Section 144A1/2: Annuity contracts; required provisions
Section 144A1/2. (a) In the case of contracts issued on or after the effective date of this section, no contract of annuity, except as set forth in section 13, shall be delivered or issued for delivery in the commonwealth 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 contract holder, upon cessation of payment of considerations under the contract:
(1) That upon cessation of payment of considerations under a contract, or upon the written consent 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).
(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), (f), (g) and (i). The company may reserve the right to defer the payment of such cash surrender benefit for a period not to exceed 6 months after demand therefor with surrender of the contract after making written request and receiving written approval of the commissioner. The request shall address the necessity and equitability to all policyholders of the deferral.
(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 amount of such benefits.
(4) 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 commonwealth 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 section, any deferred annuity contract may provide that if no considerations have been received under a contract for a period of 2 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 $20 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.
(b) The minimum values as specified in subsections (d), (e), (f), (g) and (i) of any paid-up annuity, cash surrender or death benefits available under an annuity contract shall be based upon the following nonforfeiture amounts:
(1) The minimum nonforfeiture amount at any time at or before the commencement of any annuity payments shall be equal to an accumulation up to such time at a rate of interest as indicated in subsection (c) of the net considerations, as hereinafter defined, paid prior to such time, decreased by the sum of:
(i) any prior withdrawals from or partial surrenders of the contract accumulated at rates of interest as indicated in said subsection (c);
(ii) an annual contract charge of $50, accumulated at rates of interest as indicated in said subsection (c);
(iii) any premium tax paid by the company for the contract, accumulated at rates of interest as indicated in said subsection (c); and
(iv) 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 87 1/2 per cent of the gross considerations credited to the contract during that contract year.
(c) The interest rate used in determining minimum nonforfeiture amounts shall be an annual rate of interest determined as the lesser of 3 per cent per annum and the following, which shall be specified in the contract if the interest rate will be reset:—
(1) the 5 year constant maturity treasury rate reported by the Federal Reserve as of a date, or average over a period, rounded to the nearest 1/20th of 1 per cent, specified in the contract no longer than 15 months prior to the contract issue date or redetermination date under clause (4);
(2) reduced by 125 basis points;
(3) where the resulting interest guarantee is not less than 1 per cent; and
(4) the interest rate shall apply for an initial period and may be redetermined for additional periods. The redetermination date, basis and period, if any, shall be stated in the contract. The basis is the date or average over a period that produces the value of the 5 year constant maturity treasury rate to be used at each redetermination date.
Notwithstanding subsections (b) and (c), during the period or term that a contract provides substantive participation in an equity indexed benefit, it may increase the reduction described in clause (2) by up to an additional 100 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 reduction does not exceed the market value of the benefit. Lacking such a demonstration that is acceptable to the commissioner, the commissioner may disallow or limit the additional reduction.
The commissioner may adopt regulations to implement the preceding paragraph 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 that 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. The 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 before the time of cash surrender reduced by the amount appropriate to reflect any prior withdrawals from or partial surrenders of the contract, the present value being calculated on the basis of an interest rate not more than 1 per cent higher than the interest rate specified in the contract for accumulating the net considerations to determine the maturity value, decreased by the amount of 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 the cash surrender benefit be less than the minimum nonforfeiture amount at that time. The death benefit under the 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 before 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 considerations paid before the time the contract is surrendered in exchange for, or changed to, a deferred paid-up annuity, the present value being calculated for the period before the maturity date on the basis of the interest rate specified in the contract for accumulating the net considerations to determine the 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 before commencement of any annuity payments, the present values shall be calculated on the basis of the interest rate and the mortality table specified in the contract for determining the maturity value of the paid-up annuity benefit; but, 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), 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 considered to be the latest date for which election shall be permitted by the contract, but shall not be considered to be later than the anniversary of the contract next following the annuitant's 70th 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 before the commencement of any annuity payments shall include a statement in a prominent place in the contract that the 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 subsections (d), (e), (f), (g) and (i), additional benefits payable: (1) in the event of total and permanent disability, (2) as reversionary annuity or deferred revisionary annuity benefits or (3) as other policy benefits additional to life insurance, endowment and annuity benefits and considerations for all the 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 the additional benefits shall not be required in any paid-up benefits, unless the additional benefits separately would require minimum nonforfeiture amounts, paid-up annuity, cash surrender and death benefits.
(k) The commissioner may adopt regulations to implement this section.
(l) Notwithstanding subsection (a), upon the effective date of this section, a company may elect to: (1) apply this section to annuity contracts on a contract form-by-contract form basis or (2) comply with section 144A.
(m) 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, 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 the commonwealth through an agent or other representative of the company issuing the contract.