NY Ins L § 4223 (2021)
2021 New York Laws ISC - Insurance Article 42 - Life Insurance Companies and Accident and Health Insurance Companies and Legal Services Insurance Companies 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)  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. This statement will  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.