N.Y. Insurance Law § 4223: Standard nonforfeiture law for annuities

§ 4223. Standard nonforfeiture law for annuities. (a) (1) In the case

of contracts issued on or after the operative date of this section, no

contract of annuity, except as provided in subsection (b) of this

section, shall be delivered or issued for delivery in this state unless

it contains in substance the following provisions, or corresponding

provisions that in the opinion of the superintendent are at least as

favorable to the contract holder, upon cessation of payment of

considerations under the contract.

(A) That upon cessation of payment of considerations under a contract,

the company will grant a paid-up annuity benefit on a plan stipulated in

the contract of such value as is specified in subsections (d), (f), (g)

and (i) of this section.

(B) If a contract provides for a full or partial lump sum settlement

at maturity, or at any other time, that upon full or partial surrender

of the contract at the commencement of any annuity payments or prior

thereto at times specified in the contract (which shall not be less

frequently than once every ten years after the issuance of the

contract), the company will pay in lieu of any paid-up annuity benefit a

cash surrender benefit (for the portion of the contract surrendered, if

the contract permits partial surrenders) in an amount meeting the

requirements of paragraph one of subsection (e) of this section. The

contract may provide for a cash surrender benefit on any other date or

dates meeting the requirements of paragraph one or two of subsection (e)

of this section. The company shall reserve the right to defer the

payment of such cash surrender benefit for a period of six months after

demand therefor with surrender of the contract. This subparagraph shall

not apply to any contract qualified for special tax treatment under

subsection (b) of section four hundred three of the Internal Revenue

Code to the extent such application would prevent such qualification.

(C) A statement of the mortality table, if any, and interest rates

used in calculating any minimum paid-up annuity during the period it is

guaranteed, and any cash surrender or death benefits that are guaranteed

under the contract, and any times at which such guaranteed benefits are

payable, together with sufficient information to determine the amounts

of such benefits and, if the contract provides for the determination of

any cash surrender value in accordance with a market-value adjustment

formula authorized by paragraph two of subsection (e) of this section, a

brief description of the formula and the circumstances in which it is

applied, together with a statement that a detailed description has been

filed with the superintendent.

(D) A statement that any paid-up annuity, cash surrender or death

benefits that may be available under the contract are not less than the

minimum benefits required by any statute of the state in which the

contract is delivered and an explanation of the manner in which such

benefits are altered by the existence of any additional amounts credited

by the company to the contract, any indebtedness to the company on the

contract or any prior withdrawals from or partial surrenders of the

contract.

(E) (i) Except as provided in item (ii) of this subparagraph, a

statement that the annuity benefits at the time of their commencement

will not be less than those that would be provided by the application of

an amount, hereinafter defined, to purchase any single consideration

immediate annuity contract offered by the company at the time to the

same class of annuitants. For contracts that provide cash surrender

benefits, such amount shall be the greater of the cash surrender benefit

or ninety-five percent of what the cash surrender benefit would be if

there were no withdrawal charge. For contracts that do not provide cash

surrender benefits, such amount shall be the present value of the

paid-up annuity benefit provided under the contract in accordance with

subsection (d) of this section.

(ii) For paid-up deferred annuity contracts in which each

consideration paid into the contract purchases guaranteed paid-up

annuity benefits determined at the time the consideration is paid, a

statement that the annuity benefits at the time each consideration is

paid will not be less than those that would be provided by the

application of the consideration to current purchase rates for new sales

of such contract or any comparable paid-up deferred annuity contract

offered by the company at that time to the same class of annuitants. For

purposes of this item, dividends applied to purchase paid-up additions

to the contract shall be treated as considerations paid into the

contract.

(iii) The statements set forth in items (i) and (ii) of this

subparagraph shall not affect the amount of any benefits required to be

provided under any other provision of this section.

(2) Notwithstanding the requirements of this subsection, any deferred

annuity contract may provide that if no considerations have been

received under a contract for a period of three full years and either

(A) the actual accumulation amount as hereinafter defined would be less

than five thousand dollars or the dollar limit established pursuant to

subparagraph A of paragraph 11 of subsection (a) of section four hundred

eleven of the internal revenue code of 1986, as amended, or (B) the

portion of the paid-up annuity benefit at maturity on the plan

stipulated in the contract arising from considerations paid prior to

such period would be less than twenty dollars monthly, calculated on the

basis of the mortality table, if any, and the interest rate, if any,

specified in the contract for determining the paid-up annuity benefits,

the company may at its option terminate such contract by payment of the

actual accumulation amount and by such payment shall be relieved of any

further obligation under such contract.

(b) (1) This section shall not apply to any:

(A) Reinsurance.

(B) Group annuity contract purchased in connection with one or more

retirement plans or plans of deferred compensation established or

maintained by or for one or more employers (including partnerships or

sole proprietorships), employee organizations, or any combination

thereof, except as otherwise provided in this subsection.

(C) Premium deposit fund.

(D) Variable annuity.

(E) Immediate annuity.

(F) Deferred annuity contract or group annuity certificate after

annuity payments have commenced.

(G) Reversionary annuity.

(H) Contract delivered outside this state through an agent or other

representative of the company issuing the contract or through a broker,

except as otherwise provided in this subsection.

(2) This section shall apply to any certificate issued, or issued for

delivery, under a group annuity contract (other than a group annuity

contract issued to an employee benefit plan within the meaning of the

federal employee retirement income security act of 1974, 29 U.S.C. §1001

et seq.) to a person solicited for the sale of such certificate in this

state if:

(A) such certificate provides benefits under an individual retirement

account or is issued as an individual retirement annuity, both as

defined in section four hundred eight of the Internal Revenue Code,

except for a simplified employee pension as defined in subsection (k) of

section four hundred eight of such code; or

(B) such certificate is issued as an annuity contract in accordance

with subsection (b) of section four hundred three of such code under a

program for the purchase of such annuity contract where the payments are

derived wholly from a salary reduction agreement or an agreement to

forego an increase in salary; or

(C) the benefits provided under such group annuity contract are

derived wholly from funds contributed by the persons covered thereunder.

(c) (1) Except as provided in paragraph four of this subsection, the

minimum values as specified in subsections (d), (e), (f), (g) and (i) of

this section of any paid-up annuity, cash surrender or death benefits

attributable to any account subject to this section under an annuity

contract shall be based (except as provided in subsection (e) of this

section with respect to the use of a market-value adjustment formula)

upon the actual accumulation amount computed as provided in this

subsection. For contracts that provide a cash surrender benefit prior to

the commencement of annuity payments, the death benefit attributable to

any account, other than an equity index account, shall not be less than

the actual accumulation amount, as defined in paragraph two of this

subsection, and the death benefit attributable to an equity index

account shall not be less than the value of the equity index account, as

defined in paragraph four of this subsection.

(2) The "actual accumulation amount" with respect to an account other

than an equity index account at any time at or prior to the commencement

of any annuity payments is:

(A) the net considerations credited to such account; minus

(B) premium taxes and premium charges attributable to the account;

plus

(C) interest (which shall not be less in any year than the minimum

annual effective rate of interest as specified in subparagraph (F) of

this paragraph applied to the sum of the actual accumulation amount and

the amount of any indebtedness to the company on the contract

attributable to the account), additional amounts and dividends, credited

by the company to the account; minus

(D) administrative charges (which shall not exceed fifty dollars per

year per contract); minus

(E) the sum of (i) the amount appropriate according to the terms of

the contract to reflect transfers to other accounts, any prior

withdrawals from or partial surrenders of the account and (ii) the

amount of any indebtedness to the company attributable to such account,

including interest due and accrued.

(F) the minimum annual effective rate of interest shall be the lesser

of three percent and the following:

(i) the five-year constant maturity treasury rate reported by the

federal reserve as of a date, or average over a period, within the

fifteen months prior to the contract issue or redetermination date

rounded to the nearest one-twentieth of one percent;

(ii) reduced by one hundred twenty-five basis points; and

(iii) where the resulting minimum guaranteed interest rate is not less

than one percent. The minimum annual effective rate of interest at issue

shall be specified in the contract. The basis and calculation for

setting the minimum annual effective rate of interest at issue of a

contract shall be filed with the superintendent. If the contract

provides that the minimum annual effective rate of interest may be

redetermined, the redetermination date, basis, calculation and period

shall be stated in the contract. The basis is the date or average over a

specified period that produces the values of the five-year constant

maturity treasury rate to be used at each redetermination date or at

issue.

(3)(A) "Net considerations" means the gross considerations credited to

the account (including transfers from other accounts under the contract)

less contract charges allocated to the account, but net considerations

shall not, for any contract year for any account, be less than zero.

(B) "Contract charges" means the fixed dollar charges provided for in

the contract (subject to any maximum limit based on the amount of annual

considerations credited to the contract) but shall not exceed fifty

dollars in any year.

(C) "Premium charge percentage" means a charge provided for in the

contract based on a percentage of net considerations credited to the

contract but shall not exceed (i) ten percent of any net consideration

so credited if the contract does not contain a market-value adjustment

formula or (ii) seven percent of any net consideration so credited if

the contract contains a market-value adjustment formula.

(D) "Premium specific" when applied to a contract means that each net

consideration credited to the contract is associated with a portion of

the actual accumulation amount under the contract and of the amount of

any indebtedness under the contract to the company and that a separate

withdrawal charge percentage is applicable to each such portion.

(4)(A) The minimum values as specified in subsections (d), (e), (f),

(g) and (i) of this section of any paid-up annuity, cash surrender or

death benefits available under an equity index account in an annuity

contract shall be based upon the greater of the minimum accumulation

value and the equity index value, as defined in this paragraph, provided

that:

(i) at least once every ten years the minimum accumulation value and

the equity index value will be reset to equal the greater of the two

values; and

(ii) the value of an equity index account during any contract year may

not be less than the value of the equity index account at the start of

the contract year plus net considerations credited to the equity index

account during the contract year less transfers, withdrawals and

surrenders from the equity index account during the contract year.

(iii) if an amount is withdrawn from the equity index account, the

greater of the minimum accumulation value and the equity index value

shall not be reduced by more than the amount withdrawn. The lesser of

the two values shall not be reduced by more than the amount withdrawn

multiplied by the ratio of the lesser of the two values to the greater

of the two values.

(B) The minimum accumulation value for an equity index account shall

equal the actual accumulation amount, as defined in paragraph two of

this subsection, with the following adjustments:

(i) the amounts added pursuant to subparagraph (C) of paragraph two of

this subsection shall not include any additional amounts, but shall

include the amounts, if any, credited to the minimum accumulation value

when values are reset in accordance with item (i) of subparagraph (A) of

this paragraph; and

(ii) the reduction described in item (ii) of subparagraph (F) of

paragraph two of this subsection may be increased by not more than one

percent upon demonstration satisfactory to the superintendent that the

present value of the additional reduction does not exceed the market

value of the benefit at the contract issue date, and, if applicable, at

each date thereafter that the guaranteed interest rate, or equity index

formula, can be changed.

(C) The equity index value shall equal the actual accumulation amount

as defined in paragraph two of this subsection, with the following

adjustments:

(i) the amounts added pursuant to subparagraph (C) of paragraph two of

this subsection shall not include any interest; but shall include the

amounts, if any, credited based on an equity index formula and the

amounts, if any, credited to the equity index value when values are

reset in accordance with item (i) of subparagraph (A) of this paragraph;

(ii) the amounts credited to the equity index value shall be based

upon an equity index formula specified in the contract meeting the

requirements of subparagraph (D) of this paragraph; and

(iii) the equity index value at the end of any contract year may not

be less than the equity index value at the start of the contract year

plus net considerations credited to the equity index account during the

contract year less transfers, withdrawals and surrenders from the equity

index account during the contract year.

(D) The equity index formula shall be based on:

(i) a percentage change in an equity index;

(ii) guaranteed factors, such as participation rates, margins, caps

and floors that adjust the percentage change in the equity index or

where such factors are not guaranteed but subject to change after

contract issue and:

(I) such changes occur not more frequently than annually;

(II) such changes are limited by guaranteed factors stated in the

contract; and

(III) the use of factors other than the guaranteed factors stated in

the contract are considered additional amounts within the meaning of

subsection (a) of section four thousand two hundred thirty-two of this

article.

(iii) be applied not more frequently than monthly nor less frequently

than annually; and

(iv) use the equity index value as the base to which the percentage

change in the equity index as modified by factors in the formula is

applied.

(v) in the absence of withdrawals and net considerations, not result

in a percentage change in the equity index value over a contract year of

less than the percentage change in the equity index as adjusted and

applied by the terms of the contract.

(E) The contract shall describe:

(i) the equity index used in the formula, including any alternative

index should the equity index no longer be publicly available;

(ii) the period of time over which the percentage change in the index

is calculated;

(iii) any initial participation rate, margin, cap, floor or other

factor used to adjust the percentage change in the equity index, the

period or periods of time for which such factor is applicable and if the

factor is subject to change after the contract is issued, the maximum or

minimum as applicable for such factor over the contract's lifetime and

the procedures for determining and disclosing any change in such factor;

and

(iv) the application of the equity index formula.

(d) Any paid-up annuity benefit available under a contract shall be

such that its present value on the date annuity payments are to commence

is at least equal to the actual accumulation amount on that date. Such

present value shall be computed using the mortality table, if any, and

the interest rate, if any, specified in the contract for determining any

minimum paid-up annuity benefits guaranteed in the contract.

(e) (1) A cash surrender benefit that meets the requirements of this

paragraph shall not be less than the excess of (i) the actual

accumulation amount over (ii) the withdrawal charge percentage times the

sum of (I) the actual accumulation amount and (II) the amount of any

indebtedness under the contract to the company. Subject to the foregoing

sentence and section four thousand two hundred thirty-two of this

article, such benefit may be determined in any manner established

pursuant to authority granted by the board of directors of the company

or a committee thereof (including any formula that takes into account

changes in interest rates of publicly-traded obligations or other

investments).

(2) A cash surrender benefit that meets the requirements of this

paragraph shall not be less than the excess of (i) the actual

accumulation amount, as adjusted by a market-value adjustment formula,

over, if the contract is not premium specific, (ii) the withdrawal

charge percentage times the sum of (I) the actual accumulation amount,

as adjusted by such market-value adjustment formula and (II) the amount

of any indebtedness under the contract to the company or, if the

contract is premium specific, (iii) the aggregate of such withdrawal

charge percentage under the contract times the sum of (I) the

corresponding portion of the actual accumulation amount, as adjusted by

such market-value adjustment formula, and (II) the corresponding portion

of the amount of any indebtedness under the contract to the company.

(3) (A) If the cash surrender benefit is computed on the basis of the

actual accumulation amount without adjustment by a market-value

adjustment formula and the contract does not include an equity index

account, "withdrawal charge percentage" means a percentage not greater

than ten percent less the premium charge percentage, if any, provided

for under the contract.

(B) If the contract has an equity index account, "withdrawal charge

percentage" for such account means the percentage provided in

subparagraph (A) of this paragraph reduced by one percent for each year

beginning after the third year the contract has been in force and

further reduced to zero after the tenth year the contract has been in

force.

(4) If the cash surrender benefit is computed on the basis of the

actual accumulation amount adjusted by a market value adjustment

formula, "withdrawal charge percentage" means a percentage not greater

than seven percent reduced by one percent for each year the contract has

been in force or, if the contract is premium specific, for each year

after the net consideration associated with such withdrawal charge

percentage was credited to the contract and less the premium charge

percentage, if any, provided in the contract (but not less than zero).

After any period during which interest was credited to the contract at a

specified rate and the company, pursuant to the contract, set a new

specified rate and a new period during which such rate is to be so

credited, the withdrawal charge percentage for such new period shall be

a percentage not in excess of the greater of (A) any remaining

withdrawal charge percentage at the beginning of the new period and (B)

the lesser of (i) five percent and (ii) one percent times the number of

years in such new period, reduced (but not below zero) by one percent

for each year the contract remains in force during such period,

provided, however, that the withdrawal charge percentage for such new

period shall be zero unless the contract provides for a date, within

thirty days of the last day of such new period, on which the contract

may be surrendered for a cash surrender benefit determined without the

use of a market-value adjustment formula.

(5) "Market-value adjustment formula" means a formula which is

described in the contract for increasing and decreasing the actual

accumulation amount in order to determine cash surrender values payable

in accordance with subparagraph (B) of paragraph one of subsection (a)

of this section and which takes into account (i) changes in interest

rates on publicly-traded obligations or other investments or in interest

rates provided in, or declared pursuant to, contracts of the same class

as the contract being surrendered and (ii) the length of time between

the date on which the contract is surrendered and the next date on which

the contract would have provided cash surrender benefits determined

without the use of any market-value adjustment formula. The

superintendent may promulgate reasonable regulations to define

permissible forms of market-value adjustment formulae.

(f) For contracts which do not provide cash surrender benefits, the

present value of any paid-up annuity benefit available as a

nonforfeiture option at any time prior to maturity shall not be less

than the greater of (1) the sum for each account other than an equity

index account of the actual accumulation amount as defined in paragraph

two of subsection (c) of this section plus the sum for each equity index

account of the value of the equity index account as defined in paragraph

four of subsection (c) of this section and (2) the present value of that

portion of the maturity value of the annuity benefit provided at

maturity under the contract arising from considerations paid prior to

the time the contract is surrendered in exchange for, or changed to, a

deferred paid-up annuity, such present value being calculated for the

period prior to the maturity date on the basis of the guaranteed

interest rate specified in the contract for determining the maturity

value of the annuity benefit provided at maturity, but not less than the

accumulation interest rate as defined in subsection (c) of this section,

and increased by any existing additional amounts and dividends credited

by the company to the contract. For contracts which do not provide any

death benefits prior to the commencement of any annuity payments, such

present values shall be calculated on the basis of such interest rate

and the mortality table specified in the contract for determining the

maturity value of the paid-up annuity benefit, increased by any

additional amounts and dividends credited by the company to the

contract.

(g) For the purpose of determining the benefits calculated under

subsections (e) and (f) of this section, in the case of annuity

contracts under which an election may be made to have annuity payments

commence at optional maturity dates, the maturity date shall be deemed

to be the latest date for which election shall be permitted by the

contract, but shall not be deemed to be later than the anniversary of

the contract next following the annuitant's seventieth birthday or the

tenth anniversary of the contract, whichever is later.

(h) If the contract fails at any time prior to the commencement of

annuity payments to provide cash surrender benefits or to provide death

benefits at least equal to the actual accumulation amount, it shall

contain a statement in a prominent place that such benefits are not

provided.

(i) Any paid-up annuity, cash surrender or death benefits available at

any time other than on the contract anniversary under any contract with

fixed scheduled considerations shall be calculated with allowance for

the lapse of time and the payment of any scheduled considerations beyond

the beginning of the contract year in which cessation of payment of

considerations under the contract occurs.

(j) For any contract which provides, within the same contract by rider

or supplemental contract provision, both annuity benefits and life

insurance benefits that are in excess of the greater of cash surrender

benefits or a return of the gross considerations with interest, the

minimum nonforfeiture benefits shall be equal to the sum of the minimum

nonforfeiture benefits for the annuity portion and the minimum

nonforfeiture benefits, if any, for the life insurance portion computed

as if each portion were a separate contract. Notwithstanding the

provisions of subsections (d), (e), (f), (g) and (i) of this section,

additional benefits payable in the event of total and permanent

disability, as reversionary annuity or deferred reversionary annuity

benefits, or as other policy benefits additional to life insurance,

endowment and annuity benefits, and considerations for all such

additional benefits, shall be disregarded in ascertaining the

accumulation amounts, and the paid-up annuity, cash surrender and death

benefits, that may be required by this section. The inclusion of such

additional benefits shall not be required in any paid-up benefits,

unless such additional benefits separately would require minimum paid-up

annuity, cash surrender or death benefits.

(k) (1) At least once in each contract year, the company shall mail to

each holder of a contract subject to this section under which benefit

payments have not yet commenced a statement as of a date during such

year as to any paid-up annuity benefit or the amount available under

each account to provide a paid-up annuity benefit, any cash surrender

benefit and any death benefit, under the contract. If the minimum annual

effective rate of interest is subject to redetermination, then the

statement shall include the current minimum annual effective rate of

interest and the next redetermination date. For contracts containing an

equity index account, the statement shall identify the minimum

accumulation value, the equity index value, any changes in the

participation rate, margin, cap, floor or other factor used in the

equity index formula. The statement shall be addressed to the last

post-office address of the contractholder known to the company.

(2) This subsection shall not apply to any contract providing for a

single consideration if the paid-up annuity benefits, any cash surrender

benefits and any death benefits under the contract are identical in

amount to those specified at issue.

(l) The operative date of this section shall be:

(1) as to a company which filed with the superintendent a written

notice of its election to comply with this section after a specified

date before January first, nineteen hundred eighty-one, such specified

date; and

(2) as to a company which made no such election, January first,

nineteen hundred eighty-one.