806 KAR 12:150.
Annuity disclosures
RELATES
TO: KRS 304.12-010, 304.12-020, 304.12-230, 26 U.S.C. 401, 403, 414, 457, 29
U.S.C. 1001-1461
STATUTORY
AUTHORITY: KRS 304.2-110
NECESSITY,
FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of the
Department of Insurance to promulgate administrative regulations necessary for
or as an aid to the effectuation of any provision of the Kentucky Insurance
Code, KRS Chapter 304. This administrative regulation requires insurers to
deliver information to purchasers of annuities that will improve the buyer’s
ability to select the most appropriate annuity for the buyer’s needs and
improve the buyer’s understanding of the basic features of the product that has
been purchased or is under consideration.
Section
1. Definitions. (1) "Buyer’s Guide" means the current Annuity Buyer’s
Guide published by the Commonwealth of Kentucky Department of Insurance.
(2)
"Charitable gift annuity" is defined in KRS 304.1-120(6)(b).
(3)
"Contract owner" means the owner named in the annuity contract or
certificate holder in the case of a group annuity contract.
(4)
"Determinable elements" means elements derived from processes or
methods that are guaranteed at issue and not subject to company discretion, but
ones in which the values or amounts cannot be determined until some point after
issue. These elements include the premiums, credited interest rates including
any bonus, benefits, values, noninterest based credits, charges, or elements of
formulas used to determine at issue. An element is determinable if it was calculated
from underlying determinable elements only, or from both determinable and
guaranteed elements.
(5)
"Funding agreement" means an agreement for an insurer to accept and
accumulate funds and to make one (1) or more payments at future dates in
amounts that are not based on mortality or morbidity contingencies.
(6)
"Generic name" means a short title descriptive of the annuity
contract being applied for or illustrated.
(7)
"Guaranteed elements" means the premiums and credited interest rates,
including any bonus, benefits, values, noninterest based credits, charges, or
elements of formulas used to determine any of these, that are guaranteed and
determined at issue. An element is guaranteed if all of the underlying elements
that go into its calculation are guaranteed.
(8)
"Nonguaranteed elements" means the premiums and credited interest
rates including any bonus, benefits, values, non-interest based credits,
charges, or elements of formulas used to determine any of these, that are
subject to company discretion and are not guaranteed at issue. An element is
nonguaranteed if any of the underlying nonguaranteed elements are used in its
calculation.
(9)
"Structured settlement annuity" means:
(a)
A "qualified funding asset" as defined in 26 U.S.C. 130(d); or
(b)
An annuity that would be a qualified funding asset pursuant to 26 U.S.C. 130(d)
except for the fact that it is not owned by an assignee under a qualified
assignment.
Section
2. Applicability. This administrative regulation shall apply to all group and
individual annuity contracts and certificates except:
(1)
Registered or nonregistered variable annuities or other registered products;
(2)(a)
Annuities used to fund:
1.
An employee pension plan which is covered by the Employee Retirement Income
Security Act (ERISA), codified as 29 U.S.C. 1001 to 1461;
2.
A plan described by 26 U.S.C. 401(a), (k), or 403(b), if the plan, for purposes
of ERISA, is established or maintained by an employer;
3.
A governmental or church plan defined in 26 U.S.C. 414 or a deferred
compensation plan of a state or local government or a tax exempt organization
under 26 U.S.C. 457; or
4.
A nonqualified deferred compensation arrangement established or maintained by
an employer or plan sponsor;
(b)1.
Notwithstanding paragraph (a) of this subsection, this administrative
regulation shall apply to annuities used to fund a plan or arrangement that is
funded solely by contributions an employee elects to make, whether on a pre-tax
or after-tax basis, and if the insurance company has been notified that plan
participants may choose from among two (2) or more fixed annuity providers and
there is a direct solicitation of an individual employee by a producer for the
purchase of an annuity contract; and
2.
As used in this subsection, direct solicitation shall not include a meeting
held by a producer solely for the purpose of educating or enrolling employees
in the plan or arrangement;
(3)
Structured settlement annuities;
(4)
Charitable gift annuities; and
(5)
Funding agreements.
Section
3. Standards for the Disclosure Document and Buyer’s Guide. (1)(a) If the
application for an annuity contract is solicited personally by an agent, the
applicant shall be given both the disclosure document described in subsection
(3) of this section and the Buyer’s Guide no later than the time of application.
(b)
If the application for an annuity contract is taken by means other than a
personal solicitation by an agent, the applicant shall be sent both the disclosure
document described in subsection (3) of this section and the Buyer’s Guide no
later than five (5) business days after the completed application is received
by the insurer.
1.
With respect to an application received as a result of a direct solicitation
through the mail:
a.
Providing a Buyer’s Guide in a mailing inviting prospective applicants to apply
for an annuity contract shall satisfy the requirement that the Buyer’s Guide be
provided no later than five (5) business days after receipt of the application;
or
b.
Providing a disclosure document in a mailing inviting a prospective applicant
to apply for an annuity contract shall satisfy the requirement that the
disclosure document be provided no later than five (5) business days after
receipt of the application.
2.
With respect to an application received via the Internet:
a.
Taking reasonable steps to make the Buyer’s Guide available for viewing and
printing on the insurer’s Web site shall satisfy the requirement that the
Buyer’s Guide be provided no later than five (5) business days after receipt of
the application; or
b.
Taking reasonable steps to make the disclosure document available for viewing
and printing on the insurer’s Web site shall satisfy the requirement that the
disclosure document be provided no later than five (5) business days after
receipt of the application.
3.
A solicitation for an annuity contract that is not personally solicited by an
agent shall include a statement that the proposed applicant may obtain a free
Annuity Buyer's Guide by contacting the Department of Insurance or the insurer.
(c)
1. If the Buyer’s Guide and disclosure document described in subsection (3) of
this section are not provided at or before the time of application, a free look
period of no less than fifteen (15) days shall be provided for the applicant to
return the annuity contract without penalty.
2.
This free look period shall run concurrently with any other free look period
provided under state law or administrative regulation.
(2)
The following information shall be included in the disclosure document:
(a)
The generic name of the contract, the company product name, if different, the
form number, and the fact that it is an annuity;
(b)
The insurer’s name and address;
(c)
A description of the contract and its benefits, emphasizing its long-term
nature, including the following information:
1.
The guaranteed, nonguaranteed, and determinable elements of the contract and
their limitations, if any, and an explanation of how they operate;
2.
An explanation of the initial crediting rate, specifying any bonus or
introductory portion, the duration of the rate, and the fact that rates may
change from time to time and shall not be guaranteed;
3.
Periodic income options both on a guaranteed and nonguaranteed basis;
4.
Value reductions caused by withdrawals from or surrender of the contract;
5.
How values in the contract can be accessed;
6.
The death benefit, if available, and how it will be calculated;
7.
A summary of the federal tax status of the contract and any penalties
applicable on withdrawal of values from the contract; and
8.
An explanation of the impact of a rider, such as a long-term care rider;
(d)
Specific dollar amount or percentage charges and fees shall be listed with an
explanation of how they apply; and
(e)
Information about the current guaranteed rate for new contracts that contains a
clear notice that the rate is subject to change.
(3)
The disclosure statement shall comply with the minimum standards for
readability and intelligibility established in 806 KAR 14:121.
Section
4. Report to Contract Owners. For annuities in the payout period with changes
in nonguaranteed elements and for the accumulation period of a deferred
annuity, the insurer shall provide each contract owner with a report, at least
annually, on the status of the contract that contains at least the following
information:
(1)
The beginning and end date of the current report period;
(2)
The accumulation and cash surrender value, if any, at the end of the previous
report period and at the end of the current report period;
(3)
The total amounts, if any, that have been credited, charged to the contract
value or paid during the current report period; and
(4)
The amount of outstanding loans, if any, as of the end of the current report
period.
Section
5. Effective Date. The requirements of this administrative regulation shall not
be implemented or enforced prior to the effective date, determined pursuant to
KRS 13A.330, or January 1, 2012, whichever is later.
Section
6. Incorporation by Reference. (1) "The Annuity Buyer's Guide,
Commonwealth of Kentucky", July 2011, is incorporated by reference.
(2)
This material may be inspected, copied, or obtained, subject to applicable
copyright law, at the Department of Insurance, 215 West Main Street, Frankfort,
Kentucky 40601, Monday through Friday 8 a.m. to 4:30 p.m.
(3)
This material is also available on the department's Web site at http://insurance.ky.gov/.(33 Ky.R.
4299; 34 Ky.R. 293; 734; eff. 11-2-2007; 37 Ky.R. 1084; 1712; eff. 3-4-2011; 38
Ky.R. 326; 764; eff. 11-4-11.)
