Corporate FEBRUARY 2003 Proposed Life Insurance Employee Notification Act U.S. Representative Gene Green has reintroduced legislation, the Life Insurance Employee Notification Act (LIENA), which requires disclosure of corporateowned life insurance (COLI) policies to current and former employees. LIENA is targeted at broad-based COLI policies that cover large numbers of a company’s employees and former employees. Under the typical COLI scenario, a company pays the premium for, and is both the policyholder and the beneficiary of, insurance policies purchased on the lives of a large number of its employees. COLI policies also may cover an employee’s family members.1 In some cases, COLI policies are taken out without the employees’ knowledge or consent in jurisdictions that do not require notification and consent. LIENA, reintroduced in the House on January 28, 2003 as H.R. 414 (previously H.R. 4551), requires companies that purchase COLI, defined as “an insurance policy purchased by the employer for the benefit of a person other than the individual who is the subject of the policy (or other than a person designated by such individual),” to provide written notice to each employee covered by a COLI policy. Specifically, within 30 days of the purchase of a COLI policy, the company must provide written notice disclosing: ■ the existence of the policy; ■ the identity of the insurance carrier of the policy; ■ the amount of the policy; and ■ the beneficiary of the policy. (Sec. 2(a).) LIENA also contains a retroactive transition provision, which requires that companies provide the same written disclosure to former employees and employees covered by a COLI policy as of the date of enactment of the legislation: ■ ■ For former employees covered by a COLI policy from January 1, 1985 to the date of enactment, companies must provide the written notice within one year after enactment of the legislation (Sec. 2(b)(1)); and For employees covered by a COLI policy as of the date of enactment, companies must provide the written notice within 90 days of enactment (Sec. 2(b)(2)). A failure to provide the requisite notice would constitute an unfair method of competition and an unfair or deceptive act or practice under Section 5(a)(1) of the Federal Trade Commission Act, 15 U.S.C. § 45(a)(1). (Sec. 2(c).) 1 Employers use several forms of COLI in addition to the broad-based COLI. For example, so-called “key man” COLI policies protect the company from financial loss if a key executive dies. Kirkpatrick & Lockhart LLP It is reported that, when previously introduced as H.R. 4551, LIENA had 51 co-sponsors. LIENA presents an example of the recent controversy surrounding the sale of leveraged COLI policies, which have been a popular funding mechanism for many Fortune 500 companies since the late 1980s. The sale of leveraged COLI policies largely ceased after Congress passed the Health Insurance Portability and Accountability Act of 1996 (HIPAA), which gradually phased out the corporate employer’s ability to deduct interest on COLI policy loans. NEAL R. BRENDEL [email protected] 412.355.6550 ROBERTA D. ANDERSON [email protected] 412.355.6222 FOR ADDITIONAL INFORMATION concerning this topic or any Corporate issue, please consult one of the K&L office contacts listed below: Boston Stephen L. Palmer 617.951.9211 [email protected] Dallas Norman R. Miller 214.939.4906 [email protected] Harrisburg Carleton O. Strouss 717.231.4503 [email protected] Los Angeles Mark A. Klein 310.552.5033 [email protected] Miami Clayton E. Parker 305.539.3306 [email protected] Newark Stephen A. Timoni 973.848.4020 [email protected] New York John D. Vaughan 212.536.4006 [email protected] Pittsburgh Janice C. Hartman 412.355.6444 [email protected] San Francisco Mark H. Davis 415.249.1020 [email protected] Washington Thomas F. Cooney, III 202.778.9076 [email protected] ® Kirkpatrick & Lockhart LLP Challenge us. ® www.kl.com BOSTON ■ DALLAS ■ HARRISBURG ■ LOS ANGELES ■ MIAMI ■ NEWARK ■ NEW YORK ■ PITTSBURGH ■ SAN FRANCISCO ■ WASHINGTON ......................................................................................................................................................... This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer. © 2003 KIRKPATRICK & LOCKHART LLP. ALL RIGHTS RESERVED.