BILL NUMBER: S7744A

SPONSOR: BRESLIN
 
TITLE OF BILL:

An act to amend the insurance law, in relation to authorizing dividend
paying deferred income annuities

 
SUMMARY OF PROVISIONS::

Section 1. Subparagraph (E) of paragraph (1) of subsection (a) of
section 4223 of the insurance law is amended to establish a betterment
of rates requirement that better reflects the structure of paid-up
deferred annuities, including those that pay dividends.

Section 2. A new paragraph (3) is added to subsection (b) of section
3209 of the insurance law to require certain disclosure related to the
non-guaranteed nature of dividends.

Section 3. Effective Date

 
JUSTIFICATION:
              

This legislation is necessary to ensure that New York consumers have
access to a full array of annuity products, including participating
deferred income annuities, which have become increasingly popular in
recent years, and to ensure that consumers receive the best guaranteed
income rate that an insurer offers to that class of annuitants for
comparable contracts at the time annuity income is calculated.

In today's deferred income annuity marketplace, there are a number of
ways that annuities can be customized to suit an individual's needs.
Deferred income annuities allow individuals to create an income stream
that they can depend on, beginning as early as 13 months from the date
of issue or further into the future. The steady periodic payouts that
deferred income annuities provide can help individuals maintain their
lifestyle after they retire. An income annuity provides stable lifetime
income which can never be outlived or which may be guaranteed for a
specified period. This is crucially important to individuals who are
concerned about outliving their savings. In addition, there is comfort
in knowing their income guarantees are backed by assets of the insurer
and not subject to the fluctuations of financial markets.

The current betterment of rates requirement in Insurance Law Section
4223(a)(1)(E) was drafted with accumulation products in mind, where
income is calculated at the time income payments commence. With paid-up
deferred income annuities, each consideration paid into the contract
purchases guaranteed paid-up annuity benefits determined at the time the
consideration is paid. A new betterment of rates requirement is being
added for paid-up deferred income annuities, both fully-guaranteed and
participating, to reflect this unique structure.

Notably, participating ("Par") paid-up deferred income annuities
("DIAs") can be sold in every state except New York. Currently, Par DIAs
are not authorized in New York because they cannot meet the "betterment
of rates" standard of New York Insurance Law Section 4223(a)(1)(E). The
betterment of rates requirement ensures that an annuitant receives the
best guaranteed income rate that an insurer offers to that class of
annuitants at the time annuity income starts.  Because Par DIAs pay
dividends, guaranteed income rates are set at a lower rate (generally
85-90% compared to non-par) than guaranteed income for traditional
income annuities, which do not pay dividends. As a result of these lower
guarantees, Par DIAs cannot meet the current betterment of rates stand-
ard.

Under this amendment, whether the contract is participating or fully
guaranteed, at the time a contribution is paid into to the contract,
including the purchase of paid-up additions with dividends, the current
purchase rates for new sales of that contract would be used if higher
than the guaranteed rates when the contract was issued.  This will
ensure that the contract holder will receive the best guaranteed income
rate the insurer offers for comparable contracts to that class of annui-
tants and a contract holder wanting to make additional contributions
will not have to purchase multiple copies of the same contract in order
to get the current purchase rates. If the insurer no longer sells new
issue of the contract then the rates of any comparable paid-up deferred
annuity contract offered by the insurer at that time could be used. For
example, if an insurer is no longer issuing the contract holder's Par
DIA, the current rates of a similar Par DIA would be used.

Notably, the lower guarantees associated with Par DIAs do not mean lower
total income. Rather, over time, the total income payments (guaranteed
income plus dividends) under a Par DIA can exceed the fixed income
payments under a traditional DIA or SPIA. Annuitants who choose the Par
DIA are willing to forego the certainty provided by the higher guaran-
tees of the traditional DIA or SPIA in exchange for the potential of
higher total benefits, over their life expectancy, through the Par DIA's
guaranteed income plus non-guaranteed dividends. A disclosure require-
ment is being added to Insurance Law section 3209(b)(3) to ensure that
consumers are able to make an informed purchase decision between a Par
DIA and a fully guaranteed DIA.

Paid-up deferred income annuities, including those that are participat-
ing, will be subject to all of the rigorous requirements of the New York
Insurance Law and Department of Financial Services regulations, includ-
ing comprehensive illustration and disclosure standards.

 
LEGISLATIVE HISTORY::

This is a new bill.

 
FISCAL IMPLICATIONS::

None.

 
EFFECTIVE DATE::

This act shall take effect immediately.