H.B. 226

1

NONFORFEITURE INTEREST RATE FOR
2 CERTAIN ANNUITIES
3 2003 GENERAL SESSION
4 STATE OF UTAH
5 Sponsor: Brent D. Parker
6 This act modifies the Insurance Code to change the interest rate used to calculate the
7 minimum nonforfeiture amount for certain individual deferred annuities.
8 This act affects sections of Utah Code Annotated 1953 as follows:
9 AMENDS:
10 31A-22-409, as last amended by Chapter 308, Laws of Utah 2002
11 Be it enacted by the Legislature of the state of Utah:
12 Section 1. Section 31A-22-409 is amended to read:
13 31A-22-409. Standard Nonforfeiture Law for Individual Deferred Annuities.
14 (1) This section is known as the "Standard Nonforfeiture Law for Individual Deferred
15 Annuities."
16 (2) This section does not apply to:
17 (a) any reinsurance group annuity purchased under a retirement plan or plan of deferred
18 compensation established or maintained by an employer, including a partnership or sole
19 proprietorship, or by an employee organization, or by both, other than a plan providing
20 individual retirement accounts or individual retirement annuities under Section 408, Internal
21 Revenue Code;
22 (b) a premium deposit fund;
23 (c) a variable annuity;
24 (d) an investment annuity;
25 (e) an immediate annuity;
26 (f) a deferred annuity contract after annuity payments have commenced; [or]
27 (g) a reversionary annuity; or

28 (h) any contract that shall be delivered outside this state through an agent or other
29 representative of the company issuing the contract.
30 (3) (a) If a policy is issued after this section takes effect as set forth in Subsection (12),
31 a contract of annuity, except as stated in Subsection (2), may not be delivered or issued for
32 delivery in this state unless the contract of annuity contains in substance:
33 (i) the provisions described in Subsection (3)(b); or
34 (ii) provisions corresponding to the provisions described in Subsection (3)(b) that in
35 the opinion of the commissioner are at least as favorable to the contractholder, governing
36 cessation of payment of consideration under the contract.
37 (b) Subsection (3)(a)(i) requires the following provisions:
38 (i) upon cessation of payment of consideration under a contract, the company will grant
39 a paid-up annuity benefit on a plan stipulated in the contract of such a value as specified in
40 Subsections (5), (6), (7), (8), and (10);
41 (ii) if a contract provides for a lump-sum settlement at maturity, or at any other time,
42 upon surrender of the contract at or before the commencement of any annuity payments, the
43 company will pay in lieu of any paid-up annuity benefit a cash surrender benefit of such
44 amount as is specified in Subsections (5), (6), (8), and (10);
45 (iii) the company shall reserve the right to defer the payment of the cash surrender
46 benefit under Subsection (3)(b)(ii) for a period of six months after demand for the payment of
47 the cash surrender benefit with surrender of the contract;
48 (iv) a statement of the mortality table, if any, and interest rates used in calculating any
49 of the following that are guaranteed under the contract:
50 (A) minimum paid-up annuity benefits;
51 (B) cash surrender benefits; or
52 (C) death benefits;
53 (v) sufficient information to determine the amounts of the benefits described in
54 Subsection (3)(b)(iv);
55 (vi) a statement that any paid-up annuity, cash surrender, or death benefits that may be
56 available under the contract are not less than the minimum benefits required by any statute of
57 the state in which the contract is delivered; and
58 (vii) an explanation of the manner in which the benefits described in Subsection

59 (3)(b)(vi) are altered by the existence of any:
60 (A) additional amounts credited by the company to the contract;
61 (B) indebtedness to the company on the contract; or
62 (C) prior withdrawals from or partial surrender of the contract.
63 (c) Notwithstanding the requirements of this Subsection (3), any deferred annuity
64 contract may provide that if no consideration has been received under a contract for a period of
65 two full years and the portion of the paid-up annuity benefit at maturity on the plan stipulated
66 in the contract arising from consideration paid before the period would be less than $20
67 monthly:
68 (i) the company may at the company's option terminate the contract by payment in cash
69 of the then present value of such portion of the paid-up annuity benefit, calculated on the basis
70 of the mortality table specified in the contract, if any, and the interest rate specified in the
71 contract for determining the paid-up annuity benefit; and
72 (ii) the payment described in Subsection (3)(c)(i), relieves the company of any further
73 obligation under the contract.
74 (4) The minimum values as specified in Subsections (5), (6), (7), (8), and (10) of any
75 paid-up annuity, cash surrender, or death benefits available under an annuity contract shall be
76 based upon minimum nonforfeiture amounts as established in this section.
77 (a) (i) With respect to contracts providing for flexible considerations, the minimum
78 nonforfeiture amount at any time at or before the commencement of any annuity payments shall
79 be equal to an accumulation up to such time, at a rate of interest of [3%] 1.5% per annum of
80 percentages of the net considerations paid prior to such time:
81 (A) decreased by the sum of:
82 (I) any prior withdrawals from or partial surrenders of the contract accumulated at a
83 rate of interest of [3%] 1.5% per annum; and
84 (II) the amount of any indebtedness to the company on the contract, including interest
85 due and accrued; and
86 (B) increased by any existing additional amounts credited by the company to the
87 contract.
88 (ii) For purposes of this Subsection (4)(a), the net consideration for a given contract
89 year used to define the minimum nonforfeiture amount shall be:

90 (A) an amount not less than zero; and
91 (B) equal to the corresponding gross considerations credited to the contract during that
92 contract year less:
93 (I) an annual contract charge of $30; and
94 (II) a collection charge of $1.25 per consideration credited to the contract during that
95 contract year.
96 (iii) The percentages of net considerations shall be:
97 (A) 65% of the net consideration for the first contract year; and
98 (B) 87-1/2% of the net considerations for the second and later contract years.
99 (iv) Notwithstanding Subsection (4)(a)(iii), the percentage shall be 65% of the portion
100 of the total net consideration for any renewal contract year that exceeds by not more than two
101 times the sum of those portions of the net considerations in all prior contract years for which
102 the percentage was 65%.
103 (b) (i) Except as provided in Subsections (4)(b)(ii) and (iii), with respect to contracts
104 providing for fixed scheduled consideration, minimum nonforfeiture amounts shall be:
105 (A) calculated on the assumption that considerations are paid annually in advance; and
106 (B) defined as for contracts with flexible considerations that are paid annually.
107 (ii) The portion of the net consideration for the first contract year to be accumulated
108 shall be equal to an amount that is the sum of:
109 (A) 65% of the net consideration for the first contract year; and
110 (B) 22-1/2% of the excess of the net consideration for the first contract year over the
111 lesser of the net considerations for:
112 (I) the second contract year; and
113 (II) the third contract year.
114 (iii) The annual contract charge shall be the lesser of $30 or 10% of the gross annual
115 consideration.
116 (c) With respect to contracts providing for a single consideration payment, minimum
117 nonforfeiture amounts shall be defined as for contracts with flexible considerations except that:
118 (i) the percentage of net consideration used to determine the minimum nonforfeiture
119 amount shall be equal to 90%; and
120 (ii) the net consideration shall be the gross consideration less a contract charge of $75.

121 (5) (a) Any paid-up annuity benefit available under a contract shall be such that the
122 contract's present value on the date annuity payments are to commence is at least equal to the
123 minimum nonforfeiture amount on that date.
124 (b) The present value described in Subsection (5)(a) shall be computed using the
125 mortality table, if any, and the interest rate specified in the contract for determining the
126 minimum paid-up annuity benefits guaranteed in the contract.
127 (6) (a) For contracts that provide cash surrender benefits, the cash surrender benefits
128 available before maturity may not be less than the present value as of the date of surrender of
129 that portion of the cash surrender value that would be provided under the contract at maturity
130 arising from considerations paid before the time of cash surrender reduced by the amount
131 appropriate to reflect any prior withdrawals from or partial surrender of the contract, the
132 present value being calculated on the basis of an interest rate not more than 1% higher than the
133 interest rate specified in the contract for accumulating the net considerations to determine the
134 maturity value, decreased by the amount of any indebtedness to the company on the contract,
135 including interest due and accrued, and increased by any existing additional amounts credited
136 by the company to the contract.
137 (b) In no event shall any cash surrender benefit be less than the minimum nonforfeiture
138 amount at that time.
139 (c) The death benefit under these contracts shall be at least equal to the cash surrender
140 benefit.
141 (7) (a) For contracts that do not provide cash surrender benefits, the present value of
142 any paid-up annuity benefit available as a nonforfeiture option at any time prior to maturity
143 may not be less than the present value of that portion of the maturity value of the paid-up
144 annuity benefit provided under the contract arising from considerations paid before the time the
145 contract is surrendered in exchange for, or changed to, a deferred paid-up annuity, this present
146 value being calculated for the period prior to the maturity date on the basis of the interest rate
147 specified in the contract for accumulating the net considerations to determine maturity value,
148 and increased by any existing additional amounts credited by the company to the contract.
149 (b) For contracts that do not provide any death benefits before commencement of any
150 annuity payments, the present values shall be calculated on the basis of the interest rate and the
151 mortality table specified in the contract for determining the maturity value of the paid-up

152 annuity benefit.
153 (c) In no event shall the present value of a paid-up annuity benefit be less than the
154 minimum nonforfeiture amount at that time.
155 (8) (a) For the purpose of determining the benefits calculated under Subsections (6)
156 and (7), the maturity date shall be considered to be the latest date permitted by the contract,
157 except that it may not be considered to be later than the later of:
158 (i) the anniversary of the contract next following the annuitant's 70th birthday; or
159 (ii) the tenth anniversary of the contract.
160 (b) For a contract that provides cash surrender benefits on or past the maturity date, the
161 cash surrender value shall be equal to the amount used to determine the annuity benefit
162 payments.
163 (c) A surrender charge may not be imposed on or past maturity.
164 (9) Any contract that does not provide cash surrender benefits or does not provide
165 death benefits at least equal to the minimum nonforfeiture amount before the commencement
166 of any annuity payments shall include a statement in a prominent place in the contract that
167 these benefits are not provided.
168 (10) Any paid-up annuity, cash surrender, or death benefits available at any time, other
169 than on the contract anniversary under any contract with fixed scheduled considerations, shall
170 be calculated with allowance for the lapse of time and the payment of any scheduled
171 considerations beyond the beginning of the contract year in which cessation of payment of
172 considerations under the contract occurs.
173 (11) (a) For any contract that provides, within the same contract by rider or
174 supplemental contract provisions, both annuity benefits and life insurance benefits that are in
175 excess of the greater of cash surrender benefits or a return of the gross considerations with
176 interest, the minimum nonforfeiture benefits shall:
177 (i) be equal to the sum of:
178 (A) the minimum nonforfeiture benefits for the annuity portion; and
179 (B) the minimum nonforfeiture benefits, if any, for the life insurance portion; and
180 (ii) computed as if each portion were a separate contract.
181 (b) (i) Notwithstanding Subsections (5), (6), (7), (8), and (10), additional benefits
182 payable, as described in Subsection (11)(b)(ii), and consideration for the additional benefits

183 payable, shall be disregarded in ascertaining, if required by this section:
184 (A) the minimum nonforfeiture amounts;
185 (B) paid-up annuity;
186 (C) cash surrender; and
187 (D) death benefits.
188 (ii) For purposes of this Subsection (11), an additional benefit is a benefit payable:
189 (A) in the event of total and permanent disability;
190 (B) as reversionary annuity or deferred reversionary annuity benefits; or
191 (C) as other policy benefits additional to life insurance, endowment, and annuity
192 benefits.
193 (iii) The inclusion of the additional benefits described in this Subsection (11) may not
194 be required in any paid-up benefits, unless the additional benefits separately would require:
195 (A) minimum nonforfeiture amounts;
196 (B) paid-up annuity;
197 (C) cash surrender; and
198 (D) death benefits.
199 (12) (a) After this section takes effect, any company may file with the commissioner a
200 written notice of its election to comply with this section after a specified date before July 1,
201 1988.
202 (b) This section applies to annuity contracts of a company issued on or after the date
203 the company specifies in the notice.
204 (c) If a company makes no election under Subsection (12)(a), the operative date of this
205 section for such company is July 1, 1988.




Legislative Review Note
as of 1-17-03 3:21 PM

A limited legal review of this legislation raises no obvious constitutional or statutory concerns.

Office of Legislative Research and General Counsel