§ 4223 — Standard nonforfeiture law for annuities

§ 4223. Standard nonforfeiture law for annuities. (a) (1) In the case\nof contracts issued on or after the operative date of this section, no\ncontract of annuity, except as provided in subsection (b) of this\nsection, shall be delivered or issued for delivery in this state unless\nit contains in substance the following provisions, or corresponding\nprovisions that in the opinion of the superintendent are at least as\nfavorable to the contract holder, upon cessation of payment of\nconsiderations under the contract.\n (A) That upon cessation of payment of considerations under a contract,\nthe company will grant a paid-up annuity benefit on a plan stipulated in\nthe contract of such value as is specified in subsections (d), (f), (g)\nand (i) of this section.\n (B) If a contract provides for a full or partial lump sum settlement\nat maturity, or at any other time, that upon full or partial surrender\nof the contract at the commencement of any annuity payments or prior\nthereto at times specified in the contract (which shall not be less\nfrequently than once every ten years after the issuance of the\ncontract), the company will pay in lieu of any paid-up annuity benefit a\ncash surrender benefit (for the portion of the contract surrendered, if\nthe contract permits partial surrenders) in an amount meeting the\nrequirements of paragraph one of subsection (e) of this section. The\ncontract may provide for a cash surrender benefit on any other date or\ndates meeting the requirements of paragraph one or two of subsection (e)\nof this section. The company shall reserve the right to defer the\npayment of such cash surrender benefit for a period of six months after\ndemand therefor with surrender of the contract. This subparagraph shall\nnot apply to any contract qualified for special tax treatment under\nsubsection (b) of section four hundred three of the Internal Revenue\nCode to the extent such application would prevent such qualification.\n (C) A statement of the mortality table, if any, and interest rates\nused in calculating any minimum paid-up annuity during the period it is\nguaranteed, and any cash surrender or death benefits that are guaranteed\nunder the contract, and any times at which such guaranteed benefits are\npayable, together with sufficient information to determine the amounts\nof such benefits and, if the contract provides for the determination of\nany cash surrender value in accordance with a market-value adjustment\nformula authorized by paragraph two of subsection (e) of this section, a\nbrief description of the formula and the circumstances in which it is\napplied, together with a statement that a detailed description has been\nfiled with the superintendent.\n (D) A statement that any paid-up annuity, cash surrender or death\nbenefits that may be available under the contract are not less than the\nminimum benefits required by any statute of the state in which the\ncontract is delivered and an explanation of the manner in which such\nbenefits are altered by the existence of any additional amounts credited\nby the company to the contract, any indebtedness to the company on the\ncontract or any prior withdrawals from or partial surrenders of the\ncontract.\n (E) (i) Except as provided in item (ii) of this subparagraph, a\nstatement that the annuity benefits at the time of their commencement\nwill not be less than those that would be provided by the application of\nan amount, hereinafter defined, to purchase any single consideration\nimmediate annuity contract offered by the company at the time to the\nsame class of annuitants. For contracts that provide cash surrender\nbenefits, such amount shall be the greater of the cash surrender benefit\nor ninety-five percent of what the cash surrender benefit would be if\nthere were no withdrawal charge. For contracts that do not provide cash\nsurrender benefits, such amount shall be the present value of the\npaid-up annuity benefit provided under the contract in accordance with\nsubsection (d) of this section.\n (ii) For paid-up deferred annuity contracts in which each\nconsideration paid into the contract purchases guaranteed paid-up\nannuity benefits determined at the time the consideration is paid, a\nstatement that the annuity benefits at the time each consideration is\npaid will not be less than those that would be provided by the\napplication of the consideration to current purchase rates for new sales\nof such contract or any comparable paid-up deferred annuity contract\noffered by the company at that time to the same class of annuitants. For\npurposes of this item, dividends applied to purchase paid-up additions\nto the contract shall be treated as considerations paid into the\ncontract.\n (iii) The statements set forth in items (i) and (ii) of this\nsubparagraph shall not affect the amount of any benefits required to be\nprovided under any other provision of this section.\n (2) Notwithstanding the requirements of this subsection, any deferred\nannuity contract may provide that if no considerations have been\nreceived under a contract for a period of three full years and either\n(A) the actual accumulation amount as hereinafter defined would be less\nthan five thousand dollars or the dollar limit established pursuant to\nsubparagraph A of paragraph 11 of subsection (a) of section four hundred\neleven of the internal revenue code of 1986, as amended, or (B) the\nportion of the paid-up annuity benefit at maturity on the plan\nstipulated in the contract arising from considerations paid prior to\nsuch period would be less than twenty dollars monthly, calculated on the\nbasis of the mortality table, if any, and the interest rate, if any,\nspecified in the contract for determining the paid-up annuity benefits,\nthe company may at its option terminate such contract by payment of the\nactual accumulation amount and by such payment shall be relieved of any\nfurther obligation under such contract.\n (b) (1) This section shall not apply to any:\n (A) Reinsurance.\n (B) Group annuity contract purchased in connection with one or more\nretirement plans or plans of deferred compensation established or\nmaintained by or for one or more employers (including partnerships or\nsole proprietorships), employee organizations, or any combination\nthereof, except as otherwise provided in this subsection.\n (C) Premium deposit fund.\n (D) Variable annuity.\n (E) Immediate annuity.\n (F) Deferred annuity contract or group annuity certificate after\nannuity payments have commenced.\n (G) Reversionary annuity.\n (H) Contract delivered outside this state through an agent or other\nrepresentative of the company issuing the contract or through a broker,\nexcept as otherwise provided in this subsection.\n (2) This section shall apply to any certificate issued, or issued for\ndelivery, under a group annuity contract (other than a group annuity\ncontract issued to an employee benefit plan within the meaning of the\nfederal employee retirement income security act of 1974, 29 U.S.C. §1001\net seq.) to a person solicited for the sale of such certificate in this\nstate if:\n (A) such certificate provides benefits under an individual retirement\naccount or is issued as an individual retirement annuity, both as\ndefined in section four hundred eight of the Internal Revenue Code,\nexcept for a simplified employee pension as defined in subsection (k) of\nsection four hundred eight of such code; or\n (B) such certificate is issued as an annuity contract in accordance\nwith subsection (b) of section four hundred three of such code under a\nprogram for the purchase of such annuity contract where the payments are\nderived wholly from a salary reduction agreement or an agreement to\nforego an increase in salary; or\n (C) the benefits provided under such group annuity contract are\nderived wholly from funds contributed by the persons covered thereunder.\n (c) (1) Except as provided in paragraph four of this subsection, the\nminimum values as specified in subsections (d), (e), (f), (g) and (i) of\nthis section of any paid-up annuity, cash surrender or death benefits\nattributable to any account subject to this section under an annuity\ncontract shall be based (except as provided in subsection (e) of this\nsection with respect to the use of a market-value adjustment formula)\nupon the actual accumulation amount computed as provided in this\nsubsection. For contracts that provide a cash surrender benefit prior to\nthe commencement of annuity payments, the death benefit attributable to\nany account, other than an equity index account, shall not be less than\nthe actual accumulation amount, as defined in paragraph two of this\nsubsection, and the death benefit attributable to an equity index\naccount shall not be less than the value of the equity index account, as\ndefined in paragraph four of this subsection.\n (2) The "actual accumulation amount" with respect to an account other\nthan an equity index account at any time at or prior to the commencement\nof any annuity payments is:\n (A) the net considerations credited to such account; minus\n (B) premium taxes and premium charges attributable to the account;\nplus\n (C) interest (which shall not be less in any year than the minimum\nannual effective rate of interest as specified in subparagraph (F) of\nthis paragraph applied to the sum of the actual accumulation amount and\nthe amount of any indebtedness to the company on the contract\nattributable to the account), additional amounts and dividends, credited\nby the company to the account; minus\n (D) administrative charges (which shall not exceed fifty dollars per\nyear per contract); minus\n (E) the sum of (i) the amount appropriate according to the terms of\nthe contract to reflect transfers to other accounts, any prior\nwithdrawals from or partial surrenders of the account and (ii) the\namount of any indebtedness to the company attributable to such account,\nincluding interest due and accrued.\n (F) the minimum annual effective rate of interest shall be the lesser\nof three percent and the following:\n (i) the five-year constant maturity treasury rate reported by the\nfederal reserve as of a date, or average over a period, within the\nfifteen months prior to the contract issue or redetermination date\nrounded to the nearest one-twentieth of one percent;\n (ii) reduced by one hundred twenty-five basis points; and\n (iii) where the resulting minimum guaranteed interest rate is not less\nthan one percent. The minimum annual effective rate of interest at issue\nshall be specified in the contract. The basis and calculation for\nsetting the minimum annual effective rate of interest at issue of a\ncontract shall be filed with the superintendent. If the contract\nprovides that the minimum annual effective rate of interest may be\nredetermined, the redetermination date, basis, calculation and period\nshall be stated in the contract. The basis is the date or average over a\nspecified period that produces the values of the five-year constant\nmaturity treasury rate to be used at each redetermination date or at\nissue.\n (3)(A) "Net considerations" means the gross considerations credited to\nthe account (including transfers from other accounts under the contract)\nless contract charges allocated to the account, but net considerations\nshall not, for any contract year for any account, be less than zero.\n (B) "Contract charges" means the fixed dollar charges provided for in\nthe contract (subject to any maximum limit based on the amount of annual\nconsiderations credited to the contract) but shall not exceed fifty\ndollars in any year.\n (C) "Premium charge percentage" means a charge provided for in the\ncontract based on a percentage of net considerations credited to the\ncontract but shall not exceed (i) ten percent of any net consideration\nso credited if the contract does not contain a market-value adjustment\nformula or (ii) seven percent of any net consideration so credited if\nthe contract contains a market-value adjustment formula.\n (D) "Premium specific" when applied to a contract means that each net\nconsideration credited to the contract is associated with a portion of\nthe actual accumulation amount under the contract and of the amount of\nany indebtedness under the contract to the company and that a separate\nwithdrawal charge percentage is applicable to each such portion.\n (4)(A) The minimum values as specified in subsections (d), (e), (f),\n(g) and (i) of this section of any paid-up annuity, cash surrender or\ndeath benefits available under an equity index account in an annuity\ncontract shall be based upon the greater of the minimum accumulation\nvalue and the equity index value, as defined in this paragraph, provided\nthat:\n (i) at least once every ten years the minimum accumulation value and\nthe equity index value will be reset to equal the greater of the two\nvalues; and\n (ii) the value of an equity index account during any contract year may\nnot be less than the value of the equity index account at the start of\nthe contract year plus net considerations credited to the equity index\naccount during the contract year less transfers, withdrawals and\nsurrenders from the equity index account during the contract year.\n (iii) if an amount is withdrawn from the equity index account, the\ngreater of the minimum accumulation value and the equity index value\nshall not be reduced by more than the amount withdrawn. The lesser of\nthe two values shall not be reduced by more than the amount withdrawn\nmultiplied by the ratio of the lesser of the two values to the greater\nof the two values.\n (B) The minimum accumulation value for an equity index account shall\nequal the actual accumulation amount, as defined in paragraph two of\nthis subsection, with the following adjustments:\n (i) the amounts added pursuant to subparagraph (C) of paragraph two of\nthis subsection shall not include any additional amounts, but shall\ninclude the amounts, if any, credited to the minimum accumulation value\nwhen values are reset in accordance with item (i) of subparagraph (A) of\nthis paragraph; and\n (ii) the reduction described in item (ii) of subparagraph (F) of\nparagraph two of this subsection may be increased by not more than one\npercent upon demonstration satisfactory to the superintendent that the\npresent value of the additional reduction does not exceed the market\nvalue of the benefit at the contract issue date, and, if applicable, at\neach date thereafter that the guaranteed interest rate, or equity index\nformula, can be changed.\n (C) The equity index value shall equal the actual accumulation amount\nas defined in paragraph two of this subsection, with the following\nadjustments:\n (i) the amounts added pursuant to subparagraph (C) of paragraph two of\nthis subsection shall not include any interest; but shall include the\namounts, if any, credited based on an equity index formula and the\namounts, if any, credited to the equity index value when values are\nreset in accordance with item (i) of subparagraph (A) of this paragraph;\n (ii) the amounts credited to the equity index value shall be based\nupon an equity index formula specified in the contract meeting the\nrequirements of subparagraph (D) of this paragraph; and\n (iii) the equity index value at the end of any contract year may not\nbe less than the equity index value at the start of the contract year\nplus net considerations credited to the equity index account during the\ncontract year less transfers, withdrawals and surrenders from the equity\nindex account during the contract year.\n (D) The equity index formula shall be based on:\n (i) a percentage change in an equity index;\n (ii) guaranteed factors, such as participation rates, margins, caps\nand floors that adjust the percentage change in the equity index or\nwhere such factors are not guaranteed but subject to change after\ncontract issue and:\n (I) such changes occur not more frequently than annually;\n (II) such changes are limited by guaranteed factors stated in the\ncontract; and\n (III) the use of factors other than the guaranteed factors stated in\nthe contract are considered additional amounts within the meaning of\nsubsection (a) of section four thousand two hundred thirty-two of this\narticle.\n (iii) be applied not more frequently than monthly nor less frequently\nthan annually; and\n (iv) use the equity index value as the base to which the percentage\nchange in the equity index as modified by factors in the formula is\napplied.\n (v) in the absence of withdrawals and net considerations, not result\nin a percentage change in the equity index value over a contract year of\nless than the percentage change in the equity index as adjusted and\napplied by the terms of the contract.\n (E) The contract shall describe:\n (i) the equity index used in the formula, including any alternative\nindex should the equity index no longer be publicly available;\n (ii) the period of time over which the percentage change in the index\nis calculated;\n (iii) any initial participation rate, margin, cap, floor or other\nfactor used to adjust the percentage change in the equity index, the\nperiod or periods of time for which such factor is applicable and if the\nfactor is subject to change after the contract is issued, the maximum or\nminimum as applicable for such factor over the contract's lifetime and\nthe procedures for determining and disclosing any change in such factor;\nand\n (iv) the application of the equity index formula.\n (d) Any paid-up annuity benefit available under a contract shall be\nsuch that its present value on the date annuity payments are to commence\nis at least equal to the actual accumulation amount on that date. Such\npresent value shall be computed using the mortality table, if any, and\nthe interest rate, if any, specified in the contract for determining any\nminimum paid-up annuity benefits guaranteed in the contract.\n (e) (1) A cash surrender benefit that meets the requirements of this\nparagraph shall not be less than the excess of (i) the actual\naccumulation amount over (ii) the withdrawal charge percentage times the\nsum of (I) the actual accumulation amount and (II) the amount of any\nindebtedness under the contract to the company. Subject to the foregoing\nsentence and section four thousand two hundred thirty-two of this\narticle, such benefit may be determined in any manner established\npursuant to authority granted by the board of directors of the company\nor a committee thereof (including any formula that takes into account\nchanges in interest rates of publicly-traded obligations or other\ninvestments).\n (2) A cash surrender benefit that meets the requirements of this\nparagraph shall not be less than the excess of (i) the actual\naccumulation amount, as adjusted by a market-value adjustment formula,\nover, if the contract is not premium specific, (ii) the withdrawal\ncharge percentage times the sum of (I) the actual accumulation amount,\nas adjusted by such market-value adjustment formula and (II) the amount\nof any indebtedness under the contract to the company or, if the\ncontract is premium specific, (iii) the aggregate of such withdrawal\ncharge percentage under the contract times the sum of (I) the\ncorresponding portion of the actual accumulation amount, as adjusted by\nsuch market-value adjustment formula, and (II) the corresponding portion\nof the amount of any indebtedness under the contract to the company.\n (3) (A) If the cash surrender benefit is computed on the basis of the\nactual accumulation amount without adjustment by a market-value\nadjustment formula and the contract does not include an equity index\naccount, "withdrawal charge percentage" means a percentage not greater\nthan ten percent less the premium charge percentage, if any, provided\nfor under the contract.\n (B) If the contract has an equity index account, "withdrawal charge\npercentage" for such account means the percentage provided in\nsubparagraph (A) of this paragraph reduced by one percent for each year\nbeginning after the third year the contract has been in force and\nfurther reduced to zero after the tenth year the contract has been in\nforce.\n (4) If the cash surrender benefit is computed on the basis of the\nactual accumulation amount adjusted by a market value adjustment\nformula, "withdrawal charge percentage" means a percentage not greater\nthan seven percent reduced by one percent for each year the contract has\nbeen in force or, if the contract is premium specific, for each year\nafter the net consideration associated with such withdrawal charge\npercentage was credited to the contract and less the premium charge\npercentage, if any, provided in the contract (but not less than zero).\nAfter any period during which interest was credited to the contract at a\nspecified rate and the company, pursuant to the contract, set a new\nspecified rate and a new period during which such rate is to be so\ncredited, the withdrawal charge percentage for such new period shall be\na percentage not in excess of the greater of (A) any remaining\nwithdrawal charge percentage at the beginning of the new period and (B)\nthe lesser of (i) five percent and (ii) one percent times the number of\nyears in such new period, reduced (but not below zero) by one percent\nfor each year the contract remains in force during such period,\nprovided, however, that the withdrawal charge percentage for such new\nperiod shall be zero unless the contract provides for a date, within\nthirty days of the last day of such new period, on which the contract\nmay be surrendered for a cash surrender benefit determined without the\nuse of a market-value adjustment formula.\n (5) "Market-value adjustment formula" means a formula which is\ndescribed in the contract for increasing and decreasing the actual\naccumulation amount in order to determine cash surrender values payable\nin accordance with subparagraph (B) of paragraph one of subsection (a)\nof this section and which takes into account (i) changes in interest\nrates on publicly-traded obligations or other investments or in interest\nrates provided in, or declared pursuant to, contracts of the same class\nas the contract being surrendered and (ii) the length of time between\nthe date on which the contract is surrendered and the next date on which\nthe contract would have provided cash surrender benefits determined\nwithout the use of any market-value adjustment formula. The\nsuperintendent may promulgate reasonable regulations to define\npermissible forms of market-value adjustment formulae.\n (f) For contracts which do not provide cash surrender benefits, the\npresent value of any paid-up annuity benefit available as a\nnonforfeiture option at any time prior to maturity shall not be less\nthan the greater of (1) the sum for each account other than an equity\nindex account of the actual accumulation amount as defined in paragraph\ntwo of subsection (c) of this section plus the sum for each equity index\naccount of the value of the equity index account as defined in paragraph\nfour of subsection (c) of this section and (2) the present value of that\nportion of the maturity value of the annuity benefit provided at\nmaturity under the contract arising from considerations paid prior to\nthe time the contract is surrendered in exchange for, or changed to, a\ndeferred paid-up annuity, such present value being calculated for the\nperiod prior to the maturity date on the basis of the guaranteed\ninterest rate specified in the contract for determining the maturity\nvalue of the annuity benefit provided at maturity, but not less than the\naccumulation interest rate as defined in subsection (c) of this section,\nand increased by any existing additional amounts and dividends credited\nby the company to the contract. For contracts which do not provide any\ndeath benefits prior to the commencement of any annuity payments, such\npresent values shall be calculated on the basis of such interest rate\nand the mortality table specified in the contract for determining the\nmaturity value of the paid-up annuity benefit, increased by any\nadditional amounts and dividends credited by the company to the\ncontract.\n (g) For the purpose of determining the benefits calculated under\nsubsections (e) and (f) of this section, in the case of annuity\ncontracts under which an election may be made to have annuity payments\ncommence at optional maturity dates, the maturity date shall be deemed\nto be the latest date for which election shall be permitted by the\ncontract, but shall not be deemed to be later than the anniversary of\nthe contract next following the annuitant's seventieth birthday or the\ntenth anniversary of the contract, whichever is later.\n (h) If the contract fails at any time prior to the commencement of\nannuity payments to provide cash surrender benefits or to provide death\nbenefits at least equal to the actual accumulation amount, it shall\ncontain a statement in a prominent place that such benefits are not\nprovided.\n (i) Any paid-up annuity, cash surrender or death benefits available at\nany time other than on the contract anniversary under any contract with\nfixed scheduled considerations shall be calculated with allowance for\nthe lapse of time and the payment of any scheduled considerations beyond\nthe beginning of the contract year in which cessation of payment of\nconsiderations under the contract occurs.\n (j) For any contract which provides, within the same contract by rider\nor supplemental contract provision, both annuity benefits and life\ninsurance benefits that are in excess of the greater of cash surrender\nbenefits or a return of the gross considerations with interest, the\nminimum nonforfeiture benefits shall be equal to the sum of the minimum\nnonforfeiture benefits for the annuity portion and the minimum\nnonforfeiture benefits, if any, for the life insurance portion computed\nas if each portion were a separate contract. Notwithstanding the\nprovisions of subsections (d), (e), (f), (g) and (i) of this section,\nadditional benefits payable in the event of total and permanent\ndisability, as reversionary annuity or deferred reversionary annuity\nbenefits, or as other policy benefits additional to life insurance,\nendowment and annuity benefits, and considerations for all such\nadditional benefits, shall be disregarded in ascertaining the\naccumulation amounts, and the paid-up annuity, cash surrender and death\nbenefits, that may be required by this section. The inclusion of such\nadditional benefits shall not be required in any paid-up benefits,\nunless such additional benefits separately would require minimum paid-up\nannuity, cash surrender or death benefits.\n (k) (1) At least once in each contract year, the company shall mail to\neach holder of a contract subject to this section under which benefit\npayments have not yet commenced a statement as of a date during such\nyear as to any paid-up annuity benefit or the amount available under\neach account to provide a paid-up annuity benefit, any cash surrender\nbenefit and any death benefit, under the contract. If the minimum annual\neffective rate of interest is subject to redetermination, then the\nstatement shall include the current minimum annual effective rate of\ninterest and the next redetermination date. For contracts containing an\nequity index account, the statement shall identify the minimum\naccumulation value, the equity index value, any changes in the\nparticipation rate, margin, cap, floor or other factor used in the\nequity index formula. The statement shall be addressed to the last\npost-office address of the contractholder known to the company.\n (2) This subsection shall not apply to any contract providing for a\nsingle consideration if the paid-up annuity benefits, any cash surrender\nbenefits and any death benefits under the contract are identical in\namount to those specified at issue.\n (l) The operative date of this section shall be:\n (1) as to a company which filed with the superintendent a written\nnotice of its election to comply with this section after a specified\ndate before January first, nineteen hundred eighty-one, such specified\ndate; and\n (2) as to a company which made no such election, January first,\nnineteen hundred eighty-one.\n