Texas Congressman Moves COLI Disclosure Bill

Employers would be required to disclose any life insurance held on employees, with violations policed by the Federal Trade Commission, under new legislation introduced in the U.S. House of Representatives.

The bill, called the Life Insurance Employee Notification Act, was introduced by Rep. Gene Green, D-Texas, and is similar in substance to earlier bills he sponsored in both the 109th and 110th sessions of Congress. The measure, H.R. 251, was referred to the House Energy and Commerce Committee, of which Green is a member, as well as the Education and Labor Committee.

As written, the bill would require employers to provide written notice within 30 days whenever a life insurance policy is taken out on an employee, his or her spouse or dependents. Among the details that would need to be disclosed are the identity of the insurance carrier, benefit amount of the policy and the name of the beneficiary.

As part of the rollout, existing covered employees would need to be notified within 90 days of the law's enactment, while any former employees have been covered at any time since 1985 would have to be notified within one year.

Congress last dealt with the issue of employer-owned life insurance polices — sometimes called corporate-owned life insurance, or COLI policies — in the pension bill that was signed into law in August of 2006 (BestWire, Aug. 4, 2006). A provision within the pension bill specifically limits the use of COLI policies to "highly compensated" employees — the top 35% of income earners in a company, or those earning more than $100,000 per year — to allay concerns about "janitor's insurance," the use of COLI policies to insure the lives of employees who earn minimal wages and who are not crucial to the continuation of a business.

The pension bill also requires companies to notify their employees if they purchase COLI policies naming them, and it also requires companies to report information on their COLI practices to the Internal Revenue Service. Green had filed a similar bill, H.R. 107, in January 2005, during the previous Congress, but the bill stalled after subcommittee hearings in May 2005.

Life insurance trade groups have argued that COLI policies are needed for business continuation planning, and losing the ability to have such policies would hurt insurance agents and insurance companies and U.S. business in general.

(By R.J. Lehmann, Washington bureau manager: [email protected])