______
Andrew M. CuomoBenjamin M. Lawsky
GovernorSuperintendent
Guaranteed Interest ContractsProduct Outline
(Last Updated October 11, 2013)
I)Applicability......
I.A)Scope......
I.B)Definitions......
I.C)Excluded Contracts......
C.1)List of Excluded Contracts......
C.2)Special Note:......
I.D)Key References......
D.1)Insurance Law......
D.2)Regulations......
D.3)Circular Letters......
II)Filing Process......
II.A)General Information......
A.1)Prior Approval Requirement......
A.2)Discretionary Authority for Disapproval......
A.3)No Filing Fee......
A.4)Self-Support Requirement......
II.B)Types of Filings......
B.1)Prior Approval......
B.2)Alternative Approval Procedure......
B.3)Prior Approval with Certification Procedure......
B.4)Out-of-State Filings......
II.C)Pre-filed Group Insurance Coverage - Circular Letter 1964-1......
II.D)Preparation of Forms - Circular Letter 1963-6......
D.1)Duplicates......
D.2)Form Numbers......
D.3)Hypothetical Data......
D.4)Application......
D.5)Final Format......
D.6)Submissions Made on Behalf of Company......
D.7)Incorporation by Reference......
II.E)Submission Letters/SERFF Requirements......
E.1)Caption Requirement......
E.2)Submission Letters/SERFF Filing Description......
E.3)Resubmissions......
E.4)Circular Letter No. 14 (1997)......
E.5)Informational Filing......
II.F)Attachments......
F.1)Memorandum of Variable Material......
F.2)No Readability Requirement......
F.3)Group Annuity Summary Sheet......
III)Eligible Group Requirements......
III.A)Definitions......
III.B)Types of Contractholders......
Employer/Labor Union Trust Group §......
B.6)IRA – §4238(b)(6)......
B.7)Other Employer Trust §4238(b)(7)......
III.C)Non-Recognized Groups......
III.D)Unauthorized Insurers......
IV)Contract Provisions......
IV.A)Cover Page of the Contract and Certificate......
A.1)Company’s Name and Address......
A.2)Form Identification Number......
A.3)Brief Description of Contract......
A.4)Officer’s Signatures......
IV.B)Standard Provisions......
B.1)Grace Period-§3223(a)......
B.2)Entire Contract-§3223(b)......
B.3)Misstatement of Age or Sex-§3223(c)......
B.4)Retired Life Certificate-§3223(e)......
IV.C)Plan Benefit Rule Provisions In Regulation No. 139......
C.1)Plan Benefit Rule -- §40.4(a) of Regulation 139......
C.2)Betterment of Rates -- §40.4(b)......
C.3)Allocated Share of Benefit Payments -- §40.4(c)......
C.4)Participant Directed Investment Option -- §40.4(d)......
C.5)Plan Amendments or Changes In Plan Administration -- §40.4(e)......
C.6)Bona Fide Termination of Employment -- §40.4(f)......
IV.D)Other Provisions......
D.1)Market-Value Adjustment Provision......
D.2)Liquidated Damages Provision......
D.3)Dividend Provision......
D.4)Non-Benefit Related Withdrawals and Transfers......
D.5)Clone Contract Provision......
D.6)Competing Funds Provision......
D.7)Liquidity Protection Provision......
V)Department Interpretations......
V.A)Maximum Window Period......
V.B)Maximum Guarantee Period......
V.C)Credit Rating Downgrade Provisions......
V.D)Market Value Make-Up/Advance Interest Credit Provisions......
V.E)Purchase Rate Guarantee/Unilateral Change......
VI)Advertising and Disclosure......
VI.A)Regulation 139 § 40.3......
VI.B)Rules Governing Advertisements of Life Insurance and Annuity Contracts....
VII)Additional Matters......
VII.A)IRC § 457 Public Deferred Compensation Plans......
VII.B)12 CFR 9 Fiduciary Powers of National Banks......
1
Guaranteed Interest Contracts Product Outline
This outline is current as ofOctober 11, 2013. Subsequent changes to statutes,regulations, circular letters, etc., may not be reflected in the outline. In case of any doubt, please contact the Life Bureau.
I)Applicability
I.A)Scope
This product outline covers all unallocated guaranteed interest contracts delivered in this state issued through an insurer’s general account. This Outline replaces the Guaranteed Interest Contracts Product Outline last updated 05/06/1999.
Unfortunately, there is no commonly accepted definition of a guaranteed interest contract (GIC) in the industry or in the Insurance Law.
A.1)Regulation 139, Regulation 127, Regulation 151, §§4217 and 6901(a)(2)(G) of the Insurance Law define and /or refer to different types of guaranteed interest contracts.
A.2)In addition, federal law, especially the Employee Retirement Income Security Act (“ERISA”), makes provision for guaranteed interest contracts, guaranteed investment contracts and guaranteed benefit policies.
I.B)Definitions
For purposes of this outline, we rely on the definitions in Regulation 139.
B.1)GIC-1or GIC means a contract which guarantees principal and provides a specified rate of interest on amounts deposited with an unqualified right to withdraw the accumulation fund upon the expiration of the time period for which the amount deposited and the specified rate of interest are guaranteed under the contract, either in lump sum or in installments over a period less than five years with the amount and timing of such installments specified in the contract. § 40.2(j)(1) of Regulation 139.
(a)This definition was taken from §4217(c)(4)(D)(iii)(V)—Plan Type B and Prohibited Transaction Exemption 81-82 “guaranteed investment contract”. This product outline applies primarily to GIC-1 contracts.
(i)Plan Type B: The policyholder may not withdraw funds before the expiration of the interest rate guarantee or, if withdrawals are permitted before the expiration of such guarantee, may withdraw funds only (i) with an adjustment to reflect changes in interest rates or asset values since the receipt of the funds by the insurance company, or (ii) without such adjustment but in installments over five years or more. At the end of the interest rate guarantee, funds may be withdrawn without such adjustment in a single sum or in installments over less than five years.
(ii)Prohibited Transaction Exemption 81-82: A “guaranteed investment contract” is defined as a contract issued to an employee pension benefit plan, or to a fiduciary for the benefit of such a plan, by a life insurance company, under which:
(I)The life insurance company issuing the contract guarantees the amounts deposited by the plan pursuant to such contract and guarantees a specified rate of interest on such amounts for a stated period of time;
(II)The amounts received by, or credited to, a plan under such contract, and any charges made under such contract, are not, in any circumstances, affected by the investment performance of assets held in any separate account or other investment fund;
(III) The plan has an unqualified right to withdraw the amounts deposited and the interest accrued thereon upon the expiration of the period for which the amounts deposited, and a specified rate of interest, are guaranteed under such contract; and
(IV) The plan’s right to recover any amount payable under such contract from the life insurance company issuing the contract, and the plan’s claim against the general assets of such life insurance company for any amount payable under such contract, whether on insolvency or liquidation of the life insurance company or otherwise, would not be adversely affected by the allocation by the insurance company to a separate account of amounts received under such contract.
(b)The primary reason for the definition in Regulation 139 is to limit the applicability of the termination rules in §40.5. Since GIC-1 contracts have a fixed maturity date specified in the contract at which time an unadjusted payment will be made either in lump sum or in installments, the termination rules are not necessary.
With respect to the fixed maturity date specified in the contract, we have approved call provisions during the accumulation phase and payout phase that would shorten the term of the contract.
(c)Specified interest rate means the rate of interest, which, at the time set or established under the contract, is likely to result in the crediting of no more than a minimal rate of additional interest to the accumulation fund on an annual or more frequent basis. §40.2(u) of Regulation 139.
(i)The guaranteed interest rate on GICs is closely related to current, or “spot” long term interest rates.
(ii)Typically, the contract does not provide for any participation if the actual earnings rate on supporting assets exceed the rate guaranteed.
(iii)We have permitted the specified interest rate to be derived from an agreed upon index, such as LIBOR. We have permitted the use of interest rate swaps to support floating rate GICs. Domestic insurers must submit a hedging program for approval pursuant to Regulation 111. Any use of swaps must be covered as part of the hedging program.
B.2)GIC-2 means a contract which guarantees principal and provides an indeterminate rate of interest for an indefinite period with an unqualified right to withdraw the accumulation fund at least once a year in either a lump sum, subject to a surrender charge no greater than seven percent, or in substantially equal periodic, at least annual, installments over a period less than five years which does not reflect investment experience of the underlying assets. §40.2(j)(2) of Regulation 139
(a)This definition was taken from §4217(c)(4)(D)(iii)(V)---Plan Type C
Plan Type C: The policyholder may withdraw funds before the expiration of the interest rate guarantee in a single sum or installments over less than five years either (i) without adjustment to reflect changes in interest rates or asset values since the receipt of funds by the insurance company, or (ii) subject to only a fixed surrender charge stipulated in the contract as a percentage of the fund.
(b)The GIC-2 definition exempted plan type C contracts from the termination rules in §40.5 of Regulation 139.
(c)Except for the installment payout, Plan Type C contracts are traditional allocated annuity contracts, usually subject to the nonforfeiture law for annuities.
(d) These contracts typically only provide for lump sum withdrawals. Prior to promulgating Regulation 139, the five year installment option was not available. We have required the lump sum option in any GIC-2 contract offering an installment option.
B.3)Unallocated Contract means a contract in which deposits are credited to an accumulation fund without reference to any plan participant or beneficiary (i.e., deposits are not allocated to participant accounts under the contract). See §3223(d).
(a)This definition is similar to the definition of “unallocated amounts” in §40.2(z). Unallocated amounts means any funds credited to the accumulation fund which the insurer is not currently irrevocably committed to apply under the terms of the contract to the payment of benefits by it to specific plan participants or beneficiaries or to the purchase of annuities for specific plan participants, adjusted for any accrued experience rating charges or credits, including expenses and administrative, sales and surrender charges provided for under the contract.
Note that in most unallocated GIC contracts, the insurer permits the contractholder to purchase annuities for plan participants upon termination of employment.
(b)This definition also may need to be coordinated with the limitation of liability of The Life Insurance Guaranty Corporation of New York in §7708 of the Insurance Law in the event of an Article 74 proceeding.
(i)$500,000 limit for all benefits, including cash values, with respect to any one life under a covered policy
(ii)$1,000,000 limit for all benefits, including cash values, with respect to a group annuity contract (or portion of any such contract) that does not guarantee annuity benefits with respect to any specific individual identified in the contract.
(c)If the issuing insurer performs all participant-level recordkeeping and the contract is solely funded by employee contributions, the Department must verify that the contract is not being issued on an unallocated basis as a subterfuge to avoid compliance with the provisions of the Insurance Law applicable to individual annuities (i.e., §§3219,4223, Regulation 127)
(i)We regard all salary reduction contributions as employee contributions, notwithstanding the federal income tax characterization as employer contributions.
(ii)If the insurer performs participant level recordkeeping for all of the plan’s funding options, including the stable value or fixed income option, an unallocated contract is permissible where the option is funded by two or more investment products of two or more insurers or other financial institutions.
(iii)If for each deposit window there is a bidding process for a stable value funding vehicle (i.e., GICs, BICs, Synthetic GICs), an unallocated contract may be appropriate even if it is funded solely by employee salary reduction contributions. For example, we have approved unallocated contracts funding the NYC and NYS Deferred Compensation Plans and have recognized that other local plans have reached a sufficient size to use unallocated contracts.
I.C)Excluded Contracts
C.1)List of Excluded Contracts
(a)Group Deferred Annuity Contracts
(b)Deposit Administration Contracts
(c)Immediate Participation Guarantee Contracts
(d)Group Annuity Contracts Subject to §4223
(e)Allocated Group Annuity Contracts
(f)Terminal Funding And Closeout Contracts
(g)Group Funding Agreements
(h)Group Variable Annuity Contracts
(i)Traditional Separate Account Annuity Contracts
(j)Regulation 128 Market Value Separate Account Contracts Funding GuaranteedBenefits
(k)Book Value Separate Account Agreements
(l)Synthetic Guaranteed Investment Contracts
(m)Group Fixed and Variable Annuity
C.2)Special Note:
The term guaranteed interest contract has been broadly defined to include all open-ended participating contracts, including immediate participation guarantee contracts and deposit administration contracts, as well as nonparticipating contracts including funding agreements and fixed rate / fixed maturity GIC contracts. See Regulation 151. Except as noted herein, this product outline is not intended to apply to open-ended (evergreen contracts) which fall within the definition of Plan Type A contracts.
Plan Type A : The policyholder may withdraw funds only (i) with an adjustment to reflect changes in interest rates or asset values since the receipt of funds by the insurance company, or (ii) without such adjustment but in installments over five years or more, or (iii) as an immediate annuity.
I.D)Key References
D.1)Insurance Law
§§ 1101, 1113, 3201, 3204, 3223, 4217, 4231, 4238, 4241, 6901.
D.2)Regulations
Regulation 34-A(11 NYCRR 219), Regulation 127 (11 NYCRR 44), Regulation 139 (11NYCRR 40), Regulation 151 (11NYCRR 99).
D.3)Circular Letters
CL 4 (1963), CL 6 (1963), CL 1 (1964), CL 12 (1976), CL 2 (1992), CL 14 (1997), CL 2 (1998), CL 8 (1999), CL 6 (2004).
II)Filing Process
II.A)General Information
A.1)Prior Approval Requirement
§3201(b)(1) provides that no policy form shall be delivered or issued for delivery in this state unless it has been filed with and approved by the superintendent as conforming to the requirements of the Insurance Law (standard and generally applicable provisions) and not inconsistent with law (federal and state statutory, regulatory and decisional law).
A.2)Discretionary Authority for Disapproval
§3201(c)(1) and (2) permits the Superintendent to disapprove any policy form that contains provisions that are misleading, deceptive, unfair, unjust, or inequitable or if its issuance would be prejudicial to the interests of policyholders or members. See also §§2123, 3209, 4224, 4226, 4238(e), 4231, 4239.
A.3)No Filing Fee
A.4)Self-Support Requirement
Upon its issuance each group annuity contract must appear to be self-supporting based on reasonable assumptions as to interest, mortality, and expense. See §4238(e).
II.B)Types of Filings
B.1)Prior Approval
Policy forms submitted under §3201(b)(1) of the Insurance Law are subject to the submission rules noted herein, especially Circular Letter Nos. 6 (1963) and 14 (1997). Submissions are generally handled on a first-in, first-out basis.
B.2)Alternative Approval Procedure
§3201(b)(6) and Circular Letter No. 2 (1998) provide for an expedited approval procedure designed to prevent delays by deeming forms to be approved or denied if the Department or insurer fail to act in a timely manner.
Circular Letter No. 2 (1998) provides that the certification of compliance should make reference to any law or regulation that specifically applies or is unique to the type of contract form submitted. An alternative would be to submit a certification of compliance with the applicable laws and regulations cited in this product outline. A statement that the filing is in compliance with all applicable laws and regulations is not acceptable.
B.3)Prior Approval with Certification Procedure
Circular Letter No. 6 (2004) provides for an expedited approval procedure based on an appropriate certification of compliance signed by an officer of the company in the format provided by Circular Letter No. 6 (2004). Certifications that have altered or otherwise modified the language of the certification will not be accepted.
The original signed certification must be provided. The form number of each form and the memorandum of variable material for each form must be listed in the body of the certification. For long lists, it would be acceptable to begin the list in the body of the certification and include the rest of the list in an attachment to the certification. However, it would be unacceptable to list all of the forms in a separate attachment.
The submission letters for paper submissions and the Filing Description for submissions made via the System for Electronic Rate and Form Filing (SERFF) will need to comply with applicable circular letter and product outline guidance.
Substitution filings/follow-up correspondence with post-approval form changes requested prior to initial issuance of forms will not be permitted for Circular Letter No. 6 (2004) filings.
Unless the Department has granted permission, the Circular Letter No. 6 (2004) process may not be used for unallocated group annuity products with an initial deposit in excess of $50 million. See the Department’s Filing Guidance dated 08/12/2009.
B.4)Out-of-State Filings
Pursuant to §3201(b)(2), domestic insurers must file with the Superintendent all unallocated group annuity contracts and funding agreements intended for delivery outside of the state.
II.C)Pre-filed Group Insurance Coverage - Circular Letter 1964-1
Circular Letter 64-1 permits insurers to provide or assume risk for group life and group annuity coverage prior to the filing or approval of such forms. The conditions include the following:
C.1)Immediate coverage requested to meet specific need of contractholder.
C.2)Insurer has reasonable expectation of approval or acceptance for filing. The reasonable expectation is usually based on the nature and extent of benefits provided and the similarity of the form (or provisions in the form) to other previously approved forms (or provisions) for the insurer or other insurers.
C.3)Confirmation letter sent to contractholder by insurer stating:
(a)The nature and extent of benefits or change in benefits;
(b)The forms may be executed and issued for delivery only after filing with or approval by the Department;
(c)An understanding that, if such forms are not filed or approved or are disapproved, the parties will be returned to status quo insofar as possible, or the coverage will be modified retroactively to meet all requirements necessary for approval; and
(d)The effective date of coverage (Best Practice).
C.4)Department Notification
(a)A statement explaining the circumstances and reasons for the delay in submitting the forms must be submitted within twelve months for group annuities.
(b)A follow-up statement must be submitted every six months until the form is submitted. If the reason for the delay is unacceptable, the Department may pursue a violation under §4241 for willful violation of the prior approval requirement.
C.5)Recommended Practice
(a)It is recommended that insurers notify the Department of coverage within 30 days (i.e., copy of the confirmation letter) of coverage and submit forms within six months, notwithstanding the twelve month period noted in Circular Letter 64-1. (Best Practice).
(b)Insurers should review pre-filings periodically (monthly) to verify compliance with conditions for pre-filing.
(c)Insurers should vigorously pursue approval (or acceptance for out-of-state filings) of pre-filed cases after forms have been submitted to mitigate harm if forms are found not to comply with applicable requirements.