM
REPRESENTATIVE KITO offered his belief that individuals
investing more than $500,000 would be a small pool in Alaska.
MS. MOSS answered that people from the Lower 48 invest in these
life insurance policies.
5:53:12 PM
REPRESENTATIVE LEDOUX offered her belief that the funds would be
secure so long as people did not get into accidents and paid
their bills.
MS. MOSS suggested that people can go to other states to get the
policies. She said that one objection the banks had was that
they couldn't get to a life insurance policy prior to the
insurance policy being issues. She said that banks are
responsible for obtaining collateral at the time money is
loaned. She suggested it was a little disingenuous to reach out
after the fact and grab unto a life insurance policy that was
purchased after loans were approved with other collateral. She
suggested that if they issued a loan without an appropriate
amount of collateral would be the bank's decision. She said a
person shouldn't be punished for it.
5:54:36 PM
REPRESENTATIVE LEDOUX asked whether John Q. Public who wants to
collect his debts.
MS. MOSS answered that state has exceptions to the exemptions,
which was a fairly lengthy list, but it does not give carte
blanche protection or immunity from paying debts.
5:55:05 PM
REPRESENTATIVE JOSEPHSON stated that in his experience with
debtors/creditors [in his law practice], that much of what we
own is vulnerable. He suggested that most people are not
worried about it and take one step at a time.
MS. MOSS directed attention to the issue of equal treatment for
retirement and the opportunity to build a nest egg for
retirement. She stated that public employees and union
employees are protected under federal law with a $500,000 limit
for individuals. She acknowledged that this bill was a policy
call. She said that her issue is that anyone who wants
retirement system should be treated equally.
5:57:24 PM
LORI WING-HEIER, Director, Division of Insurance, Department of
Commerce, Community, & Economic Development (DCCED), said she
testified on this bill in the Senate. She offered that the
industry being discussed was new to Alaska. The life insurance
industry in Alaska has come up with an idea that attempts to
stimulate the insurance industry and provide something new to
the state. She said people could question the other
jurisdictions, such as Switzerland, have so much business in the
financial industry. She answered that it was because they have
created a favorable tax structure.
5:58:51 PM
MS. WING-HEIER said that Vermont has been renowned for its
captive insurance policies since Vermont built a good tax
structure, as have other jurisdictions, such as the Bahamas,
Bermuda, and the Virgin Islands. She offered her belief that
Alaska's life insurance industry has expressed interest in
several changes, including the $500,000 issue, which is not
limited to Alaskans but some of the biggest polices in Alaska
are sold to nonresidents. She characterized Alaska's tax
structure as good, noting that after $100,000 the tax rate drops
from .1 to .08 percent premium tax. If Alaska can become more
competitive, the industry believes it can sell more and removing
the $500,000 limit may help to do so. Secondly, life insurance
is a very safe retirement vehicle for small employers, who may
not feel comfortable with stocks and bonds. Once the insurance
reaches $500,000, it becomes accessible to creditors. She
acknowledged everyone should pay their debts; however, the issue
of fair play should be considered, such that the public or
unions paying into their retirement systems are protected, but
the private sector employees are not. Thus creditors can access
their $500,000 or un-matured cash value, but they cannot access
the public employee's $500,000.
6:00:46 PM
MS. WING-HEIER explained that this bill does not affect her
division since the Division of Insurance's statutes fall under
Title 21 [AS 21]; however, she has done some research. She said
that [garnishments] can happen on life insurance and annuities
with criminal actions, but not under civil actions. She
recalled the Division of Insurance did receive a letter from the
Department of Law to clarify that point.
6:01:38 PM
REPRESENTATIVE LEDOUX expressed concern that the state might not
want to allow bank accounts, like Switzerland does, in which
people can avoid lawsuits and other things.
MS. WING-HEIER answered she used Switzerland as an example, but
noted that other jurisdictions that have taken actions on the
insurance or financial industries have had good success.
6:02:45 PM
REPRESENTATIVE JOSEPHSON surmised the administration supports
this bill.
MS. WING-HEIER answered that there has not been any opposition
to the bill. In further response, she clarified that the
division's statutes are under Title 21, not in Title 9 and the
bill affects AS 09 and the administration has not given her any
direction on this bill.
6:03:17 PM
REPRESENTATIVE JOSEPHSON said he was in the process of vetting
SB 47, but he has found that normally when the department is
neutral on a bill, the administration doesn't necessarily
support the bill. He assumed that was the case with SB 47.
MS. WING-HEIER reiterated that this bill would affect AS 09 and
not the insurance code that falls under AS 21.
6:04:25 PM
REPRESENTATIVE KITO suggested that it might be necessary to
protect consumers and residents of Alaska, for example, if the
state was creating a new product, it will be important that the
product not harm anyone in Alaska. He said he would like to
learn more about potential impacts on Alaskans.
6:05:10 PM
REPRESENTATIVE HUGHES said [the changes proposed in SB 47]
sounds like a new economic opportunity. She asked whether this
could bring in hundreds of millions to the state.
MS. WING-HEIER answered the insurance industry is the second
largest contributor to the general fund in premium taxes. If
the insurance industry was right in its predictions, it could be
significant to Alaska. Certainly, the state charges 2.7 percent
as a rule on all premiums that come into the state. Life
insurance taxes on premiums drop to 1 percent after $100,000 in
premium. She estimated that the premium taxes would be
approximately $55 or $56 million and if the market changed and
the industry can entice people from the Lower 48 to invest in
trusts, annuities, and life insurance, it could be significant
to the state.
6:06:36 PM
CHAIR OLSON asked for further clarification on the tax cap of
.08 percent.
MS. WING-HEIER answered that another bill [SB 15] would reduce
the premium tax from 1 percent to .08.
CHAIR OLSON asked for the projections on a bill that passed 3-4
years ago in which the state gave up premium taxes.
MS. WING-HEIER offered to research and provide the information.
6:07:50 PM
MATTHEW BLATTMACHR, Vice-President & Trust Officer, Alaska Trust
Company, stated that Alaska Trust Company doesn't offer
insurance services nor was one that the company was pushing
forward, but the Alaska Trust Company supports it. He explained
that a substantial portion of its business comes from estate
planning with life insurance and annuity contracts.
6:08:44 PM
MR. BLATTMACHR asked how much was lost in revenue for the
previous premium taxes. He said the statute currently reads
that the state charges 2.7 percent on any premium under 100,000
and it drops ten basis points after $100,000. At the time that
bill passed, the Alaska Trust Company asked the Division of
Insurance for largest policy premium, with no policy in excess
of $50,000. This didn't give up any premium tax revenue, but
gave an incentive to receive additional large policies.
6:09:50 PM
CHAIR OLSON asked whether the prior bill affected any premium
tax impact.
MR. BLATTMACHR testified it was his understanding it did not.
6:10:06 PM
CHAIR OLSON asked for further clarification on why the bill was
passed. He recalled it was going to bring in large premium
policies.
MR. BLATTMACHR answered that did impact a number of policies
that came to the state, but it did not cost to implement the
changes.
6:10:47 PM
MR. BLATTMACHR said that the life insurance industry is growing
in Alaska and contributes to the state's economic industry. He
said that the trust industry in Alaska deals with life insurance
almost on a daily base so it is in support of the bill as a
means of keeping Alaska as attractive environment.
6:11:25 PM
REPRESENTATIVE HUGHES related her understanding that the last
change to 1 percent in taxes didn't affect revenue. She asked
what Alaska gained.
MR. BLATTMACHR answered that the discussion today was regarding
SB 47, but the tax change was contained in SB 15. However, he
did state that Alaska has received additional policies it likely
would not have received due to the favorable tax structure. He
suggested that the exact number would be difficult to determine,
but he offered that currently, the state has a substantial
number of large policies.
6:12:36 PM
LINDA HULBERT stated that she was involved in the insurance
industry as an agent for 25 years and prior to that she spent 20
years in the educational community in Alaska. She said she does
not represent any companies, but represents herself. She said
that this protection was available in many states throughout the
United States, including New York, Florida, Texas, and Arizona.
She said that many states have the exemption for life insurance
and annuities as part of their state policies. She said that if
someone were to move from Alaska to New York and took their
insurance policy with them and changed their residency, they
would have this protection. She characterized this as a
fairness issue and an opportunity to create revenue and an
opportunity for savings.
6:14:37 PM
CHAIR OLSON asked whether NAIC has any model legislation.
MS. WING-HEIER answered no, not with respect to lifting the cap
for creditors since it does not affect Title 21.
6:15:02 PM
REPRESENTATIVE KITO asked whose responsibility Title 9 fell
under.
MS. WING-HEIER said she was unsure since statutes governing the
Division of Insurance fall under Title 21, so she was unsure who
administers the title.
[SB 47 was held over.]