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Welcome to Producer Perspectives,The Hartford’s group benefits newsletter

for producers. This newsletter provides

regular updates about our products

and services, industry trends and

developments, and other timely

information that may be of interest

to you and your clients.

Also in this issue:

Online Access to Your Hartford Group Benefit Account InformationProducer View®gives you book ofbusiness and other information you need whenever you want it. Which savesyou time and enhances the service youcan provide to your clients.

Reading the Tea LeavesGain economic insight through the 2005 Market Commentary by Dr. Quincy Krosby, Chief InvestmentStrategist at The Hartford.

Traditionally, non-contributory group

disability plan premiums are paid by

the employer on a pre-tax basis. If an

employee has a claim, the disability benefit

is considered 100 percent taxable income.

IRS Revenue Ruling 2004-55 now gives

employers with non-contributory (employer-

paid) group disability plans the option to

structure their plans so employees can

receive a tax-free benefit.

Change Isn’t RequiredThe ruling doesn’t require employers to provide anemployer-paid disability plan that allows employeesto choose to have the premium paid on an after-taxor pre-tax basis. If employers change their plan toapply the ruling, employees can decide to have thecost of coverage included in their income on theirIRS Form W-2. Consequently, if they become disabledduring the plan year that applies to their after-taxelection, their disability benefit is non-taxable.

If Employers Choose to ChangeEmployers who want to provide their non-contributorygroup disability plan participants with the choice ofpre-tax or after-tax benefits should understand thatthe employer-paid premium will be higher if the after-tax treatment is requested, due to increaseddisability income replacement ratios. They also need to:

• Decide if they want the ruling to apply to their STDand/or LTD plans.

• Amend the plan in accordance with Ruling 2004-55, which requires that the employee make anirrevocable election prior to the plan year.

Producer PerspectivesNews to he lp your bus ine s s grow Februar y 2005

1

Tax Ruling Gives Employers New Option

“It’s important for employers to

understand that this ruling is

optional and only applies to

group disability plans in which

the employer pays 100 percent

of the plan cost.”

David Abrahamsen,

Senior Product Management

Consultant at The Hartford


2

• Decide whether to give plan participants an activechoice (employees select pre-tax or after-tax) or achoice by default (employer assumes pre-tax orafter-tax treatment unless the employee electsotherwise).

• Decide whether the employee’s choice will carryover to subsequent years automatically unless theemployee changes it.

• Include the cost of premium coverage on IRS FormW-2 for employees who elect after-tax treatment.

Other Funding Methods Limit TaxationVoluntary and contributory plans aren’t affected bythis ruling.

• In voluntary plans the employee pays the fullpremium cost, usually on an after-tax basisresulting in a non-taxable benefit.

• In contributory plans employees and employersshare in the premium cost, usually with employeespaying their portion on an after-tax basis. Typically,the IRS taxes the benefits from a contributory planproportionally by applying the three-year look-backrule. This rule states that the benefits are taxedbased on the proportion of premium paid by theemployer during the prior three policy years.

For More InformationFor more information, please contact your Hartford representative. For details on IRS Ruling 2004-55, employers may want to consult a qualified tax advisor or go to the IRS website:www.irs.gov/irb/2004-26_IRB/ar06.html.

Tax Ruling (continued)

This material is intended to provide general tax information for your consideration and discussion with a qualified tax advisor. Neither The Hartford nor its affiliates, employees oragents provide financial, tax, legal or accounting advice.

www.irs.gov/irb/2004-26_IRB/ar06.html

Log On to Producer View Today

It’s easy to log on to Producer View.

Simply go to www.producerview.com

and register online. You’ll be prompted

to enter basic information from your

commission statement and choose a

user name and password — a process

that takes just a few minutes. Then

you can enjoy the wealth of information

The Hartford delivers to your desktop.

Producer Perspectives

3

Designed With Your Needs in MindProducer View is easy to navigate, with a Helpfunction to make your site visits more productive.With just a click of a mouse, you can access the kindof information you’re looking for:

• Commission Information — updated figures youcan download.

• Book of Business and Case Information —individual account information, including the statusof billing and premium payments.

• Reference Materials — applications that can be submitted online, product brochures and othermarketing tools.

• Contact Us — an online question and answerfunction that puts you in touch with your Hartfordcontacts via e-mail.

• Administration Kits — forms to open a newaccount or service an existing account. Most formsare interactive and can be submitted online. Someare also available in Spanish.

• Center for Ability® — a broad range of groupbenefit resources focusing on health, disability andproductivity management. Educational resourcesare available with continuing education credits.

In addition, the site is customized for each user soyou can decide which information you and your staffcan access. Your personal user name and passwordensure confidentiality and security.

Producer View — Online Access to YourGroup Benefit Account Information

When you told us you wanted faster access to your personal book of business

information, we listened. We created Producer View®, a website exclusively for The

Hartford’s producers and their staff. Producer View gives you book of business and other

information you need whenever you want it. Which saves you time and enhances the

service you can provide to your clients.

News to he lp your bus ine s s grow Februar y 2005

www.producerview.com

Sources: Bloomberg, Federal Reserve, Financial Times, Goldman Sachs,ISI, New York Times, Renaissance Capital, Standard and Poor’s, ThomsonFinancial, U.S. Department of Commerce, Wall Street Journal.

The views expressed by Dr. Quincy Krosby are general observations aboutthe merits of investing in securities of foreign issuers and are not recom-mendations as to an investment in any specific security. They are subjectto change. All economic and performance information is historical anddoes not indicate future results.

The S&P 500 Index is unmanaged and does not represent the perform-ance of any particular investment. You cannot invest directly in the S&P500 Index.

You should carefully consider investment objectives, risks, and chargesand expenses of The Hartford Mutual Funds before investing. This andother information can be found in the Funds’ prospectus, which can be obtained from your investment representative or by calling 888-843-7824. Please read it carefully before you invest or send money.

You should carefully consider the investment objectives, risks, andcharges and expenses of The Hartford variable annuities and their under-lying funds before investing. This and other information can be found inthe prospectus for the variable annuity and the prospectuses for theunderlying funds, which can be obtained from your investment represen-tative or by calling 800-862-6668. Please read them carefully before youinvest or send money. P6170jan 1/05


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Given the litany of anxieties experienced by themarket during the course of 2004 and dramaticallyunderscored by attention-grabbing headlines, it isamazing that the S&P 500 traded most of the year in a narrow range, finally climbing over the wall ofworry once the election was resolved. Terrorismfears; surging oil prices; China hard landing/softlanding scenarios; the current account deficit andnail biting over whether foreign central banks will stilllove us tomorrow; the weakening dollar and talk ofan imminent bursting of the housing bubble gave wayinstead to end-of-the-year optimism that the economyis solid, and corporate earnings will continue to grow— albeit at a slower, more normal pace.

Economic data suggest that growth as measured by the gross domestic product will settle into amoderate 2.5-3.5% range, and with interest ratesstill at historical lows and the Fed raising rates at a steady, measured pace, the backdrop for equitiesremains positive. In addition, the historic changesto tax rates on dividends and capital gains providea compelling climate for equities.

Moreover, after three years of cost cutting and tightbudgets, U.S. corporations sit with approximately$1.3 trillion on their balance sheets (at the end of the third quarter the nonfinancial S&P 500companies held more than $750 billion in cash)and the cash is being deployed by increasinglyconfident CEOs. In a recent Business Roundtablesurvey, capital spending plans for the first half of 2005 were the strongest in over two years.Dividend increases were up 7.2% from 2003, with1,745 dividend increases, and it is likely thatcompanies will continue to boost their dividendpayout ratios as investors benefit from the tax lawchange. Increased stock repurchases, a revival ofinitial public offerings (I.P.O.), coupled with stronggrowth in merger-and-acquisition (M&A) activity, willset the tone for the market and serve as positivecatalysts for the economy.


Reading the Tea Leaves

2005 Market Commentary by Dr. Quincy Krosby, Chief Investment Strategist at

The Hartford

Historic changes to tax rates on dividendsand capital gains provide a compellingclimate for equities.


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Return of the Animal SpiritsPerhaps nothing manifests an improved economyand confidence more than an environment ofmergers-and-acquisitions and initial public offerings.Optimism about the future is the bedrock for M&Aand I.P.O. deal making. During 2004 there were 242I.P.O.s which nearly totaled the offerings of the pastthree years combined. Burned after the dismalperformance during the bubble years, investorsdemanded seasoned companies that showedprofits. In fact, 61% of the companies that wentpublic in 2004 were profitable, compared with only26% in 1999 and 2000.

According to Thomson Financial, global deals for2004 are nearly $2 trillion compared with $1.3trillion in 2003. Higher stock prices, strongerbalance sheets, and efforts to stimulate growth are responsible for the recent spate of deals which include Kmart/Sears, Johnson andJohnson/Guidant, Nextel/Sprint, Oracle/Peoplesoft,and China's Lenovo buying IBM's PC unit. The 2003high profile Bank of America/FleetBoston andJPMorgan/Bank One deals have been followed bydeals across a broader spectrum of sectors. Overall,the market has applauded the announcementsprovided they make economic sense. A return to thelate 1990's M&A mind-set is still a long way off. Theexcess capacity created by that era, particularly in

technology and telecommunications, is steadilybeing reduced by the rise in M&A. Not all dealsmake the news, and we can expect more of a focuson strategic acquisitions among smaller companiesin the future. It was recently reported, for example,that over the last two years Yahoo has acquired 14small companies which have synergies with itsbusiness units. As momentum continues in M&A,deals will beget deals, and the animal spirits willonce again infuse the markets with vigor.

A Dynamic Domestic AgendaThe President's initiative to reform Social Securitywill take center stage in Washington, Wall Street andMain Street. The debate is heated, and the issueshave unleashed divisions between and withinparties. There were 154 million workers in 2003,and today's worker-to-retiree ratio is approximately 3-1 with a fall-off to 2-1 as the baby boomers retire.When Social Security was created, there were 42workers for each retiree. Non-partisan governmentstudies suggest that in 2018 Social Security will bepaying out more than it collects as the bulge of thebaby boomers retire. But how to remedy the shortfallis at the crux of the argument. It is most likely thatthe President's proposal will focus on privateaccounts for 3-4% of the wages subject to payrolltaxes, along with a reduction in overall benefits. It isapparent that a key to winning approval for the plan

will be overall deficit reduction. The cutback inbenefits would help, as would other significant cuts in spending. The recent announcement thatprocurement spending for the defense budget couldbe in the offing would help balance concernsregarding the borrowing needs to introduce theprivate accounts. There will be additionalannouncements regarding spending cuts, includingMedicare reimbursement rates and perhaps theclosing down of various government programs. Thisshould help provide legitimacy to the White House'sspending restraint message, and help pave the wayfor crucial changes in the Social Security program.

If the President is successful with his Social Security agenda, the environment will certainly bemore accommodative to significant tax reform. Acommission appointed by the President will study thevarious issues and make proposals for Congressionaldebate over the next two years. Priorities includemaking the 2001 and 2003 tax cuts permanent,changing and/or eliminating the Alternative MinimumTax (AMT), and expanding IRA accounts.

Tea Leaves (continued)


If the President is successful with hisSocial Security agenda, the environmentwill certainly be more accommodative tosignificant tax reform.

About The HartfordThe Hartford offers a wide range of productsand services with plan design choices to meetyour needs, including:

• Short Term Disability (STD)

• Long Term Disability (LTD)

• Integrated STD/LTD

• Term Life

• AD&D

• Travel Accident

• Senior Medical

• Stop Loss

Most products are available on a contributory and non-contributory basis.

The Hartford®is The Hartford Financial Services Group, Inc. and its sub-sidiaries, including issuing companies Hartford Life and AccidentInsurance Company, Hartford Life Insurance Company, and Hartford LifeGroup Insurance Company. Variable annuities are issued by Hartford Lifeand Annuity Insurance Company and by Hartford Life Insurance Company.Variable annuities are underwritten and distributed by Hartford SecuritiesDistribution Company, Inc. The Hartford Mutual Funds are underwrittenand distributed by Hartford Investment Financial Services, LLC.


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Interest Rates, Inflation and the ChairmanDetails from the minutes of the December 14 OpenMarket Committee of the Federal Reserve worriedthe markets, as members discussed a host ofpotential inflationary risks. Still, their conclusion wasthat inflation will remain low in the near term. But itremains clear from Fed language that interest rateswill continue rising until a neutral rate is reached,one that is neither restrictive nor accommodative.The Fed will, however, be sensitive to data, and rateswill be raised accordingly. The clearest languagecame from the Fed Chairman himself who saidtowards the end of 2004, "Rising interest rates havebeen advertised for so long and in so many placesthat anyone who hasn't appropriately hedged hisposition by now obviously is desirous of losingmoney." Soon the market will become preoccupiedwith Chairman Greenspan's retirement, and how thenew chairman will affect monetary policy. In themeanwhile, Fed language will be carefully scrutinizedby the market to determine if the Fed believesinflationary pressures are building to the point wherea “measured” response is no longer appropriate,and where more forceful measures are required.

Geopolitical Risks Still AboundAlthough the macro-economic environment in theUnited States is solid, events in Iraq and SaudiArabia continue to plague the markets. Any

amelioration of terror threats from al Qaeda as Iraqnears its fateful election will help ease apprehensionin the region. Similarly, attempts by al Qaeda todestabilize Saudi Arabia have thus far been relativelybenign, but it is clear that Saudi Arabia remains aprimary target. Given the crucial Saudi role withinOPEC, any threat to oil supplies will have a profoundeffect on the markets. These headwinds along withmacro-economic concerns certainly provide amplereason for concern as they did in 2004. But themarkets demonstrated they could co-exist with lessthan perfect conditions.

A Glass Half FullDuring 2005, economic and profit momentum shouldremain positive, with consensus estimates giving thebroader market a return of 7-10%. Rising capitalexpenditures, initial public offerings, mergers andacquisitions, enhanced dividends and markedlyimproved business confidence will provide theunderpinnings for a less risk-averse market.

The consumer, the backbone of the 2004 economy,should benefit from rising employment and wages.While global issues remain, and geopolitical andenergy worries provide cause for concern and couldindeed generate formidable headwinds for theeconomy, we read the tea leaves and see a glasshalf full.

Tea Leaves (continued)

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