31A-22-409 - Standard Nonforfeiture Law for Individual Deferred Annuities.
31A-22-409. Standard Nonforfeiture Law for Individual Deferred Annuities.
(1) This section is known as the "Standard Nonforfeiture Law for Individual DeferredAnnuities."
(2) This section does not apply to:
(a) reinsurance;
(b) a group annuity purchased under a retirement plan or plan of deferred compensation:
(i) established or maintained by:
(A) an employer, including a partnership or sole proprietorship;
(B) an employee organization; or
(C) both an employer and an employee organization; and
(ii) other than a plan providing individual retirement accounts or individual retirementannuities under Section 408, Internal Revenue Code;
(c) a premium deposit fund;
(d) a variable annuity;
(e) an investment annuity;
(f) an immediate annuity;
(g) a deferred annuity contract after annuity payments have commenced;
(h) a reversionary annuity; or
(i) a contract that is delivered outside this state through an agent or other representative ofthe company issuing the contract.
(3) (a) If a policy is issued after this section takes effect as set forth in Subsection (15), acontract of annuity, except as stated in Subsection (2), may not be delivered or issued for deliveryin this state unless the contract of annuity contains in substance:
(i) the provisions described in Subsection (3)(b); or
(ii) provisions corresponding to the provisions described in Subsection (3)(b) that in theopinion of the commissioner are at least as favorable to the contractholder, governing cessationof payment of consideration under the contract.
(b) Subsection (3)(a)(i) requires the following provisions:
(i) the company shall grant a paid-up annuity benefit on a plan stipulated in the contractof such a value as specified in Subsections (7), (8), (9), (10), and (12):
(A) upon cessation of payment of consideration under a contract; or
(B) upon a written request of the contract owner;
(ii) if a contract provides for a lump-sum settlement at maturity, or at any other time,upon surrender of the contract at or before the commencement of any annuity payments, thecompany shall pay in lieu of any paid-up annuity benefit a cash surrender benefit of such amountas is specified in Subsections (7), (8), (10), and (12);
(iii) a statement of the mortality table, if any, and interest rates used in calculating any ofthe following that are guaranteed under the contract:
(A) minimum paid-up annuity benefit;
(B) cash surrender benefit; or
(C) death benefit;
(iv) sufficient information to determine the amounts of the benefits described inSubsection (3)(b)(iii);
(v) a statement that any paid-up annuity, cash surrender, or death benefits that may beavailable under the contract are not less than the minimum benefits required by a statute of the
state in which the contract is delivered; and
(vi) an explanation of the manner in which a benefit described in Subsection (3)(b)(v) isaltered by the existence of any:
(A) additional amounts credited by the company to the contract;
(B) indebtedness to the company on the contract; or
(C) prior withdrawals from or partial surrender of the contract.
(c) Notwithstanding the requirements of this Subsection (3), a deferred annuity contractmay provide that if no consideration is received under a contract for a period of two full yearsand the portion of the paid-up annuity benefit at maturity on the plan stipulated in the contractarising from consideration paid before the period would be less than $20 monthly:
(i) the company may at the company's option terminate the contract by payment in cashof the then present value of such portion of the paid-up annuity benefit, calculated on the basis ofthe mortality table specified in the contract, if any, and the interest rate specified in the contractfor determining the paid-up annuity benefit; and
(ii) the payment described in Subsection (3)(c)(i), relieves the company of any furtherobligation under the contract.
(d) A company may reserve the right to defer the payment of cash surrender benefit for aperiod not to exceed six months after demand for the payment of the cash surrender benefit withsurrender of the contract.
(4) For a policy issued before June 1, 2006, the minimum values as specified inSubsections (7), (8), (9), (10), and (12) of any paid-up annuity, cash surrender, or death benefitsavailable under an annuity contract shall be based upon minimum nonforfeiture amounts asestablished in this Subsection (4).
(a) (i) With respect to a contract providing for flexible considerations, the minimumnonforfeiture amount at any time at or before the commencement of any annuity payments shallbe equal to an accumulation up to such time, at a rate of interest of 3% per annum of percentagesof the net considerations paid prior to such time:
(A) decreased by the sum of:
(I) any prior withdrawals from or partial surrenders of the contract accumulated at a rateof interest of 3% per annum; and
(II) the amount of any indebtedness to the company on the contract, including interestdue and accrued; and
(B) increased by any existing additional amounts credited by the company to thecontract.
(ii) For purposes of this Subsection (4)(a), the net consideration for a given contract yearused to define the minimum nonforfeiture amount shall be:
(A) an amount not less than zero; and
(B) equal to the corresponding gross considerations credited to the contract during thatcontract year less:
(I) an annual contract charge of $30; and
(II) a collection charge of $1.25 per consideration credited to the contract during thatcontract year.
(iii) The percentages of net considerations shall be:
(A) 65% of the net consideration for the first contract year; and
(B) 87-1/2% of the net considerations for the second and later contract years.
(iv) Notwithstanding Subsection (4)(a)(iii), the percentage shall be 65% of the portion ofthe total net consideration for any renewal contract year that exceeds by not more than two timesthe sum of those portions of the net considerations in all prior contract years for which thepercentage was 65%.
(b) (i) Except as provided in Subsections (4)(b)(ii) and (iii), with respect to a contractproviding for fixed scheduled consideration, minimum nonforfeiture amounts shall be:
(A) calculated on the assumption that considerations are paid annually in advance; and
(B) defined as for contracts with flexible considerations that are paid annually.
(ii) The portion of the net consideration for the first contract year to be accumulated shallbe equal to an amount that is the sum of:
(A) 65% of the net consideration for the first contract year; and
(B) 22-1/2% of the excess of the net consideration for the first contract year over thelesser of the net considerations for:
(I) the second contract year; and
(II) the third contract year.
(iii) The annual contract charge shall be the lesser of $30 or 10% of the gross annualconsideration.
(c) With respect to a contract providing for a single consideration payment, minimumnonforfeiture amounts shall be defined as for contracts with flexible considerations except that:
(i) the percentage of net consideration used to determine the minimum nonforfeitureamount shall be equal to 90%; and
(ii) the net consideration shall be the gross consideration less a contract charge of $75.
(5) For a policy issued on or after June 1, 2006, the minimum values as specified inSubsections (7), (8), (9), (10), and (12) of any paid-up annuity, cash surrender, or death benefitsavailable under an annuity contract shall be based upon minimum nonforfeiture amounts asestablished in this Subsection (5).
(a) The minimum nonforfeiture amount at any time at or before the commencement ofany annuity payments shall be equal to an accumulation up to such time, at rates of interest asindicated in Subsection (5)(b), of 87-1/2% of the gross considerations paid before such timedecreased by the sum of:
(i) any prior withdrawals from or partial surrenders of the contract accumulated at ratesof interest as indicated in Subsection (5)(b);
(ii) an annual contract charge of $50, accumulated at rates of interest as indicated inSubsection (5)(b);
(iii) any premium tax paid by the company for the contract, accumulated at rates ofinterest as indicated in Subsection (5)(b); and
(iv) the amount of any indebtedness to the company on the contract, including interestdue and accrued.
(b) (i) The interest rate used in determining minimum nonforfeiture amounts shall be anannual rate of interest determined as the lesser of:
(A) 3% per annum; and
(B) the five-year Constant Maturity Treasury Rate reported by the Federal Reserve,rounded to the nearest 1/20th of 1%, as of a date or average over a period no longer than 15months prior to the contract issue date or redetermination date under Subsection (5)(b)(iii):
(I) reduced by 125 basis points; and
(II) where the resulting interest rate is not less than 1%.
(ii) The interest rate shall apply for an initial period and may be redetermined foradditional periods.
(iii) (A) If the interest rate will be reset, the contract shall state:
(I) the initial period;
(II) the redetermination date;
(III) the redetermination basis; and
(IV) the redetermination period.
(B) The basis is the date or average over a specified period that produces the value of thefive-year Constant Maturity Treasury Rate to be used at each redetermination date.
(c) (i) During the period or term that a contract provides substantive participation in anequity indexed benefit, the reduction described in Subsection (5)(b)(i)(B)(I) may be increased byup to an additional 100 basis points to reflect the value of the equity index benefit.
(ii) The present value of the additional reduction at the contract issue date and at eachredetermination date may not exceed the market value of the benefit.
(iii) (A) The commissioner may require a demonstration that the present value of theadditional reduction does not exceed the market value of the benefit.
(B) If the demonstration required under Subsection (5)(c)(iii)(A) is not made to thesatisfaction of the commissioner, the commissioner may disallow or limit the additionalreduction.
(6) Notwithstanding Subsection (4), for a policy issued on or after June 1, 2004 andbefore June 1, 2006, at the election of a company, on a contract form-by-contract form basis, theminimum values as specified in Subsections (7), (8), (9), (10), and (12) of any paid-up annuity,cash surrender, or death benefits available under an annuity contract may be based uponminimum nonforfeiture amounts as established in Subsection (5).
(7) (a) A paid-up annuity benefit available under a contract shall be such that thecontract's present value on the date annuity payments are to commence is at least equal to theminimum nonforfeiture amount on that date.
(b) The present value described in Subsection (7)(a) shall be computed using themortality table, if any, and the interest rate specified in the contract for determining the minimumpaid-up annuity benefits guaranteed in the contract.
(8) (a) For a contract that provides cash surrender benefits, the cash surrender benefitsavailable before maturity may not be less than the present value as of the date of surrender of thatportion of the cash surrender value that would be provided under the contract at maturity arisingfrom considerations paid before the time of cash surrender:
(i) decreased by the amount appropriate to reflect any prior withdrawals from or partialsurrender of the contract;
(ii) decreased by the amount of any indebtedness to the company on the contract,including interest due and accrued; and
(iii) increased by any existing additional amounts credited by the company to thecontract.
(b) For purposes of this Subsection (8), the present value is to be calculated on the basisof an interest rate not more than 1% higher than the interest rate specified in the contract foraccumulating the net considerations to determine the maturity value.
(c) In no event shall a cash surrender benefit be less than the minimum nonforfeiture
amount at that time.
(d) The death benefit under a contract described in Subsection (8)(a) shall be at leastequal to the cash surrender benefit.
(9) (a) For a contract that does not provide cash surrender benefits, the present value ofany paid-up annuity benefit available as a nonforfeiture option at any time prior to maturity maynot be less than the present value of that portion of the maturity value of the paid-up annuitybenefit provided under the contract arising from considerations paid before the time the contractis surrendered in exchange for, or changed to, a deferred paid-up annuity increased by anyexisting additional amounts credited by the company to the contract.
(b) For purposes of Subsection (9)(a), the present value for the period prior to thematurity date is to be calculated on the basis of the interest rate specified in the contract foraccumulating the net considerations to determine maturity value.
(c) For a contract that does not provide a death benefit before commencement of anyannuity payments, the present values shall be calculated on the basis of the interest rate and themortality table specified in the contract for determining the maturity value of the paid-up annuitybenefit.
(d) In no event shall the present value of a paid-up annuity benefit be less than theminimum nonforfeiture amount at that time.
(10) (a) For the purpose of determining the benefits calculated under Subsections (8) and(9), the maturity date shall be considered to be:
(i) in the case of an annuity contract issued on or before May 5, 2002, under which anelection may be made to have an annuity payment commence at an optional maturity date, thelatest date for which an election is permitted by the contract, except that it may not be consideredto be later than the later of:
(A) the anniversary of the contract next following the day on which the annuitantbecomes 70 years of age; or
(B) the tenth anniversary of the contract; or
(ii) in the case of an annuity contract issued on or after May 6, 2002, the latest datepermitted by the contract, except that it may not be considered to be later than the later of:
(A) the anniversary of the contract next following the day on which the annuitantbecomes 70 years of age; or
(B) the tenth anniversary of the contract.
(b) In the case of an annuity contract issued on or after May 6, 2002:
(i) for a contract that provides cash surrender benefits, the cash surrender value on or pastthe maturity date shall be equal to the amount used to determine the annuity benefit payments;and
(ii) a surrender charge may not be imposed on or past maturity.
(11) A contract that does not provide cash surrender benefits or does not provide deathbenefits at least equal to the minimum nonforfeiture amount before the commencement of anyannuity payments shall include a statement in a prominent place in the contract that these benefitsare not provided.
(12) A paid-up annuity, cash surrender, or death benefit available at any time, other thanon the contract anniversary under a contract with fixed scheduled considerations, shall becalculated with allowance for the lapse of time and the payment of any scheduled considerationsbeyond the beginning of the contract year in which cessation of payment of considerations under
the contract occurs.
(13) (a) For a contract that provides, within the same contract by rider or supplementalcontract provisions, both annuity benefits and life insurance benefits that are in excess of thegreater of cash surrender benefits or a return of the gross considerations with interest, theminimum nonforfeiture benefits shall:
(i) be equal to the sum of:
(A) the minimum nonforfeiture benefits for the annuity portion; and
(B) the minimum nonforfeiture benefits, if any, for the life insurance portion; and
(ii) computed as if each portion were a separate contract.
(b) (i) Notwithstanding Subsections (7), (8), (9), (10), and (12), additional benefitspayable, as described in Subsection (13)(b)(ii), and consideration for the additional benefitspayable, shall be disregarded in ascertaining, if required by this section:
(A) the minimum nonforfeiture amounts;
(B) paid-up annuity;
(C) cash surrender; and
(D) death benefits.
(ii) For purposes of this Subsection (13), an additional benefit is a benefit payable:
(A) in the event of total and permanent disability;
(B) as reversionary annuity or deferred reversionary annuity benefits; or
(C) as other policy benefits additional to life insurance, endowment, and annuity benefits.
(iii) The inclusion of the additional benefits described in this Subsection (13) may not berequired in any paid-up benefits, unless the additional benefits separately would require:
(A) minimum nonforfeiture amounts;
(B) paid-up annuity;
(C) cash surrender; and
(D) death benefits.
(14) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, thecommissioner may adopt rules necessary to implement this section, including:
(a) ensuring that any additional reduction under Subsection (5)(c) is consistent with therequirements imposed by Subsection (5)(c); and
(b) providing for adjustments in addition to the adjustments allowed under Subsection(5)(c) to the calculation of minimum nonforfeiture amounts for:
(i) a contract that provides substantive participation in an equity index benefit; and
(ii) a contract for which the commissioner determines adjustments are justified.
(15) (a) After this section takes effect, a company may file with the commissioner awritten notice of its election to comply with this section after a specified date before July 1, 1988.
(b) This section applies to annuity contracts of a company issued on or after the date thecompany specifies in the notice.
(c) If a company makes no election under Subsection (15)(a), the operative date of thissection for such company is July 1, 1988.
Amended by Chapter 345, 2008 General Session
Amended by Chapter 382, 2008 General Session