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 101. 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 101. 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.