Current through Register Vol. 50, No. 9, March 1, 2024
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
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
National Association of Insurance Commissioner's approved Annuity Buyer's
Guide.
(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) "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.
(5) "Generic name" means a short title
descriptive of the annuity contract being applied for or illustrated.
(6) "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.
(7) "Illustration" means a personalized
presentation or depiction prepared for and provided to an individual consumer
that includes nonguaranteed elements of an annuity contract over a period of
years.
(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) "Registered Product" means an annuity
contract or life insurance policy subject to the prospectus delivery
requirements of the Securities Act of 1933.
(10) "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) Immediate and deferred annuities that do
not contain non-guaranteed elements;
(2)
(a)
Annuities used to fund:
1. An employee pension
plan that 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) Non-registered variable annuities issued
exclusively to an accredited investor or qualified purchaser as those terms are
defined by the Securities Act of 1933 (15 U.S.C. Section
77a et seq.), the Investment Company Act of
1940 (15 U.S.C. Section
80a-1 et seq.), or the regulations
promulgated under either of those acts, and offered for sale and sold in a
transaction that is exempt from registration under the Securities Act of 1933
(15
U.S.C. Section 77a et seq.);
(4)
(a)
Transactions involving variable annuities and other registered products in
compliance with Securities and Exchange Commission (SEC) rules and Financial
Industry Regulatory Authority (FINRA) rules relating to disclosures and
illustrations, except that compliance with Section 3 of this administrative
regulation shall be required after January 1, 2014, unless the SEC has adopted
a summary prospectus rule or FINRA has approved for use a simplified disclosure
form applicable to variable annuities or other registered products.
(b) Notwithstanding subsection (4) of this
section, the delivery of the Buyer's Guide is required in sales of variable
annuities, and if appropriate, in sales of other registered products.
(c) Nothing in this subsection shall limit
the commissioner's ability to enforce the provisions of this administrative
regulation or to require additional disclosure;
(5) Structured settlement
annuities;
(6) Charitable gift
annuities; and
(7) 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; and
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, physical address,
website address, and telephone number;
(c) A description of the contract and its
benefits, emphasizing its long-term nature, including the following
information:
1. The guaranteed and
nonguaranteed elements of the contract and their limitations, if any, including
for fixed indexed annuities, the elements used to determine the index-based
interest, such as the participation rates, caps, or spreads, and an explanation
of how they operate;
2. An
explanation of the initial crediting rate, or for fixed indexed annuities, an
explanation of how the index-based interest is determined, 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 or guaranteed living
benefit;
(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 or indexed crediting rate formula for new contracts that contain 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 that include non-guaranteed 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 July 1, 2021,, whichever is
later.
Section 6. Incorporation by
Reference.
(1) "Buyer's Guide for Deferred
Annuities" published by the National Association of Insurance Commissioners,
Revised 2013 is incorporated by reference.
(2) This material may be inspected, copied,
or obtained, subject to applicable copyright law, at the Department of
Insurance, 500 Mero 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.
STATUTORY AUTHORITY:
KRS
304.2-110