End of Session Report

2012 Illinois General Assembly End of Session Report

The General Assembly adjourned on schedule May 31st, although they are expected to return soon and address Public Pension reforms which did not pass either chamber. The Governor and four legislative leaders are expected to meet soon, develop a proposal they can agree on and then call the General Assembly back for a special session to consider the reforms. Public employee unions are expected to oppose almost any legislation diminishing current retiree and employee retirement benefits.

Highlights from this year’s session include:

A 34 billion dollar FY 2013 budget which once again includes “Dedicated Fund Sweeps” like the Producer Regulatory Fund and Financial Regulatory Fund that are paid by the insurance industry and are supposed to fund the operations of the Department of Insurance. The budget implementation bill does not specify how much will be swept from which funds, rather it gives the Governor the authority to make those decisions. The budget also dedicated significant dollars to begin paying off Illinois’ 1.3 billion vendor backlog, many of whom may be your clients

Medicaid Reforms: Reduction and elimination of benefits are expected to achieve $1.6 billion in savings and $1 billion in new revenue is expected from a Cigarette Tax and H

Gambling Expansion with five new casinos and slots at horse racing tracks
Enterprise Zone Reauthorization

For the Insurance Industry, the 2012 session was a big success – No detrimental legislation was passed and the few measures that did were positive.

Property & Casualty
None of the Work Comp measures introduced passed, including the State Work Comp Fund and State Rating Bureau bills which we opposed. Speaking of Work Comp, make sure you and your clients are aware of NCCI’s "split point" filing, effective January 1, 2013.

Positive measures on the P&C side that passed included SB 2524, a complete rewrites of the school transportation liability limits which had created a lot of confusion for agents, insurers and our clients, and HB 3825, which enacts several measures to reduce the copper theft crisis.

Health and Benefits
On the Health and Benefits side, negotiations on legislation creating Illinois’ Health Benefit Exchange are on hold until after the U.S. Supreme Court renders its decision on the constitutionality of the PPACA. To date, there was significant progress with most bill drafts including the majority of our agent/broker priorities. There continue to be rumors that the Governor may create an HBE through an Executive Order, but many of the Governor’s staff do not support this approach.

403(b) and 457 Legislation

This session witnessed a legislative assault on the 403 (b) – 457 plan market in Illinois with three different proposals introduced that would either create and advantage for a particular plan provider or restrict participation in what most would agree is a competitive market that serves the supplemental retirement needs of public employees. In fact, the issue of commission disclosure surfaced in one of the bills. Fortunately, we were able to hold off all three bills.

Legislative and Regulatory Update

Property & Casualty

SB 3825 and SB 3826 – State Work Comp Fund and Rating Bureau were introduced on behalf of the Illinois Trial Lawyers Association and are both sponsored by Senator Kwame Raoul (D-Chicago), the lead Senate sponsor of last year’s workers’ compensation reforms.

SB 3825, which would create a State Workers’ Compensation Fund, was assigned to the Senate Executive Committee, but was not called for a hearing or vote. The issue was one of the primary topics of our industry legislative day and your legislators received the message loud and clear – “Keep the State out of the insurance business!”

SB 3826, which would establish a state work comp rating bureau within the Department of Insurance, was amended to a "shell" bill and advanced out of the committee. The bill may be the focus of additional debate as some legislators perceive NCCI as a wholly owned subsidiary of work comp insurers and expected significant, immediate premium reductions following last years’ work comp "reform" legislation. There is no doubt that NCCI will be the subject of more detailed scrutiny than it has received in the past. However, it is doubtful that the state is prepared to take on hundreds of new employees and operate an actual Work Comp rating bureau.

SB 3807 & 3808, which would change the method in which premiums are charged from wages or salaries paid to hours worked for contractors, was also sent to subcommittee for additional study. The committee deadline was extended until April 26th on both bills, but no action was taken before that deadline.
Several bills supported by business and industry that would have expanded upon last years’ reforms, such as the issue of "causation," were not called for a vote.

HB 5555 Dugan (D-Bradley) Personal Auto Surcharge requires insurance companies to collect $1 on every auto liability insurance policy to support the Illinois Law Enforcement Alarm Systems Fund. This bill was shelled in committee. We will continue to oppose any legislation to fund this organization through a surcharge on personal auto policies. HB 5555 was never acted on and was sent back to the House Rules Committee.

SB 2524 Holmes (D-Aurora) School Transportation, Churches & Daycare Insurance Requirements. SB 2524 is the legislation revising last year’s significant increases in liability insurance requirements for entities transporting students and children. IIA of Illinois, IAMIC and NAIFA IL worked with the Illinois Insurance Association to draft an amendment separating school busses from public and private day care, church and ride-sharing arrangements and significantly lowering the latter’s liability insurance amounts.

Specifically, the bill:

Reverts back to the previous limits of $25,000/$100,000 for all policies issues or renewed before January 1, 2013. This has the effect of putting all of those who may have been out of compliance, back into compliance.

Beginning January 1, 2013, there will be a much cleaner, 3-tiered insurance requirement that reads:

(b) Liability insurance policies issued or renewed on and after January 1, 2013 shall comply with the following:

(1) except as provided in subparagraph (2) of this subsection (b), any vehicle that is used for a purpose that requires a school bus driver permit under Section 6-104 of this Code shall carry a minimum of liability insurance in the amount of $2,000,000 combined single limit per accident;

(2) any vehicle that is used for a purpose that requires a school bus driver permit under Section 6-104 of this Code and is used in connection with the operation of private day care facilities, day camps, summer camps, or nursery schools shall carry a minimum of liability insurance in the amount of $1,000,000 combined single limit per accident;

(3) any commuter van or passenger car used for a for-profit ridesharing arrangement shall carry a minimum of liability insurance in the amount of $500,000 combined single limit per accident.

Status: Senate Concurrence on House Amendment 1

HB 3825 Unes (R-East Peoria) Copper/Metal Theft. HB 3825 will require ALL recyclable metal purchases to be recorded via an electronic record-keeping system. Dealers cannot pay cash for copper tubing or wiring, air conditioner coils or condensers, the source of which causes the most property damage and high insurance claims.

By strengthening the Recyclable Metal Purchase Law, and making it more difficult for thieves to benefit from stealing copper, we hope to see fewer properties damaged from copper theft and fewer insurance claims in Illinois.

Status: Passed Both Houses
Position: Support

HB 5384 Morthland (R-Cordova) Mandatory Auto Insurance – Verification. The bill requires the Secretary of State to create a verification system for the mandatory automobile liability insurance program. It provides that the Secretary of State may not register or renew any vehicle registration without first verifying that the vehicle is covered by the statutory minimum amounts. For the past several years the insurance industry, including IIA of Illinois and NAIFA IL, has opposed efforts requiring the SOS to verify compliance as it has proven very costly and, any program instituted in other states has resulted in more errors for those complying with the law than the scofflaws it is intended to catch. The SOS has also been opposed.

Status: Tabled
Position: Oppose

HB 4096 Berrios (D-Chicago) Auto Insurance – Advertising. Adds a new provision to the unfair methods of competition and deceptive practices: Advertising or otherwise promoting the sale or solicitation of a policy of automobile insurance that includes a statement that a valid driver’s license is not required in order to obtain automobile insurance, followed by the denial of coverage based on the lack of a valid driver’s license when a claim is made on such policy of automobile insurance.

Status: Concurrence in Senate Amendments 1&2., Position: Support

href=”http://www.ilga.gov/legislation/billstatus.asp?DocNum=5001&GAID=11&GA=97&DocTypeID=HB&LegID=64931&SessionID=84″ target=”new”>HB 5001 Nekritz (D-Northbrook) Notice of Foreclosure. Requires a copy of a notice of foreclosure of residential real estate or the confirmation order after the sale of a residential real estate foreclosure be sent to the last known insurer.

Status: House Re-Referred to Rules, Position: Support

SB 954 Sullivan (D-Rushville) Minimum Auto Liability Limits. Increases the Proof of Financial Responsibility Limits (SR22) for those individuals who have had their licenses revoked, from 20-40-15 (current minimum liability limits) to 50-100-40.

Status: Passed Senate, In House Rules Committee, Position: Support

HB 1577 Mautino (D-Spring Valley) Haine (D-Alton) Surplus Lines – NRRA. Makes several changes to conform Illinois statutes with the federal Nonadmitted and Reinsurance Reform Act (NRRA).

Status: Passed Senate / House Re-Referred to Rules, Position: Support

Life & Health

403(b) and 457 Plans

HB 5045 Bradley (D-Marion) & SB 3713 Harmon (D-Oak Park) State Run Deferred Compensation (403b) Plan for School Districts and Community Colleges.

HB 5495 Nekritz (D-Northbrook), Garrett (D-Lake Forest) Defined Contribution Plans – Consolidate to a Single Provider.

HB 153 Garrett (D-Lake Forest) Commission Disclosure. The past year has witnessed a legislative assault on the 403 (b)/457 market in Illinois with three different proposals introduced in the Illinois General Assembly that would either create an advantage for a particular plan provider or restrict participation in what most would agree is a competitive market that serves the supplemental retirement needs of public employees.

The second proposal, introduced by Rep. Elaine Nekritz (D-Northbrook) and backed by the Illinois Public Pension Fund Association and National Benefit Administrators, Inc. would coerce both local school districts and units of local government into consolidating to a single plan provider. In addition, it would impose the requirements of the prudent investor rule on those school districts and local governments who sponsor 403 (b) and 457 plans.

Finally, a third proposal has been introduced that would impose an onerous commission and fee disclosure requirement on all investment providers in the 403 (b)/457 market in Illinois. This amendment was introduced on behalf of the National Tax Sheltered Accounts Association (NTSAA) which is seeking to create model disclosure legislation in a few states in an effort to preempt possible federal regulations from the U.S. Department of Labor.

IIA of Illinois, NAIFA Illinois and the Illinois Life Insurance Council, is opposed to all three proposals and has utilized our entire advocacy arsenal to prevent all three from passing during the 2012 spring session.

We are opposed to all three bills for a very simple premise: This is a very competitive market that works well in Illinois and neither the employees who utilize the products (teachers and local government employees), nor the plan sponsors (school boards and units of local government) are requesting any changes and in fact, have supported our position in opposition to most of the provisions in all three bills.

Consolidated Statewide 403 (b) Plans

Introduced in 2011, SB1826 Schoenberg (D-Evanston) and 2012, HB 5045 Bradley (D-Marion) and SB 3713 Harmon (D-Oak Park). This proposal would authorize the State Comptroller’s Office to administer a statewide deferred compensation plan for public school district and community college employees.

The legislation is modeled on legislation passed in Iowa and Arizona and was initiated by TIAA-CREFF and supported by State Comptroller Judy Barr Topinka.

While voluntary for school districts and community colleges, this legislation was intended to benefit one plan sponsor at the expense of the rest of the market.

In 2011, SB 1826 was defeated on the Senate floor on a vote of 19-30-5. This spring, after TIAA-CREFF hired a large team of lobbyists and with an over-the-top effort by Comptroller Topinka herself, neither bill was called for a vote as they did not have the requisite number of votes to get the bills out of committee.

While dormant for the rest of this session, both TIAA-CREFF and Topinka’s office have indicated they will continue to seek passage in the future.

Local Consolidation & Prudent Investor Rule HB 5495 Nekritz (D-Northbrook) Garrett (D-Lake Forest)
HB 5495 is legislation intended to benefit a single market participant (Illinois Public Pension Fund Association) to the detriment of the competitive market – eliminating employees’ choice of retirement options and displacing the many quality agents/advisors, and product providers presently serving the market. The Illinois General Assembly should not be in the business of legislating market share.

Unlike the TIAA-CREFF proposal, HB 5495 affects not only school districts and 403(b) plans, but other units of local government like municipalities and counties and their 457 plans.

HB 5495’s imposition of a prudent investor rule on local governments, including school districts, is not needed. Illinois and federal law already provide significant protections to participants in 403(b) plans. Investment providers are required to meet applicable insurance and securities regulations and are subject to oversight by state regulators, the Financial Industry Regulatory Authority, and the Securities and Exchange Commission.

Despite HB 5495 purporting to legislate otherwise, the bill does impose an unfunded mandate on local governments and school districts. Imposing additional fiduciary liabilities on these government bodies will require additional administrative responsibilities and expenses – consider the additional costs associated with obtaining a fiduciary coverage bond to protect against claims of breach of duty.

Any session of the Illinois General Assembly presents multiple fronts on which agents and financial advisors are fighting bad bills and you always have to prioritize your efforts.

Due to our all-out efforts to defeat the TIAA-CREFF/Topinka legislation, and the fact that two legislators who would have voiced opposition to the bill were not on the floor when it was called for a vote, HB 5495 passed the House without opposition.

Negotiations began in the Senate with Sen. Garrett and our coalition was joined by all of the education and administrative groups, including school boards, school business officials, and counties, in opposing the bill. The teachers unions were neutral.

After several meetings and realizing the intensity of opposition, Senator Garrett dropped her pursuit of HB 5495 and concentrated on a proposal put forth by NTSAA which would mandate disclosure of fees and commissions on a uniform basis. However, HB 5495 is not dead. Rep. Nekritz fully intends to seek enactment and is looking for another Senator to take over sponsorship.

HB 153 Garrett (D-Lake Forest) – Commission Disclosure
Senator Garrett, after dropping consideration of the much broader proposal represented in HB 5495, switched gears and decided to pursue enactment of a disclosure proposal submitted by the National Tax Sheltered Accounts Association (NTSAA) that would mandate, beginning January 1, 2013, plan providers to disclose fees and commissions in a summary form to plan participants of 403(b) and 457 plans.

We are opposed to this amendment for two simple reasons. First, fees are disclosed in a very simple format to all participants today. We don’t need, nor do units of local government or participants want, another piece of paper involved in the transaction.

Secondly, we have been down this path before in the wake of the Marsh McLennan/AON bid-rigging scandal where Sen. Garrett sought passage of legislation mandating agent/broker compensation. The issue is cost and the coverage/benefits of the product. What an agent or investment advisor gets paid is irrelevant and in no other transaction is the intermediary required to disclose their compensation. Of course, any professional agent or financial advisor willingly responds to an inquiry on the topic from a client, but we all know the question is rarely asked. HB 153 was assigned to the Senate Insurance Committee and was defeated on a 2-6-2 roll call.

HB 4497 Mell (D-Chicago), SB 3278 Martinez (D-Chicago) State Operated IRA Program for Small Employers would require the State Treasurer to administer IRA program for small employers and their employees. It applies to employers with 100 or less, but 10 or more employees, and no qualified plan offered for previous two years. It is a mandatory program for employers to enroll their employees. The employer shall deduct default amount of 2% from employees salary (or more if employee wants) if employee participates. The Treasurer designs and administers the plan which was introduced on behalf of the Sergeant Shriver National Center on Poverty Law.

Status: Neither bill advanced out of Committee
Position: Opposed

HB 4141 Mautino (D-Spring Valley) Health Benefit Exchange. Our Agent/Broker Coalition, led by our joint Health Reform Working Group, has participated in every aspect of Illinois’ efforts to establish a Health Benefit Exchange. We support the creation of a state-based exchange as opposed to a federal exchange being operated in Illinois.

Negotiations continue on the issue in Illinois and to date, most of our Agent/Broker priorities have been included in the drafts circulated by Rep. Mautino.

Even in the President’s home state and with Democrats in control of the Governor’s Office and General Assembly, this is a politically charged issue and may or may not be voted on prior to the end of session and, in the aftermath of the Supreme Court’s oral arguments on the PPACA, it appears increasingly unlikely that the Exchange legislation will receive a vote in either chamber this spring. If the legislature does not pass a bill by the scheduled adjournment date of May 31st, the Governor’s Office has indicated they may issue an Executive Order creating the Exchange in order to access up to $90 million dollars from the federal government. If no legislation passes, and the Governor does not issue an Executive Order, and the Supreme Court does not strike down the law in its entirety, then we may be faced with the possibility of a federally operated Exchange in Illinois.

Our Agent/Broker Health Reform Working Group, comprised of producers from all three associations, has spent an enormous amount of time studying the issue and developing and advocating our position. Copies of our "White Papers" on Illinois’ Health Benefit Exchange and the Navigator program have been widely distributed and are available on all three association websites.

SB 2885 May (D-Highland Park), Raoul (D-Chicago) Consumer Operated and Oriented (Health) Plans. Health Benefit Purchasing Cooperatives – HB 3976 May (D-Highland Park) would authorize the creation of two separate entities; Health Care Cooperatives, which are risk bearing entities (mutual insurers) eligible for federal grant money under the PPACA and Health Benefit Purchasing Cooperatives, which would establish a framework for small employers to collectively purchase health insurance.

SB 2885 was introduced on behalf of the Chicago Land Chamber of Commerce and the Small Business Advocacy Council (SBAC). The bill is opposed by most insurers, insurance trade associations, and our agent/broker coalition. Our agent/broker coalition does not oppose the creation of Health Benefit Purchasing Co-ops if they are required to abide by all federal and state laws and are granted no special treatment.

An amendment was adopted which removed the risk-bearing entities and just included the purchasing cooperatives. The Health Benefit Purchasing Cooperatives language amends the existing Health Care Group Purchasing Act to define "employer" and raise the size of an eligible employer from the current size of 500 to 2500 employees. We do not have significant concern with raising the employee threshold to 2500 and were successful in adding language to clarify that any health plan offered by a HPG must be sold, solicited or negotiated by a licensed insurance producer.

Status: Passed Both Houses
Position: Neutral


HB 4018 DeLuca (D-Chicago Heights) Local Business Registration would permit any municipality to establish a registry and require businesses located in the municipality to register. The bill lists information required and provides the database is public record and subject to the Freedom of Information Act and establishes a fine of $200 for non-compliance.

The bill has been introduced on behalf of several south-suburban municipalities that claim they do not know what businesses are operating within their boundaries.

A broad coalition of business groups are opposed to the bill and our Agent/Broker Coalition testified in opposition during the Committee hearing. The bill failed but was later voted out on a second roll call after several legislators who voted against the measure were replaced with those who would. The sponsor initially called the bill for a vote on third reading but when it became apparent it did not have the necessary votes to pass, he pulled it from the record.

Status: House Rules Committee
Position: Oppose