A Conversation with Retired Company Tax Actuaries
by Mary Elizabeth Caramagno
TAXING TIMES, October 2023
TAXING TIMES recently sat down with a group of retired tax actuaries to hear about how they got involved in actuarial tax matters and how their tax experience impacted their careers. Our conversations primarily involved valuation actuaries (rather than pricing or product actuaries), based on the Herculean effort those actuaries have expended over the past five years implementing the 2017 Tax Cuts and Jobs Act. Thanks to Armand dePalo, Barbara Gold, Jim Reiskytl, Marcy Thailer, and Bruce Schobel for taking the time to share their thoughts.
TAXING TIMES: Briefly describe your background and your tax experience.
Bruce Schobel: I was a math major at MIT, worked for the Social Security Administration for a decade, went to Mercer for 18 months, then New York Life offered me a job. I stayed there for 22 years, from 1990 until 2012, when I retired early. The whole time I was there I worked entirely on tax.
Armand dePalo: I was a physics major in college. I have a background in many actuarial subjects, which allows me to see tax issues from a company-wide view. I was an actuary at Guardian; at the time, Guardian had actuaries handle most of the tax issues. Now they have a full tax department. My experience was especially useful at the ACLI because it allowed me to communicate between groups of people including accountants and lawyers.
Jim Reiskytl: I was a math major in college and had never heard of an actuary, or what they do. I interviewed to do many things including selling insurance. Fortunately, the general agent asked me why don’t you become an actuary? Thanks to him, his follow-up and a lot of studying, including a master’s degree in actuarial science, I ended up being hired as an actuarial trainee. After I finished the exams, I became the first manager of tax planning at Northwestern Mutual, in the Controller's department. My first SOA appearance was in the early 1980s as a panelist describing tax reserves, that forced me to learn a lot about the many aspects of them. After serving as the company’s pricing actuary, I created and led the Tax and Financial Planning department.
I was heavily involved with the mutual companies' efforts (including chairing) to shape the ‘84 Tax Act, the ACLI, Academy and SOA tax committees, including five years on the SOA Taxation Section (was one of the original elected members). In retirement, I continue to serve on the Academy Tax Group and as a tax liaison to other Academy RBC and reserve committees.
Marcy Thailer: After starting college at Boston Conservatory of Music, I went to the College of Insurance specifically for a degree in actuarial science. During my time as a pricing actuary, I learned a great deal about policyholder taxation which I later used in a finance area, but from the compliance perspective. Quite late in my career, I was given the opportunity to join Brighthouse Financial’s Tax department as part of the spinoff from MetLife, giving me the opportunity to expand my knowledge to include corporate taxation. 2017 was a challenging time to start to learn about corporate tax, because the biggest change in tax law since 1984 was passed very late in 2017. It was time to sink or swim.
Barbara Gold: I was a math major in college and was pre-med but decided that I didn’t like the sight of blood. At the time New York allowed savings banks to sell life insurance and my mother-in-law worked at Dime Savings Bank. She suggested that I become an actuary. I started at MetLife, then Guardian, then Prudential. In 1986, I came back from maternity leave part-time to work on tax. The best part of tax work is that things keep changing so it was always exciting. I worked on tax from 1986 until my retirement.
TAXING TIMES: What part of your actuarial education was most useful in your tax career?
Barbara: Being familiar with products and reserving is obviously helpful but learning statutory accounting and the annual statement is another level of helpful for working on tax issues.
Bruce: That’s right; life insurance is special so the only way to get the accounting is on actuarial exams.
Marcy: I agree, if you aren’t familiar with stat accounting, you're in trouble. Also, understanding PBR and keeping current on reserving changes is huge. You can't just rely on your original education.
Jim: Life contingencies and risk theory are important, but the most useful part of the exam structure is how comprehensive it is. It’s important to have an overall understanding of life insurance, pensions, disability, etc.
Armand: Yes. Too many actuaries are siloed: product actuaries might not know about tax, for example. The industry needs people to get their hands dirty on taxes, and not just rely on consultants or outside auditors.
TAXING TIMES: What resources did you find most useful for keeping your tax knowledge up to date?
Bruce: The ACLI, SOA, and Academy are all very useful. You get a lot of insight from talking to people at other companies.
Marcy: The AAA tax group and ACLI tax group were both very useful.
Armand: I was very involved with the ACLI tax group as well.
Jim: Agree. The accounting firms also have a lot of ideas; some we adopted, and others we rejected. Sessions and seminars at SOA meetings provide lots of information, as well as tax study groups. It’s important to listen to everybody since you don't know who will give you a good idea!
TAXING TIMES: What were the most memorable tax issues you worked on during your career?
Barbara: In the 2001 CSO, omega went from 100 to 121, but in the tax law contracts still mature at age 100. We got actuaries and lawyers together at the SOA to work through the issue. The government relied on that work for their guidance. That was one of best and most effective collaborations with tax attorneys.
Jim: Three issues are memorable:
- I (and others) successfully lobbied for key actuarial aspects of the 1984 Tax Act. The goal was to provide every company with the same tax deduction for reserves. To accomplish this, we defined the reserve method (CRVM or CARVM), the mortality or morbidity table, and the interest rate. We also suggested refinements such as treatment of supplementary contracts and substandard or classified lives.
- I helped to create the 7-pay test to resolve the single premium life vs. single premium annuity tax issue.
- For over 15 years I worked as part of a team effort to convince Congress to eliminate the Section 809 reduction of the deduction for policyholder dividends.
Tax planning is always critical to company federal income taxes, product design, investment strategy, etc. At times tax planning involves collaboration throughout the company. At other times, discussion is limited to those within the company who need to know.
Also, my suggestion is to encourage everyone, including Congressional tax staff, to articulate whatever they’re trying to accomplish in the tax code by using words, not numbers, whenever possible. Using words to define a factor, rather than a number, provides longer term usefulness and appropriateness as conditions change.
Bruce: 4% in 7702 is a great example of bad use of a fixed number! Attorneys and congressional staffers often don't realize the unintended consequences of the words they use. Actuaries will say, “If we do it that way, we will get crazy results!” As a result, actuaries have improved legislation over the years.
Marcy: Working on the 7702 team to articulate why a change was necessary was a huge, memorable experience. I got to work with Barbara Gold and others. Actuaries do know "how the sausage is made" and where some of the language could wind up harming more than helping.
Barbara: We have to constantly monitor what's going on in the industry to make sure there's not an unintended tax consequence
TAXING TIMES: Tax actuaries frequently work with non-actuarial tax professionals. What have you learned from your collaborations with tax attorneys, tax accountants and others?
Bruce: Tax is different than a lot of other places in insurance, where actuaries can say what is the right way to do it. In tax that's not always the case. Sometimes, the actuarially correct way of doing something is not the way it’s required to be done in the tax law, but we have to live with it because that's how Congress wrote the law.
Armand: It’s best to try to make life easy for auditors. Design reports so it’s easy to see all of the pieces. It’s also important to be clear with management about what tax position you’re taking in case it’s not accepted by the IRS.
Barbara: It’s not just working with non-actuarial tax professionals, but also non-tax actuaries. How do you get them to focus on the tax implications of their actuarial decisions? I’ve found that the best approach is to build relationships with them so you can reach out to make sure they think of tax. There are so many places where a tax actuary can add value; management just needs to prioritize what the company needs most.
Marcy: Within a company, you often wind up being a translator. In tax compliance, the tax actuary has to be available to answer questions about reporting and administration.
Jim: Investment people also speak a different language. Focusing on post-tax rather than pre-tax results can change company investment strategy and results. Perhaps a somewhat unique experience I had was being hired by the government as an expert witness in a demutualization tax basis case. It was very interesting to have the opportunity to work with the government lawyer and another expert and to testify in court. Obviously, I can’t discuss what I learned as part of this team effort. In every situation, if you're not speaking their language, you're not speaking at all.
TAXING TIMES: Final thoughts? What advice would you give an actuary who wants to include Tax in their skill set?
Jim: Go for it if you like challenges and the opportunity to think creatively with little, if any, cookbook answers. The challenge/opportunity is to reduce company taxes, to meet the definitions of life insurance, to provide better value to policyowners, to assist in creating investment strategies, and to do whatever else you can think of to provide tax driven value for your company. In other words, can we do it better?
Begin by talking to the tax experts at your company to get insights as to what they do and how you can use this information to do your work with tax considerations as part of the process. Another valuable resource is the various papers created by the tax group that provide descriptions, questions and comments from experts on dealing with specific tax issues involving tax definitions of life insurance and reserves.
Marcy: Tax is a great thing to add to your skill set and will allow you to bring quite a lot of prior experience and knowledge into use. It does take time, though, and you will have to be comfortable with doing significant research to get to an answer. One more caution, compliance with the law requires you to understand and follow the law and associated regulations as written…even if they don’t seem to make sense “as written.”
Barbara: I think there are two other places where an actuary can go to add tax to their skill set. The first is this newsletter. The articles speak both to the basics and the more complicated issues. The second is the papers published by the Academy Tax Work Group. Three come to mind immediately: “The Tax Cuts and Jobs At of 2017 - Effects on Life Insurers”; “FAQ on Certain Reserves Held by Insurance Companies for the purpose of determining U.S. Taxable Income after the Passage of The Tax Cuts and Jobs Act of 2017”; and “2017 and 2012 Legislative Changes to the Definition of Life Insurance.” These papers are also good examples of tax actuaries working closely with tax attorneys to assure the material is correct and written in a way which is meaningful to actuaries.
TAXING TIMES: Thanks again to everyone who participated in this discussion.
Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries, the editors, or the respective authors’ employers.