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One of the most controversial topics in these financially challenging times is executive compensation, especially for those companies that are receiving TARP funds, otherwise known as a "government bailout." In recent weeks, AIG has faced immense criticism, investigations, and lawsuits over $165 million in bonuses paid out to top executives despite receiving billions of dollars in TARP funds and continually worsening performance resulting in losses in the billions of dollars.

With life and health insurance companies financially suffering in 2008 and 2009, most are either lining up to receive TARP funds, reducing coverage, or laying off employees to adjust to the current economic climate. This peaked my interest in researching what corporate leadership of these companies are sacrificing. What did I find? Not much. Most CEO's compensation decreased across the board, but was mainly a result of losses in stocks they hold or bonuses not received. Salary remained the same, and most still did receive bonuses of some sort.

So where do you stand on the issue of CEO compensation? In 2007, the average CEO was paid 344 times more than the typical American worker. Are they worth it? Is it even ethical? Should limits be placed on it? Below you will find 5 examples from our own industry. Read and let us know what you think. Here is the data I gathered from Associated Press articles:

Genworth Financial: CEO Michael Fraizer received a compensation package worth $3.6 million in 2008. In 2008, Genworth lost $572 million and saw its stock price plummet 89%. For 2009, the stock has taken a nose dive to close at $2.26 as of April 13, 2009. This recent fall was a result of Genworth missing the TARP deadline, however the company is exploring alternative methods of acquiring the funds.

Prudential Financial: Chairman, President, and CEO John R. Stangfeld received compensation valued at $16.3 million in 2008. He received a salary of $970,769 and a bonus of $3.3 million with the rest coming from stocks and options. In 2008, Prudential's financial services businesses lost $1.10 billion and its shares sharply declined by 68% and have lost another 38% of their value as of April 2009.

Hartford Financial Services: Chairman and CEO Ramani Ayer received $7.3 million in 2008. Ayer's base salary was $1.15 million with the rest coming from stocks and options. Like other CEOs, he received perks such as a car allowance, financial planning services, and retirement contributions adding up to $133,943. In 2008, Hartford lost $2.75 billion. As of April 2009, Hartford stock continues to drop due to fears about the company's bonds.

Lincoln National: CEO Dennis Glass received $9.1 million. His salary was $1 million and received performance-related bonuses adding up to $800,000. The rest came on other financial compensation options and stocks. In 2008, Lincoln National's stock plummeted 68% and has lost a further 45% as of April 2009. Unlike others, Lincoln posted a 2008 profit of $56.8 million, however it pales in comparison to the $1.21 billion profit of 2007.

Aetna: The company isn't applying for TARP, but I'm including it because it is about to layoff 3% of its workforce, or about 1,000 jobs to "adjust to the slowing economy." Chairman and CEO Ronald Williams received $17.4 million in 2008, including a $1.1 million salary, a $1.9 million bonus, and use of a personal corporate aircraft. In 2008, Aetna's profit declined 24% and its stock price dropped from $57.73 to $28.50.

2010 is shaping up to be a pretty important year for your clients financially.  Some of these changes are for the better, others not so much.  As you speak with your clients, it may be helpful for you to know what changes they face going forward into next year. At the very least, these make for some great discussion topics:

Medicare Advantage Premium Increases: 10 million Medicare Advantage customers will face monthly premium increases of $40 – $70 according to the U.S. Centers for Medicare and Medicaid Services due to changes made by the Obama administration.  In addition to higher premiums, providers are also looking to reduce coverage for an array of services to help offset lower reimbursements by the government. With the typical Medicare Advantage customer on a very tight budget, this increase can immensely affect the quality of life. 

Social Security Payments to Freeze:  The Congressional Budget Office predicts that social security will not see any cost-of-living adjustments until 2012.  Since adjustments are tied to consumer price inflation, which is expected to see little to no increase over the next two years, the CBO believes social security payments will remain the same during that time period.  The problem here is that the combination of reduced coverage and continually increasing health costs will make it more difficult for most seniors to keep up with their greatest expense.

New Retirement Withdrawal Rules:  The passage of the Worker, Retiree, and Employer Recovery Act of 2008 brought with it a waiver for the required minimum distribution age of 70 ½ for retirement account holders and their beneficiaries. This allows retirees to keep money in their accounts to possibly recover some of the losses sustained in 2008.   This law is in effect as of this year, and the decision of whether to withdraw or not will affect tax returns due in 2010.

Roth IRA Changes:  According to U.S. News, in 2010 income ceilings for Roth conversions will be dropped, allowing anyone to convert as much of their qualifying retirement accounts into Roth IRAs.  Since Roth IRAs are funded with post-tax dollars, investment gains are not taxed.  With the market having bottomed out (hopefully it can’t get any worse), many financial experts expect investments to recover in 2010.  With a Roth IRA, account holders can expect to pay no taxes on any gains made during the recovery. Additionally, conversion taxes can be spread over 2010 and 2011.  In summary, 2010 has never been a better year to covert.

Estate Tax Dead?: According to the Wall Street Journal, President Obama plans to block the repeal of the estate tax in 2010, which was passed in 2001, by then-President George W. Bush.  Democrats have included a footnote on page 127 of President Obama’s budget that reads “The estate tax is maintained at its 2009 parameters.” So estates will be taxed at up to 45% with an exemption level of $3.5 million for an individual.  Democrats reason that only 2% of the richest families pay it, and the money will help fund ongoing government efforts to stimulate the economy. If the estate tax hits zero in 2010, it may never come back, and Democrats don’t want to risk losing that source of tax revenue. The battle continues in Congress with Republicans and a handful of conservative Democrats fighting to keep the law as is.

According to the Wall Street Journal, the United States Treasury Department is finally opening the Troubled Asset Relief Program (TARP) fund for life insurance companies.  At this point you may be asking yourself, “Isn’t the TARP only for banks?”  Well, according to former Treasury Secretary Henry Paulson, if insurance companies own a bank, then they can qualify for TARP.  So of course, several major insurance carriers went ahead and bought banks to get their piece of the pie. 

Among those insurance companies asking for TARP money are Genworth, The Hartford, MetLife, and Prudential.  Lincoln National alone has applied for $3 billion.  The primary reason why such major insurance carriers are applying for TARP is the mortgage-backed securities in their financial portfolios, a.k.a. “Toxic Assets.”  These toxic assets are severely affecting the liquidity of these companies (and others not mentioned) leading to ratings downgrades and warnings. 

The Wall Street Journal also pointed out that with insurance companies applying for TARP, customers of these companies are likely to see this as a major risk to their investment and cash in their policies to go to stronger companies.  If this were to happen on a large scale, then this would force the weak insurance companies to dump their investments, causing the general market to decline further.

One of the hottest debates in our country today is determining whether big businesses should be allowed to fail, or be subsidized until they become financially stable again.  We’ve been hearing the debate rage on in the banking and automotive sectors, and it now appears that the debate has reached our doorstep.  We want to know what you think, so let the entire community know where you stand on the issue.  Now that insurance companies are eligible for a government bailout, should they be given one? 

The Centers for Medicare & Medicaid Services (CMS) on Tuesday, March 31, 2009, announced that Medicare Advantage plans that have 10 or fewer beneficiaries will be terminated to reduce confusion among consumers, and that insurers are now required to cap out-of-pocket charges. 

According to the Wall Street Journal, if insurers don’t cap annual out-of-pocket expenses at $3,400 or less, or if they charge more than traditional Medicare for services, then the government will request that other charges be reduced.  Additionally, sick, low income beneficiaries cannot be charged more than what they would contribute under traditional Medicare.

With regard to prescription drugs, CMS now prohibits the practice among Medicare prescription drug plans that charge both a higher co-payment for brand-name drugs, and the difference between the cost of the brand-name drug and a generic version.  Beneficiaries can no longer be charged for the latter.  Drug plan providers are also required to provide more detailed and easily understood information about coverage gaps where the beneficiary must pay 100%. CMS also stated that it will create an incentive program that will encourage plans that are focused more on preventative care. Stricter audits of Medicare Advantage plans and prescription drug plans will follow.

CMS director Jonathan Blum went on record to state that these changes are being implemented to reduce confusion and increase transparency for consumers. These changes are just the first of many to come from the Obama administration.