Sec. 38a-440. (Formerly Sec. 38-130d). Minimum nonforfeiture benefits for annuity contract holders upon cessation of payment of considerations under a contract.
Sec. 38a-440. (Formerly Sec. 38-130d). Minimum nonforfeiture benefits for
annuity contract holders upon cessation of payment of considerations under a contract. (a) This section shall not apply to any reinsurance, group annuity purchased under
a retirement plan or plan of deferred compensation established or maintained by an
employer, including a partnership or sole proprietorship, or by an employee organization, or by both, other than a plan providing individual retirement accounts or individual
retirement annuities under Section 408 of the Internal Revenue Code, as now or hereafter
amended, premium deposit fund, variable annuity, investment annuity, immediate annuity, any deferred annuity contract after annuity payments have commenced, or reversionary annuity, nor to any contract which shall be delivered outside this state through an
agent or other representative of the company issuing the contract.
(b) In the case of contracts issued on or after the effective date specified in accordance with the provisions of subsections (k) and (l) of this section, no contract of annuity,
except as stated in subsection (a) of this section, shall be delivered or issued for delivery
in this state unless it contains in substance the following provisions, or corresponding
provisions which in the opinion of the commissioner are at least as favorable to the
contractholder, upon cessation of payment of considerations under the contract: (1) That
upon cessation of payment of considerations under a contract, or upon the written request
of the contract owner, the company shall grant a paid-up annuity benefit on a plan
stipulated in the contract of such value as is specified in subsections (d), (e), (f), (g) and
(i) of this section; (2) if a contract provides for a lump sum settlement at maturity, or at
any other time, that upon surrender of the contract at or prior to the commencement of
any annuity payments, the company shall pay in lieu of any paid-up annuity benefit a
cash surrender benefit of such amount as is specified in subsections (d), (e), (g) and (i)
of this section. The company may reserve the right to defer the payment of such cash
surrender benefit for a period not to exceed six months after demand therefor with
surrender of the contract after making written request and receiving written approval
of the commissioner, provided such request addresses the deferral's necessity and equitability with respect to all policyholders; (3) a statement of the mortality table, if any,
and interest rates used in calculating any minimum paid-up annuity, cash surrender or
death benefits that are guaranteed under the contract, together with sufficient information to determine the amounts of such benefits; and (4) a statement that any paid-up
annuity, cash surrender or death benefits which may be available under the contract are
not less than the minimum benefits required by the statutes 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. 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 two full years and 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, the company may at its option
terminate such contract by payment in cash of the then present value of such portion of
the paid-up annuity benefit, calculated on the basis of the mortality table, if any, and
interest rate specified in the contract for determining the paid-up annuity benefit, and
by such payment shall be relieved of any further obligation under such contract.
(c) 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
annuity contract shall be based upon minimum nonforfeiture amounts as defined in
this subsection: (1) The minimum nonforfeiture amount at any time at or prior to the
commencement of any annuity payments shall be equal to an accumulation up to such
time at rates of interest, as indicated in subdivision (3) of this subsection, of the net
considerations, as defined in this subsection, paid prior to such time, decreased by the
sum of (A) any prior withdrawals from or partial surrenders of the contract accumulated
at rates of interest as indicated in subdivision (3) of this subsection; (B) an annual contract
charge of fifty dollars, accumulated at rates of interest as indicated in subdivision (3) of
this subsection; and (C) the amount of any indebtedness to the company on the contract,
including interest due and accrued. (2) The net considerations for a given contract year
used to define the minimum nonforfeiture amount shall be an amount equal to eighty-seven and one-half per cent of the gross considerations credited to the contract during
that contract year. (3) The interest rate used in determining minimum nonforfeiture
amounts shall be an annual rate of interest determined as the lesser of three per cent per
annum or the rate calculated pursuant to subparagraphs (A) to (D), inclusive, of this
subdivision, which shall be specified in the contract if the interest rate will be reset: (A)
The five-year Constant Maturity Treasury Rate reported by the Federal Reserve as of
a date, or average over a period of time, rounded to the nearest one-twentieth of one per
cent, specified in the contract no later than fifteen months prior to the contract issue
date or redetermination date under subparagraph (D) of this subdivision; (B) reduced
by one hundred twenty-five basis points; (C) where the resulting interest rate is not less
than one per cent; and (D) where such interest rate applies for an initial period of time
and may be redetermined for additional periods of time. The redetermination date, basis
and period, if any, shall be stated in the contract. The basis is the date or average over
a specified period of time that produces the value of the five-year Constant Maturity
Treasury Rate to be used at each redetermination date. (4) During the period of time or
term that a contract provides substantive participation in an equity indexed benefit, the
contract may increase the reduction described in subparagraph (B) of subdivision (3)
of this subsection by an amount up to an additional one hundred basis points to reflect
the value of the equity index benefit. The present value at the contract issue date, and
at each redetermination date thereafter, of the additional reduction shall not exceed the
market value of the benefit. The commissioner may require a demonstration that the
present value of the additional reduction does not exceed the market value of the benefit.
If there is no such demonstration that is acceptable to the commissioner, the commissioner may disallow or limit the additional reduction. (5) The commissioner may adopt
regulations, in accordance with chapter 54, to implement the provisions of subdivision
(4) of this subsection and to provide for further adjustments to the calculation of minimum nonforfeiture amounts for contracts that provide substantive participation in an
equity index benefit and for other contracts for which the commissioner determines
adjustments are justified.
(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
minimum nonforfeiture amount on that date. Such present value shall be computed using
the mortality table, if any, and the interest rates specified in the contract for determining
the minimum paid-up annuity benefits guaranteed in the contract.
(e) For contracts which provide cash surrender benefits, such cash surrender benefits available prior to maturity shall not be less than the present value as of the date of
surrender of that portion of the maturity value of the paid-up annuity benefit which
would be provided under the contract at maturity arising from considerations paid prior
to the time of cash surrender reduced by the amount appropriate to reflect any prior
withdrawals from or partial surrenders of the contract, such present value being calculated on the basis of an interest rate not more than one per cent higher than the interest
rate specified in the contract for accumulating the net considerations to determine such
maturity value, decreased by the amount of any indebtedness to the company on the
contract, including interest due and accrued, and increased by any existing additional
amounts credited by the company to the contract. In no event shall any cash surrender
benefit be less than the minimum nonforfeiture amount at that time. The death benefit
under such contracts shall be at least equal to the cash surrender benefit.
(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 present value of that portion of the maturity value of
the paid-up annuity benefit, provided under the contract arising from consideration 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 interest rate specified in the contract for accumulating the net
considerations to determine such maturity value, and increased by any existing additional amounts 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. In no event shall the present value of a paid-up annuity benefit be less than the
minimum nonforfeiture amount at that time.
(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) Any contract which does not provide cash surrender benefits or does not provide
death benefits at least equal to the minimum nonforfeiture amount prior to the commencement of any annuity payments shall include a statement in a prominent place in
the contract 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 (1) in the event of total and permanent disability, (2) as
reversionary annuity or deferred reversionary annuity benefits, or (3) 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 minimum
nonforfeiture amounts, 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
nonforfeiture amounts, paid-up annuity, cash surrender and death benefits.
(k) On or after October 1, 1978, but prior to January 1, 1981, any company may
file with the commissioner a written notice of its election to comply with the provisions
of this section after a specified date and the provisions of this section shall apply to
annuity contracts issued by such company on or after such specified date. On or after
January 1, 1981, the provisions of this section shall apply to annuity contracts issued
by any company.
(l) On or after May 23, 2003, but prior to July 1, 2005, any company may file with
the commissioner a written notice of its election to comply with the provisions of this
section with respect to contract forms specified in the notice and issued on and after
May 23, 2003, except that (1) no such notice shall be required for a company that elects
to comply with the provisions of this section as set forth in the general statutes, revision
of 1958, revised to January 1, 2003, and (2) on and after July 1, 2005, the provisions of
this section shall apply to all annuity contracts issued by any company on and after July
1, 2005.
(m) The commissioner may adopt regulations, in accordance with chapter 54, to
implement the provisions of this section.
(P.A. 78-312, S. 3; P.A. 03-53, S. 1.)
History: Sec. 38-130d transferred to Sec. 38a-440 in 1991; P.A. 03-53 amended Subsec. (b) to reference Subsec. (l)
and rewrite Subdivs. (1) and (2) to reference written requests, substitute "shall" for "will", "may" for "shall" and "not to
exceed" for "of", amended Subsec. (c) to rewrite Subdivs. (1) and (2), delete former Subdiv. (3) and add new Subdivs.
(3), (4) and (5) re interest calculation, reduction and regulations, amended Subsec. (d) to substitute "rates" for "rate", added
new Subsec. (l) re effective date of provisions, and added new Subsec. (m) re regulations, effective May 23, 2003.
See Secs. 38a-77 and 38a-78 re Standard Valuation Law.