SIIA: Legislative Win for Enterprise Risk Captives

As reported in a Self-Insurance Institute of America, Inc. (SIIA) news release, in a major legislative victory for the captive insurance industry, Congress passed, and the president signed into law, several key tax clarifications proposed by the SIIA for enterprise risk captives (ERCs). This legislation, the Consolidated Appropriations Act of 2018, is the final result of ongoing spending and appropriations debates within Congress. The omnibus bill includes much-needed clarification in the tax code for IRC 831(b) captives pertaining to various reporting requirements included in the Protecting Americans from Tax Hikes Act of 2015 (PATH Act).

ERCs, sometimes referred to as 831(b) captives, are a self-insurance solution used by an increasing number of smaller and mid-sized companies to insure a variety of risks for which coverage in the traditional market is difficult to obtain or too expensive. Many of these companies separately sponsor self-insured group health plans and/or workers compensation programs, highlighting the growing trend of companies incorporating multiple self-insurance solutions as part their overall risk management strategy.

The legislative changes included in the omnibus bill, effective retroactively, include changes to the policyholder "look through provisions" in the first diversification test, clarification of "specified asset" under the second diversification test, and changes to the spousal ownership definition to address community property and attribution issues. The relevant legislative text is available to read.

SIIA played a crucial role in the ultimate outcome of PATH Act provisions related to IRC 831(b) that were passed by Congress back in 2015 and which contained a threshold increase to $2.2 million pegged to inflation, as well as restrictions on the use of captives for estate planning purposes. Since that time, SIIA has worked with congressional policymakers on legislative clarifications to ease the reporting burdens for those captives operating in the right way, while maintaining needed policy parameters for those who may be inappropriately taking advantage of the election.