The Office of General Counsel issued the following informal opinion on February 15, 2002, representing the position of the New York State Insurance Department.
Re: Guaranteed Minimum Income Benefit and N.Y. Ins. Law § 4240(d) (McKinney 2000)
Question Presented:
Are the standard nonforfeiture provisions in N.Y. Ins. Law § 4223 (McKinney 2000) applicable to variable annuity contracts with a guaranteed minimum income benefit (GMIB)?
Conclusion:
Pursuant to N.Y. Ins. Law § 4240(d)(2) (McKinney 2000), the Superintendent has the authority to determine the appropriate grace, reinstatement and nonforfeiture provisions for individual variable annuities with a guaranteed minimum income benefit feature. Accordingly, upon a determination that a product is a variable annuity, certain provisions of the Insurance Law pertaining to fixed account deferred annuity contracts, including the standard nonforfeiture provisions in N.Y. Ins. Law § 4223, should not be applied.
Facts:
Variable deferred annuities permit policyholders to accumulate retirement assets in a wide range of stock and bond funds and to apply those accumulations to purchase an income stream (known as "annuitization") or, in general, at any time to withdraw their cash values. Variable annuities are funded in separate accounts authorized by N.Y. Ins. Law § 4240 (McKinney 2000).
ABC Life Insurance Company wishes to offer, by rider, an additional annuitization option in the form of guaranteed minimum income benefit (the "GMIB") to its variable annuity contract customers. This feature would guarantee that, if the contract owner chooses annuitization, the life income to be received will be equal to the greater of (i) the account value applied to current annuity purchase rates (which may not be less than the contracts guaranteed rates), or (ii) the GMIB benefit base, which is equal to contributions under the contract accumulated at 5% annually, applied to guaranteed purchase rates. A contract owner who has purchased the GMIB feature generally may exercise it only on the 10th or later anniversary. The underlying contract continues to operate in exactly the same way as a variable deferred annuity without the GMIB: i.e., account and cash values are based on variable investment return and all the traditional annuitization options are available. For those who do not annuitize, the GMIB benefit base does not provide any surrender benefit or other cash value of any kind.
The Life Bureau advised ABC Life Insurance Company that, in accordance with N.Y. Ins. Law § 4240(d)(1) (McKinney 2000), the standard nonforfeiture provisions in N.Y. Ins. Law § 4223 (McKinney 2000) would be applicable to these contracts. ABC Life Insurance Company states that this result would foreclose ABC Life Insurance Company issuance of the GMIB in New York, as it would not be economical to do so.
Analysis:
N.Y. Ins Law § 4240(d), in relevant part, provides:
Except as otherwise provided in this section, all pertinent provisions of this chapter shall apply to separate accounts and the agreements relating thereto. (emphasis added).
(1) The following provisions of this chapter shall not apply to annuity contracts or to certificates subject to this section and subsection (a) of section three thousand two hundred nineteen of this chapter: sections four thousand two hundred twenty-three of this article, provided, however, that this paragraph shall not apply to any contract or certificate providing benefits with respect to amounts allocated to a separate account, if such benefits are guaranteed at any time to be not less than an amount equal to or greater than such allocated amounts accumulated to such time at three percent per annum. (emphasis added).
(2) Contracts for individual variable annuities and such certificates delivered or issued for delivery in this state shall contain grace, reinstatement, and nonforfeiture provisions appropriate to such variable contracts and certificates.
Pursuant to N.Y. Ins. Law § 4240(d)(2) (McKinney 2000), the Superintendent has the authority to determine the appropriate grace, reinstatement and nonforfeiture provisions appropriate to individual variable annuities and such certificates. In conformance with the lead-in language in N.Y. Ins. Law § 4240(d) (McKinney 2000), upon a determination that a product is a variable annuity, only those provisions of the Insurance Law that are pertinent to the product should be applied. In so doing, certain provision pertaining to fixed account deferred annuity contracts that are not pertinent should not be applied.
For further information you may contact Supervising Attorney Joan Siegel at the New York City Office.