2023 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)  (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.