Senator NELSON. It would be all related to his active years, would it not? Because when he retired it was based on a sale made before he retired?

Mr. JOSLIN. Yes, The problem is that a different rule applies to the self-employed versus employees. Employee agent would not have their benefits reduced under similar circumstances.

Senator NELSON. I see.

Mr. JOSLIN. That is all I have to contribute at this moment and I thank you very much for the opportunity.

Senator NELSON. Thank you, Mr. Joslin.

STATEMENT OF STANLEY HACKETT ON BEHALF OF COLONIAL LIFE AND ACCIDENT INSURANCE CO.

Mr. HACKETT. I am Stanley Hackett with the law firm of Henkell & Lamon, P.C. of Atlanta, Ga. I am here on behalf of Colonial Life and Accident Insurance Co., Columbia, S.C.

Before my statement, I would like to thank Senator Thurmond for his kind introduction, and you, Mr. Chairman, and you, Senator Dole, for holding hearings today on this critical legislation. I have a written statement that I previously submitted to the subcommittee and I would appreciate it if that would be included in the record of these proceedings.

As noted, I am here offically on behalf of the Colonial Life and Accident Insurance Co. However, it might be more appropriate to say I am here on behalf of the some 2,000 self-employed insurance agents affiliated with Colonial. These are the people who are hurting from the 1977 legislation. These are people who retired prior to the effective date of the legislation and now have lost social security benefits; these are people who are getting ready to retire but cannot retire because they cannot afford to retire without their renewal commissions plus the social security benefits.

On behalf of Colonial and its representatives, I endorse the statements made by the other members of the panel and I particularly endorse the prompt passage of either S. 2083 or section 3 of H.R. 5295. Section 3 or S. 2083 would resolve all the problems that we have. This regislation would apply to renewal commissions on all types of insurance, be it life, health, accident, property, casualty. The legislation is retroactive to January 1, 1978.

It applies to payments received when a self-employed agent retires at 62; it applies to sales agents or general or supervising agents; and it applies to all payments received after retirement based on work performed prior to retirement.

Mr. Chairman, one other point. The Commissioner of Social Security indicated that the first-year cost of the legislation was $36 million and that was his sole basis, I gather, for the administration's opposition to this bill.

I might note that had this legisation been enacted in February 1980, the first year costs would have been only $24 million. The cost will continue to go up each year that the bill is not enacted simply because it does have a retroactive effective date.

Again, Mr. Chairman, I would urge the prompt passage of either S. 2083 or H.R. 5295, and I thank you for allowing me to participate here today.

Senator NELSON. I thank you very much, Mr. Hackett.

Mr. Woodside?

STATEMENT OF HOWARD WOODSIDE, VICE PRESIDENT FOR GOVERNMENTAL AFFAIRS, SENTRY INSURANCE CO., STEVENS POINT, MICH.

Mr. WOODSIDE. Thank you, Mr. Chairman, Senator Dole. I am Howard Woodside and I am vice president of Sentry Life Insurance Co. based in Stevens Point, Wis.

I want to emphasize I am not a social security expert, but am aware of many of the concerns of our people relative to the apparent discriminatory treatment accorded to self-employed independent insurance agents.

Sentry Life is a small to medium-sized company being part of the Sentry group of companies. Sentry Life markets its life and health insurance products through two separate marketing mechanisms. One mechanism utilizes employed life and health insurance agents. The other utilizes self-employed life and health insurance agents. Upon retirement, our employed insurance agents participate in the company pension plan and are not entitled to renewal commissions thereafter. Because of this fact, they are not adversely affected by the Social Security Amendments of 1977 insofar as our company compensation plan is involved.

Nonetheless, our company supports H.R. 5295 for the employed insurance agents of companies with a compensation plan differing from ours where such agents have been adversely affected by the 1977 amendments.

Under our own circumstances, which are admittedly parochial, our main concern lies with the treatment of the self-employed life and health insurance agents engaged in the marketing of our products. Because others with far more expertise than I have more than adequately covered the subject, I do not propose to dwell upon the details of the Social Security Amendments of 1977 other than to reemphasize that the legislative history of the 1977 amendments would clearly indicate no intention to impose the inequitable result now being suffered by the self-employed agents.

Generally, the work of the self-employed agents is completed at the time of the sale of the policy. The practice of paying renewal commissions is almost unique with the insurance industry. In effect, it amounts to a form of nonqualified deferred compensation because compensation is paid in the form of commissions over a period of time for services rendered at the beginnings of the period. Normally, deferred compensation payments are not included in income for the purpose of decreasing a person's social security benefits.

Unfortunately, by treating the deferred renewal commisison compensation of self-employed agents differently than the def rred compensation paid by any individual in another industry, the current law would seem to single out these agents for unique and unfair treatment.

One of the reasons our company terminates the renewal commissions of our employed agents is that the company has made a substantial contribution to such retired agents' pension fund. The company contributes nothing to any retirement fund of a selfemployed agent.

That agent, for retirement security, must rely upon the earnings generated from services rendered prior to retirement, including renewal commissions paid after retirement for services rendered prior thereto. It seems only equitable that the self-employed agent be granted the right to receive commissions as a pension benefit without reduction of social security benefits in the interest of fair play. This would result in substantially equal treatment between employed and self-employed agents upon their respective retirements.

In closing, I am compelled to remark that we believe in the concept that self-sufficiency during old age is a desirable social objective. In furtherance of that objective, our company respectfully urges your support in the enactment of H.R. 5295 particularly with respect to the subject I have discussed here.

My sincere thanks for this opportunity to address you and your thoughtful attention.

Senator NELSON. Thank you very much, Mr. Woodside.

We appreciate all of you taking the time to come here.

Do you have any questions?

Senator DOLE. I have no questions. I think they spelled out their wishes and I think that Commissioner Driver indicated that it has merit. It is not that it lacks merit. His question is the revenue figure involved.

Senator NELSON. Thank you very much, gentlemen.

[The prepared statements of the preceding panel follow. Oral testimony continues on p. 177.]

NALUN

The National Association of Life Underwriters

1922 F STREET, N.W., WASHINGTON, D.C. 20006 202 / 331-6000

-i

Summary of Principal Points In Statement

of The National Association of Life Underwriters

1.

2.

Changes in the Social Security retirement test adopted in
1977 have adversly affected self-employed life underwriters.
Social Security retirement benefits are lost because renewal
commissions generated from sales made prior to retirement
but which are paid after retirement count against Social
Security benefits.

The impact of the retirement test changes is unfair. It is
unfair because self-employed persons in other industries
may earn $5,000 in new earnings before counting against
benefits.

3.

Further, employee life underwriters do not deduct renewal commissions for Social Security retirement benefits as selfemployed life underwriters must.

The impact on self-employed life underwriters was unforeseen and unintended.

4.

5.

Section 3 of H.R.5295 and S. 2083 discount from the definition of current earnings income received after retirement which was produced from work performed before retirement. Therefore, such earnings would not count against Social Security retirement benefits.

Section 3 of H.R.5295 and S. 2083 make modifications applicable to persons age 62 and older and is retroactive to January 1, 1978.

NALU supports immediate passage of H.R.5295 (or S. 2083).