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Call to Order: By CHAIRMAN JOHN HERTEL, on March 11, 1999 at

9:00 A.M., in Room 410 Capitol.


Members Present:

Sen. John Hertel, Chairman (R) Sen. Mike Sprague, Vice Chairman (R) Sen. Dale Berry (R) Sen. Vicki Cocchiarella (D) Sen. Bea McCarthy (D) Sen. Glenn Roush (D) Sen. Fred Thomas (R) Members Excused: None.

Members Absent: None.

Staff Present: Bart Campbell, Legislative Branch Mary Gay Wells, Committee Secretary Please Note: These are summary minutes. Testimony and discussion are paraphrased and condensed.

Committee Business Summary:

Hearing(s) & Date(s) Posted: HB 47; HB 186,3/4/1999 HB 526; HB 639, 3/4/1999 HB 640, 3/4/1999 Executive Action: HB 526; HB 615 HB 639; HB 640 {Tape : 1; Side : A; Approx. Time Counter : 0} HEARING ON HB 47 Sponsor: REP. SHIELL W. ANDERSON, HD 25, LIVINGSTON 990311BUS_Sm1.wpd


March 11, 1999 PAGE 2 of 13 Proponents: Frank Cote, Deputy Insurance Commissioner Greg Van Horssen, State Farm Jon Metropoulos, Farmer's Insurance Group Jacqueline Lenmark, American Insurance Assoc.

Susan Witte, Blue Cross-Blue Shield Opponents: None

Opening Statement by Sponsor:

REP. SHIELL W. ANDERSON, HD 25, LIVINGSTON. He presented his bill and handed in the written copy EXHIBIT(bus55a01).

{Tape : 1; Side : A; Approx. Time Counter : 4}

Proponents' Testimony:

Frank Cote, Deputy Insurance Commissioner. The original bill that was proposed by the Department had a five year cap and it didn't have the additional language about fraud or concealment being capped at five years. Some of the people from the industry had some concern and thought the statute of limitations should be three years. One of our attorneys looked at the language and agreed with them. We then supported the amendments in the House.

Then we found out that we were all wrong with this. The statute of limitations of securities is five years and should remain five years. I would like to hand in the amendments from our Department EXHIBIT(bus55a02). Without these amendments, we could not support the bill. The amendments return the cap to five years. I do hope the committee will pass this bill with the amendments.

Greg Van Horssen, State Farm. We support the bill without the amendments; however, we would like to have the opportunity to review the reasoning of their chief legal counsel and be available at the executive action meeting to present our thoughts on these amendments.

Jon Metropoulos, Farmers Insurance Group. We, too, support the bill as it is and would like the opportunity to review the reasoning of their chief legal counsel. I do believe it is flawed and after we do review it, there will be some detailed discussions which we will have to go through.

Jacqueline Lenmark, American Insurance Assoc. The AIA supports HB 47 as it is currently drafted with the amendments that are currently incorporated in the bill. We proposed those amendments in the House. We would not support the bill if those amendments were removed. Mr. Cote has been very good about making sure that 990311BUS_Sm1.wpd


March 11, 1999 PAGE 3 of 13 we all received a copy of his chief legal counsel's legal memorandum. I have reviewed that memo and as it happens many times, with lawyers, I disagree with the conclusions that are there. What we have not yet had an opportunity to do is to sit down and see if we are misapprehending the effect of this bill on current statute or if we are misapprehending the effect of the amendments that are contained in the bill. I, too, would urge the committee to delay action. If Mr. Chairman would allow us to talk through our disagreements, that would be helpful for all concerned. The statute as crafted in this bill is clear; the law is clear as it stands unamended. We would not support the amendments that are being suggested today.

Susan Witte, Blue Cross-Blue Shield. Our chief legal counsel, Bill Jansen, did have a conversation late last night with Mr.

Cote and Mr. Jansen did have some of the same concerns that the other insurance lobbyists did with his interpretation of how the statute of limitations worked with the amendments put on by the House as opposed to the five year statute of limitations that is before you today. We don't see any huge problem with it. It just caps it all at five years. Right now the insurance code doesn't have a specific statute of limitations. You must wade through some other titles to find this. Just to make life easier for the Department of Insurance, our chief counsel agreed with Mr. Cote. But if the committee does want additional time, that is a good idea.

{Tape : 1; Side : A; Approx. Time Counter : 10.7} Opponents' Testimony: None Questions from Committee Members and Responses: None

Closing by Sponsor:

REP. ANDERSON closed. As far as time goes, if the committee has some time to allow these people to come together, that would be good. Otherwise, I believe that it would be most appropriate to pass the bill as it is. If there are problems, they could be addressed in the next session. Thank you. SEN. COCCHIARELLA will carry the bill on the Senate Floor.

{Tape : 1; Side : A; Approx. Time Counter : 13}

–  –  –

Sponsor: REP. RAY PECK, HD 91, HAVRE Proponents: Bob Pyfer, MT Credit Unions League John Cadby, MT Bankers Assoc.

Opponents: None

Opening Statement by Sponsor:

REP. RAY PECK, HD 91, HAVRE. I bring for your consideration HB 186 which is at the request of the MT Credit Union Legislative Committee. It is to correct what appears to be an oversight the legislature passed last session. It concerns medical savings and first home buyer accounts. Bankers did not oppose this in the House. On page 2, lines 18 and 19, it provides for the distribution of the principal and interest to the estate and the bill adds the provision that they could charge a fee for the service of these accounts. The amount of fee would be left to the discretion of the credit unions. These accounts were made available to citizens with the idea that these medical savings accounts (MSA's) would allow people to put money aside for medical expenses and escape some of the tax liability that goes with it. These accounts have not been all that popular because credit unions don't market them very much. It is work and there has been no fee attached to it.

Proponents' Testimony:

Bob Pyfer, MT Credit Unions League. This bill just corrects a couple of oversights in both the MSA's and the first time home buyer account laws. The MSA's are designed to allow tax deduction for contributions up to $3000 when the money is used for eligible medical expenses and the first time home buyer account law provides an identical program where the money is used to pay the down payment or closing costs on a first home.

Neither one of these laws as originally drafted, allows for a POD (pay on death) beneficiary to be attached to the account. This was an oversight but through the rulemaking process at the Department of Revenue, they wanted this to be put into the regulations. We offered to come in and put it into legislation so it is clear that a POD can be used on both kinds of accounts.

A POD designation of beneficiary simply allows the money in the account to go directly to the beneficiary when the owner of the account dies without going through the estate. The first thing this bill does is allows the POD beneficiary designation. Many credit union members want to have all of their accounts that 990311BUS_Sm1.wpd


March 11, 1999 PAGE 5 of 13 aren't in joint tenancy with right of survivorship put into a POD beneficiary designation. That way, all the money in their accounts goes either to a joint owner with right of survivorship or to a beneficiary, and does not have to go through their estate. These changes are found on page 2, lines 18 and 19 and page 5, line 27.

These two accounts both provide for a self-administered account.

This is where the taxpayer, rather than the financial institution, does the reporting to the Department of Revenue.

This has turned out to be the most popular form of the account.

The problem is that both of these statutes prohibit a fee from being deducted from a self-administered account. Apparently, it was thought somehow people would actually hold their own accounts and the prohibition was in there to prevent a taxpayer from increasing his tax deduction by charging himself an administrative fee. How things have evolved is that even these self-administered accounts are not being held by themselves but are being put in financial institutions. Primarily they would like them to be in a checking account. But you can't charge a fee for it because it is a self-administered account. In order to insure the availability of these accounts, it is important to allow these reasonable and customary charges to be imposed. This is not imposing any new fee, it is just the normal checking account fee. These changes are found on page 4, lines 2 and 3 and on page 6, lines 21 and 22.

There is an amendment EXHIBIT(bus55a03) that I would like to propose. The amendment is to address a private opinion letter from our federal regulator, the NCUA (the National Credit Union Administration). The NCUA private opinion letter says that federally chartered credit unions cannot act as an account administrator for a Montana Medical Savings Account. As I mentioned earlier, there are two different types of MSA's. There is the administered MSA and the self-administer MSA. An administered MSA has a separate account administrator who could be a CPA, an attorney, a financial institution, etc. For the self-administered account, there is no separate account administrator. The account owner is the administrator. Both types of these accounts are being held in financial institutions.

Among our credit unions that are handling MSA's, we are aware of only one that is actually acting as the account administrator.

The others just hold self-administered accounts. The credit union, which is the administrator, is doing the routine reporting to the Department of Revenue. The NCUA opinion letter will prevent that one credit union from continuing the act as administrator and would also prevent future credit unions from doing this. The amendment simply clarifies the intent of an amendment that we joined with the bankers in the last session in putting into the law to make it crystal clear that financial 990311BUS_Sm1.wpd


March 11, 1999 PAGE 6 of 13 institutions are not acting as fiduciaries or are responsible for determining eligibility or non-reimbursability of medical expenses. We feel the NCUA misinterpreted our Montana law and the amendment. So this amendment makes it very clear what the intent is and NCUA will ultimately allow federal credit unions to act as account administrators.

I just noticed that this amendment should be reflected in the title of the bill. I do have language that I will provide to Mr.

Campbell. It would say "Clarifying responsibilities of financial institutions acting as account administrators of Medical Savings Accounts." We do urge a concur in recommendation.

John Cadby, MT Bankers Assoc. We concur in all that Mr. Pyfer has said and hope that you will support the bill. There may be one typographical error on amendment number 3. It should say line 26 not 24.

{Tape : 1; Side : A; Approx. Time Counter : 25.8} Opponents' Testimony: None

Questions from Committee Members and Responses:

SEN. VICKI COCCHIARELLA asked Bob Pyfer if she could do her MSA and keep the money at home and do the reporting. Bob Pyfer said the idea was to get these MSA's off the ground. There was so much liability being perceived among financial institutions for having to determine eligibility of expenses and non-reimbursable.

That is something that no one wanted to get into. Major amendments came in to allow for this self-administered account.

He was not sure if anyone understood how it was going to work.

But as it has evolved, people came to their financial institution to open up an MSA. The amendments reduced this liability for the institutions and people set up their own self-administered accounts. So to answer your question, I don't think that would be feasible. People want interest paid on their accounts, etc.

SEN. MIKE SPRAGUE asked Mr. Pyfer if an MSA would be an interestbearing account. Mr. Pyfer said "yes". Also there is no set fee for these accounts in the bill. This bill just removes the prohibition for credit unions to charge a fee for these selfadministered accounts. They did not want to regulate the amount of the fee. That will be left up to the financial institution.

SEN. JOHN HERTEL asked Mr. Cadby if he had something to say. Mr.

Cadby said there probably won't be any fees charged at all for the self-administered accounts. Last year he opened a checking

–  –  –

account for $500 in his name and asked to have the letters MSA after his name. At the end of the year, he reported $503 still in the account, having earned $3 in interest. On the form from the State Department of Revenue, he filled it out. It is on the honor system. So you could work out of a shoe box. At year's end, one must report to the IRS what was spent up to $3000. Most banks offer checking accounts free with a minimum balance of $100. Competition has made it so that self-administered accounts should not have much of a fee, if any.

{Tape : 1; Side : A; Approx. Time Counter : 39.9}

Closing by Sponsor:

REP. PECK closed. Credit unions are run by local boards, so answers to questions could vary as the credit unions have different rules and regulations. It seems that it would be highly unlikely to have fees attached. The bill is reasonable and I am actively involved in my own credit union. Thank you for a good hearing. SEN. SPRAGUE will carry the bill on the Senate Floor.

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