What does a former college football coach have to do with the fraternal tax exemption?

More than 60 Alliance member CEOs and COOs will head to Capitol Hill on Tuesday, April 24, to thank U.S. Representatives and Senators for preserving the fraternal tax exemption during the 2017 tax reform debate, and to make sure they understand the intrinsic value and irreplaceable contributions fraternals make to the quality of life in their home states and districts.

And while all my energy will be focused on maximizing the impact of these visits for both Alliance members and Members of Congress, I can’t stop thinking about the potential threat to our tax exemption that exists at the state level. Check out THIS STORY on the perilous condition of Oregon’s state employee pension system and you’ll understand why.

Thanks to the strange pension math embedded in the Oregon system, the former head football coach of the University of Oregon earns a pension of $46,000 – per month! The article cites other such out-of-line pension payments, as well as efforts by some state organizations to “game” the system to generate pension payments that exceed the salaries the employees earned while working. And, living in a state (Illinois) with similar pension funding problems, I know that there are more of these financial “disasters in waiting.”

What on earth does that have to do with the fraternal tax exemption?

At the federal level, not much. But at the state premium tax level, potentially a whole bunch.

As states struggle to cover their pension obligations (without much effort, it seems, on making the corrections to the actuarial formulas for calculating those obligations that created the problem in the first place!), state lawmakers are going to look for new ways to generate revenue. As state legislatures become either more conservative (like South Dakota, for instance) or more politically polarized (Oregon is a reliably “Blue” state with a solid “Red” streak outside the Willamette Valley), lawmakers will be reluctant to pass tax increases. This is only exacerbated by the major federal tax cut passed by Congress in 2017.

That leaves policymakers with two options: 1) cut spending; or 2) find new sources of tax revenue. Finding new sources of revenue – such as closing tax loopholes or repealing tax exemptions – may prove to be more attractive to legislators, who never want to cut funding for programs, especially those that impact their districts. That means the fraternal exemptions for premium tax and other taxes could be on lawmakers’ radar screens.

The Alliance is keeping close tabs on developments at the state level, and will be watching the outcome of this November’s elections to determine in which states the tax exemption issue may be “in play.” Alliance members should start preparing for these potential political battles RIGHT NOW! The best place to start is by getting a thorough handle of your presence in each state in which you are licensed. That means collecting accurate information on things like:

  • The number of members and local chapters you have in the state.
  • The scale and scope of your financial services footprint – number of families whose lives and retirement income your society secures; number, type and amount of in-force coverage; number of individuals who received claims benefits and amount of those benefits paid in the past year.
  • The number and type of community service events your society sponsored, led, and facilitated in the past year.
  • The number and value of volunteer hours contributed by your members, and the amount of direct financial aid provided to groups and causes that reflect your members’ shared values.
  • Names and contact information for the individuals – employees, field representatives, local chapter leaders – that have existing relationships with state legislators and/or would be willing and able to communicate our message to their elected officials.

It is absolutely critical that your society’s management team and the Alliance’s advocacy team have this information at our fingertips. Legislation moves much more quickly at the state level than in Congress, and we need to be prepared to respond to any threat in a heartbeat.

Remember, the Alliance can adopt policy positions, develop strategies, and retain professional advocates to advance our advocacy mission. But to be a dynamic and effective political organization – and to win the battles that matter most to members – it takes YOU!

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