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The Vermont Statutes Online
Title
08
:
Banking and Insurance
Chapter
103
:
LIFE INSURANCE POLICIES AND ANNUITY CONTRACTS
Subchapter
003A
:
STANDARD NONFORFEITURE LAW FOR INDIVIDUAL DEFERRED ANNUITIES
§
3750. Standard nonforfeiture law for individual deferred annuities
(a) This section
shall be known as the Standard Nonforfeiture Law for Individual Deferred
Annuities.
(b) 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.
(c) In the case
of contracts issued on or after the operative date of this section as defined
in subdivision (1) of this subsection, no contract of annuity, except as stated
in subsection (b), 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, the company will grant
a paid-up annuity benefit on a plan stipulated in the contract of such value as
is specified in subsections (e), (f), (g), (h), and (j) 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 will pay in lieu of any paid-up annuity benefit a
cash surrender benefit of such amount as is specified in subsections (e), (f),
(h), and (j). 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.
(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.
(4)(A) 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.
(B)
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 $20.00 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.
(d) The minimum
values as specified in subsections (e), (f), (g), (h), and (j) 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 section.
(1)(A) 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 (C) of this subdivision (1) 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 subdivision (1)(C) of this subsection;
(ii) the amount
of any indebtedness to the company on the contract, including interest due and
accrued; and
(iii) an annual
contract charge of $50.00, accumulated at rates of interest as indicated in
subdivision (1)(C) of this subsection.
(B) The net
considerations for a given contract year used to define the minimum
nonforfeiture amount shall be an amount equal to 87 and one-half percent of the
corresponding 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 three percent per annum and the
following, which shall be specified in the contract if the interest will be
reset:
(i) The
five-year Constant Maturity Treasury Rate reported by the Federal Reserve as of
a date, or average over a period, rounded to the nearest one-twentieth of one
percent, specified in the contract no longer than 15 months prior to the
contract issue date or redetermination date under subdivision (iv) of this
subdivision (C);
(ii) Reduced by
125 basis points;
(iii) Where the
resulting interest rate is not less than one percent; and
(iv) 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 specified
period that produces the value of the five-year Constant Maturity Treasury Rate
to be used at the redetermination date.
(D) During the
period or term that a contract provides substantive participation in an equity
indexed benefit, it may increase the reduction described in subdivision (ii) of
this subdivision (C) 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 additional 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.
(E) The
commissioner may adopt rules to implement the provisions of subdivision (D) 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 that the
commissioner determines adjustments are justified.
(2) With respect
to contracts providing for fixed scheduled considerations, minimum
nonforfeiture amounts shall be calculated on the assumption that considerations
are paid annually in advance and shall be defined as for contracts with
flexible considerations which are paid annually with two exceptions:
(A) The portion
of the net consideration for the first contract year to be accumulated shall be
the sum of 65 percent of the net consideration of the first contract year plus
22 and one-half percent of the excess of the net consideration for the first
contract year over the lesser of the net considerations for the second and
third contract years.
(B) The annual
contract charge shall be the lesser of:
(i) $30.00; or
(ii) 10 percent
of the gross annual consideration.
(3) With respect
to contracts providing for a single consideration, minimum nonforfeiture
amounts shall be defined as for contracts with flexible considerations except
that the percentage of net consideration used to determine the minimum
nonforfeiture amount shall be equal to 90 percent and the net consideration
shall be the gross consideration less a contract charge of $75.00.
(e) 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 rate specified in the contract
for determining the minimum paid-up annuity benefits guaranteed in the
contract.
(f) 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 percent 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.
(g) 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 considerations paid prior to the time the contract is surrendered
in exchange for, or changed to, a deferred paid-up annuity, such present values
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 value 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. However, in
no event shall the present value of a paid-up annuity benefit be less than the
minimum nonforfeiture amount at that time.
(h) For the
purpose of determining the benefits calculated under subsections (f) and (g) of
this section, in the case of annuity contracts under which any 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 70th birthday or the
10th anniversary of the contract, whichever is later.
(i) 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.
(j) 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.
(k) 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 (e), (f), (g), (h), and (j) 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.
(l) After the
effective date of this section, 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 before the second anniversary of the effective date of
this section. After the filing of such notice, then upon such specified date, which
shall be the operative date of this section for such company, this section
shall become operative with respect to annuity contracts thereafter issued by
such company. If a company makes no such election, the operative date of this
section for such company shall be the second anniversary of the effective date
of this section. (Added 1981, No. 43, § 10, eff. April 21, 1981; amended 2003,
No. 11, § 1, eff. May 6, 2003; 2003, No. 11, § 2, eff. Jan. 1, 2005; 2003, No.
105 (Adj. Sess.), § 17.)
