02/18/2009 03:15 PM House LABOR & COMMERCE

HB 101-EXEMPTIONS: LIFE INSURANCE; ANNUITIES                                                                                  
                                                                                                                                
4:07:47 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON announced  that the final order of  business would be                                                               
HOUSE BILL  NO. 101,  "An Act  exempting the  full value  of life                                                               
insurance and  annuity contracts  from levy to  satisfy unsecured                                                               
debt,  and amending  the description  of earnings,  income, cash,                                                               
and  other  assets  relating to  garnishment  of  life  insurance                                                               
proceeds payable upon the death of an insured."                                                                                 
                                                                                                                                
4:07:55 PM                                                                                                                    
                                                                                                                                
AMANDA  MORTENSEN, Intern,  Representative  John Coghill,  Alaska                                                               
State  Legislature,  speaking on  behalf  of  the prime  sponsor,                                                               
Representative John  Coghill, explained that HB  101 would exempt                                                               
the full value of life  insurance and annuity contracts from levy                                                               
to  satisfy unsecured  debt.   This  bill  would protect  Alaskan                                                               
families and their  ability to plan for the future.   She related                                                               
an example  in which  "person A"  is involved  in a  car accident                                                               
hits  "person B"  and that  person could  sue for  the assets  of                                                               
"person A".  This bill  would protect "person A's" life insurance                                                               
and annuity contract so that  his/her family could survive in the                                                               
event of  "person A's" death.   However, "person B" would  not be                                                               
prevented from  pursuing "person A's"  other assets to  fulfill a                                                               
settlement award.   Additionally, HB 101 would  protect the death                                                               
benefits of the spouse or a  dependent of the debtor in the event                                                               
the debtor  survives.  Currently, retirement  plans are protected                                                               
under federal  law.  This bill  would help in instances  in which                                                               
an employer  does not provide  an employee with  retirement plan.                                                               
The employee would  be allowed to use an annuity  as a retirement                                                               
plan  to  provide  financial  security for  their  family.    She                                                               
remarked  that  given  the  uncertainty  of  the  federal  social                                                               
security  system  that  Alaskan  families  need  to  be  able  to                                                               
legitimately provide for their futures.   She related that HB 101                                                               
falls under AS 09.38.025, which  provides exemptions for the code                                                               
of civil procedure.                                                                                                             
                                                                                                                                
4:10:02 PM                                                                                                                    
                                                                                                                                
MS.  MORTENSEN  explained  that Section  1  removes  the  $10,000                                                               
exemption  cap on  life insurance  and annuities  and Section  2,                                                               
removes  the   language  "or  payable"  to   clarity  potentially                                                               
ambiguous  language   that  would  allow  garnishment   of  death                                                               
benefits prior  to a person's death.   She offered that  10 other                                                               
states   have  exempted   life  insurance   and  annuities   from                                                               
creditors.                                                                                                                      
                                                                                                                                
4:11:01 PM                                                                                                                    
                                                                                                                                
LINDA HULBERT stated  that she has lived in Alaska  for 40 years.                                                               
She  offered that  for the  past 20  years she  has worked  as an                                                               
agent for  New York Life  Insurance.   She also offered  that she                                                               
has been helping Alaskan families  plan for estate and retirement                                                               
planning.   She  opined  that HB  101 is  very  important to  the                                                               
future  of Alaska's  families due  to  the economic  environment.                                                               
She  related  that many  retirement  plans  are being  cancelled,                                                               
companies  are  not  always making  contributions  to  retirement                                                               
plans  on  behalf of  their  employees,  and many  families  have                                                               
limited savings.  This bill  would allow Alaskan families to plan                                                               
and have life insurance without being  subject to the loss of the                                                               
life  insurance.   Additionally,  it would  allow individuals  to                                                               
plan  for their  retirement.   She  surmised  that fewer  defined                                                               
benefit  plans exist.   This  bill would  allow employees  to set                                                               
aside  money that  would be  protected  and not  taxed until  the                                                               
retirement funds  were used.   She said she strongly  supports HB
.   She reiterated  that ten other  states have  adopted these                                                               
provisions.   She surmised that the  trend is for more  states to                                                               
enact legislation  to protect employees'  retirement plans.   She                                                               
related that Arizona passed similar  legislation a few years ago.                                                               
She stressed  the importance of  this bill to assist  families in                                                               
planning  for  their  future.    Plus, she  opined  that  HB  101                                                               
encourages  personal  responsibility to  plan  and  save for  the                                                               
future.  She asked the committee to consider passing HB 101.                                                                    
                                                                                                                                
4:13:00 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HOLMES  inquired as to  the typical range  of life                                                               
insurance or annuity account that people currently hold.                                                                        
                                                                                                                                
MS.  HULBERT explained  that it  really  depends on  the size  of                                                               
family,   their  assets,   and   the  number   of  children   and                                                               
grandchildren.   She ventured that policies  typically range from                                                               
$100,000 to $250,000.   She opined that some  people are carrying                                                               
larger policies as they counted  on other assets to protect their                                                               
families and the assets are difficult  to sell.  She said that it                                                               
is not uncommon  to have polices in the $500  thousand range, and                                                               
sometimes  up to  $1 million  in insurance.   She  explained that                                                               
annuity  contracts may  not be  lump  sum, but  families may  set                                                               
aside  a  certain amount  per  month,  or  a  family may  try  to                                                               
preserve  an inheritance.    She concluded  that  pinning down  a                                                               
typical amount is difficult due to the varied circumstances.                                                                    
                                                                                                                                
4:14:39 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HOLMES  expressed concern  that some  people might                                                               
try  to "game  the system".    She inquired  as to  how to  offer                                                               
protection for  an employee's retirement account  without keeping                                                               
unscrupulous people  from "gaming  the system" and  sinking money                                                               
into  life insurance  or annuity  contracts in  order to  shelter                                                               
their assets.                                                                                                                   
                                                                                                                                
MS.  HULBERT responded  that  this  statute addresses  fraudulent                                                               
transfers.   She  opined that  if a  question arose  that someone                                                               
tried  to  hide  assets  or  protect  assets,  the  courts  would                                                               
consider  the transfer  of assets  a  fraudulent transfer,  which                                                               
would be subject to the claims  of creditors.  She further opined                                                               
that HB  101 protects individuals but  at the same time  does not                                                               
allow abuse.   She  related that  other states,  including Alaska                                                               
have  taken  measures to  ensure  that  fraudulent transfers  are                                                               
subject to the claims of creditors.                                                                                             
                                                                                                                                
4:16:35 PM                                                                                                                    
                                                                                                                                
MS. MORTENSEN added that the  state of Florida completely exempts                                                               
life  insurance and  annuities.   She  described  an instance  in                                                               
which  a debtor  transferred a  non-exempt individual  retirement                                                               
account  (IRA)  into  an  annuity  with  the  intent  to  defraud                                                               
creditors,  which was  determined  to be  a fraudulent  transfer.                                                               
Thus, cases  of this type have  been upheld in other  states, she                                                               
said.                                                                                                                           
                                                                                                                                
4:17:18 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON,  after first determining  no one wished  to testify,                                                               
closed public testimony on HB 101.                                                                                              
                                                                                                                                
4:17:27 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE BUCH offered  his belief that these  are the kinds                                                               
of  issues that  this state  needs to  address.   He thanked  the                                                               
bill's  sponsor for  bringing the  issue of  retirement and  life                                                               
insurance protections forward.                                                                                                  
                                                                                                                                
4:17:54 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HOLMES stated  that she  likes the  intent of  HB
.   She  expressed some  concern that  she has  not considered                                                               
other   possible  issues,   such   as  whether   an  account   is                                                               
automatically protected  in instances in which  a person inherits                                                               
a trust  fund that  is in the  form of an  annuity.   She offered                                                               
that a few outlying scenarios need to be considered.                                                                            
                                                                                                                                
4:18:23 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE COGHILL  offered his belief that  Alaska has tried                                                               
to stay "in the  front of the pack" on trust  fund issues and has                                                               
built  in  significant fraud  protection.    He opined  that  the                                                               
issues have  been addressed  through the years.   He  recalled at                                                               
least  eight bills  that  have come  before  the House  Judiciary                                                               
Standing Committee that fall into  that category.  He stated that                                                               
annuities  generally deal  with death  benefit issues.   He  said                                                               
that he shared  Representative Holmes's concern, but  that he has                                                               
not observed  any way to escape  the law.  He  expressed interest                                                               
in Representative  Holmes's review, since he  supports legitimate                                                               
claims but  does not want anyone  to be able to  game the system.                                                               
He opined that he has not found any loophole to date.                                                                           
                                                                                                                                
4:19:41 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HOLMES maintained her belief  that HB 101 has good                                                               
intent.  She  noted that she will be privileged  to hear the bill                                                               
when  it comes  to  the House  Judiciary  Standing Committee  for                                                               
review.                                                                                                                         
                                                                                                                                
4:19:55 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON offered to hold the bill over.                                                                                      
                                                                                                                                
4:20:13 PM                                                                                                                    
                                                                                                                                
Representative  Holmes   responded  that  if  the   rest  of  the                                                               
committee wished  to move  the bill she  will further  review the                                                               
bill and take  up any issues before the  House Judiciary Standing                                                               
Committee.                                                                                                                      
                                                                                                                                
4:20:22 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  COGHILL  moved  to  report HB  101,  Version  26-                                                               
LS0176\R, out  of committee  with individual  recommendations and                                                               
the accompanying fiscal notes.   There being no objection, HB 101                                                               
was  reported   from  the  House  Labor   and  Commerce  Standing                                                               
Committee.