Vermont § 3750 - Standard Nonforfeiture Law for Individual Deferred Annuities

§ 3750. Standard Nonforfeiture Law for Individual Deferred Annuities

• (a) This section shall be known as the Standard Nonforfeiture Law for Individual Deferred
  Annuities. (b) This section shall not apply to any reinsurance, group annuity purchased under a retirement
  plan or plan of deferred compensation established or maintained by an employer (including
  a partnership or sole proprietorship) or by an employee organization, or by both,
  other than a plan providing individual retirement accounts or individual retirement
  annuities under Section 408 of the Internal Revenue Code, as now or hereafter amended, premium deposit fund, variable annuity, investment
  annuity, immediate annuity, any deferred annuity contract after annuity payments have
  commenced, or reversionary annuity, nor to any contract that shall be delivered outside
  this State through an agent or other representative of the company issuing the contract. (c) In the case of contracts issued on or after the operative date of this section as
  defined in subdivision (1) of this subsection, no contract of annuity, except as stated
  in subsection (b) of this section, shall be delivered or issued for delivery in this
  State unless it contains in substance the following provisions, or corresponding provisions
  that in the opinion of the Commissioner are at least as favorable to the contractholder,
  upon cessation of payment of considerations under the contract: (1) That upon cessation of payment of considerations under a contract, the company will
  grant a paid-up annuity benefit on a plan stipulated in the contract of such value
  as is specified in subsections (e), (f), (g), (h), and (j) of this section. (2) If a contract provides for a lump sum settlement at maturity, or at any other time,
  that upon surrender of the contract at or prior to the commencement of any annuity
  payments, the company will pay in lieu of any paid-up annuity benefit a cash surrender
  benefit of such amount as is specified in subsections (e), (f), (h), and (j) of this
  section. The company shall reserve the right to defer the payment of such cash surrender
  benefit for a period of six months after demand therefor with surrender of the contract. (3) A statement of the mortality table, if any, and interest rates used in calculating
  any minimum paid-up annuity, cash surrender, or death benefits that are guaranteed
  under the contract, together with sufficient information to determine the amounts
  of such benefits. (4)(A) A statement that any paid-up annuity, cash surrender, or death benefits that may be
  available under the contract are not less than the minimum benefits required by any
  statute of the state in which the contract is delivered and an explanation of the
  manner in which such benefits are altered by the existence of any additional amounts
  credited by the company to the contract, any indebtedness to the company on the contract,
  or any prior withdrawals from or partial surrenders of the contract. (B) Notwithstanding the requirements of this subsection, any deferred annuity contract
  may provide that if no considerations have been received under a contract for a period
  of two full years and the portion of the paid-up annuity benefit at maturity on the
  plan stipulated in the contract arising from considerations paid prior to such period
  would be less than $20.00 monthly, the company may at its option terminate such contract
  by payment in cash of the then present value of such portion of the paid-up annuity
  benefit, calculated on the basis of the mortality table, if any, and interest rate
  specified in the contract for determining the paid-up annuity benefit, and by such
  payment shall be relieved of any further obligation under such contract. (d) The minimum values as specified in subsections (e), (f), (g), (h), and (j) of this
  section of any paid-up annuity, cash surrender, or death benefits available under
  an annuity contract shall be based upon minimum nonforfeiture amounts as defined in
  this section. (1)(A) The minimum nonforfeiture amount at any time at or prior to the commencement of any
  annuity payments shall be equal to an accumulation up to such time at rates of interest
  as indicated in subdivision (C) of this subdivision (1) of the net considerations
  (as hereinafter defined) paid prior to such time decreased by the sum of: (i) any prior withdrawals from or partial surrenders of the contract accumulated at rates
  of interest as indicated in subdivision (C) of this subdivision (1); (ii) the amount of any indebtedness to the company on the contract, including interest
  due and accrued; and (iii) an annual contract charge of $50.00, accumulated at rates of interest as indicated
  in subdivision (C) of this subdivision (1). (B) The net considerations for a given contract year used to define the minimum nonforfeiture
  amount shall be an amount equal to 87 and one-half percent of the corresponding gross
  considerations credited to the contract during that contract year. (C) The interest rate used in determining minimum nonforfeiture amounts shall be an annual
  rate of interest determined as the lesser of three percent per annum and the following,
  which shall be specified in the contract if the interest will be reset: (i) The five-year Constant Maturity Treasury Rate reported by the Federal Reserve as of
  a date, or average over a period, rounded to the nearest one-twentieth of one percent,
  specified in the contract no longer than 15 months prior to the contract issue date
  or redetermination date under subdivision (iv) of this subdivision (C). (ii) Reduced by 125 basis points. (iii) Where the resulting interest rate is not less than 0.15 percent. (iv) The interest rate shall apply for an initial period and may be redetermined for additional
  periods. The redetermination date, basis, and period, if any, shall be stated in the
  contract. The basis is the date or average over a specified period that produces the
  value of the five-year Constant Maturity Treasury Rate to be used at the redetermination
  date. (D) During the period or term that a contract provides substantive participation in an
  equity indexed benefit, it may increase the reduction described in subdivision (C)(ii)
  of this subdivision (1) by up to an additional 100 basis points to reflect the value
  of the equity index benefit. The present value at the contract issue date, and at
  each redetermination date thereafter, of the additional reduction shall not exceed
  the market value of the benefit. The Commissioner may require a demonstration that
  the present value of the additional reduction does not exceed the market value of
  the benefit. Lacking such a demonstration that is acceptable to the Commissioner,
  the Commissioner may disallow or limit the additional reduction. (E) The Commissioner may adopt rules to implement the provisions of subdivision (D) of
  this subdivision (1) and to provide for further adjustments to the calculation of
  minimum nonforfeiture amounts for contracts that provide substantive participation
  in an equity index benefit and for other contracts that the Commissioner determines
  adjustments are justified. (2) With respect to contracts providing for fixed scheduled considerations, minimum nonforfeiture
  amounts shall be calculated on the assumption that considerations are paid annually
  in advance and shall be defined as for contracts with flexible considerations that
  are paid annually with two exceptions: (A) The portion of the net consideration for the first contract year to be accumulated
  shall be the sum of 65 percent of the net consideration of the first contract year
  plus 22 and one-half percent of the excess of the net consideration for the first
  contract year over the lesser of the net considerations for the second and third contract
  years. (B) The annual contract charge shall be the lesser of: (i) $30.00; or (ii) 10 percent of the gross annual consideration. (3) With respect to contracts providing for a single consideration, minimum nonforfeiture
  amounts shall be defined as for contracts with flexible considerations except that
  the percentage of net consideration used to determine the minimum nonforfeiture amount
  shall be equal to 90 percent and the net consideration shall be the gross consideration
  less a contract charge of $75.00. (e) Any paid-up annuity benefit available under a contract shall be such that its present
  value on the date annuity payments are to commence is at least equal to the minimum
  nonforfeiture amount on that date. Such present value shall be computed using the
  mortality table, if any, and the interest rate specified in the contract for determining
  the minimum paid-up annuity benefits guaranteed in the contract. (f) For contracts that provide cash surrender benefits, such cash surrender benefits available
  prior to maturity shall not be less than the present value as of the date of surrender
  of that portion of the maturity value of the paid-up annuity benefit that would be
  provided under the contract at maturity arising from considerations paid prior to
  the time of cash surrender reduced by the amount appropriate to reflect any prior
  withdrawals from or partial surrenders of the contract, such present value being calculated
  on the basis of an interest rate not more than one percent higher than the interest
  rate specified in the contract for accumulating the net considerations to determine
  such maturity value, decreased by the amount of any indebtedness to the company on
  the contract, including interest due and accrued, and increased by any existing additional
  amounts credited by the company to the contract. In no event shall any cash surrender
  benefit be less than the minimum nonforfeiture amount at that time. The death benefit
  under such contracts shall be at least equal to the cash surrender benefit. (g) For contracts that do not provide cash surrender benefits, the present value of any
  paid-up annuity benefit available as a nonforfeiture option at any time prior to maturity
  shall not be less than the present value of that portion of the maturity value of
  the paid-up annuity benefit provided under the contract arising from considerations
  paid prior to the time the contract is surrendered in exchange for, or changed to,
  a deferred paid-up annuity, such present values being calculated for the period prior
  to the maturity date on the basis of the interest rate specified in the contract for
  accumulating the net considerations to determine such maturity value, and increased
  by any existing additional amounts credited by the company to the contract. For contracts
  that do not provide any death benefits prior to the commencement of any annuity payments,
  such present value shall be calculated on the basis of such interest rate and the
  mortality table specified in the contract for determining the maturity value of the
  paid-up annuity benefit. However, in no event shall the present value of a paid-up
  annuity benefit be less than the minimum nonforfeiture amount at that time. (h) For the purpose of determining the benefits calculated under subsections (f) and (g)
  of this section, in the case of annuity contracts under which any election may be
  made to have annuity payments commence at optional maturity dates, the maturity date
  shall be deemed to be the latest date for which election shall be permitted by the
  contract but shall not be deemed to be later than the anniversary of the contract
  next following the annuitant’s 70th birthday or the 10th anniversary of the contract,
  whichever is later. (i) Any contract that does not provide cash surrender benefits or does not provide death
  benefits at least equal to the minimum nonforfeiture amount prior to the commencement
  of any annuity payments shall include a statement in a prominent place in the contract
  that such benefits are not provided. (j) Any paid-up annuity, cash surrender, or death benefits available at any time, other
  than on the contract anniversary under any contract with fixed scheduled considerations,
  shall be calculated with allowance for the lapse of time and the payment of any scheduled
  considerations beyond the beginning of the contract year in which cessation of payment
  of considerations under the contract occurs. (k) For any contract that provides, within the same contract by rider or supplemental
  contract provision, both annuity benefits and life insurance benefits that are in
  excess of the greater of cash surrender benefits or a return of the gross considerations
  with interest, the minimum nonforfeiture benefits shall be equal to the sum of the
  minimum nonforfeiture benefits for the annuity portion and the minimum nonforfeiture
  benefits, if any, for the life insurance portion computed as if each portion were
  a separate contract. Notwithstanding the provisions of subsections (e), (f), (g),
  (h), and (j) of this section, additional benefits payable (1) in the event of total
  and permanent disability, (2) as reversionary annuity or deferred reversionary annuity
  benefits, or (3) as other policy benefits additional to life insurance, endowment
  and annuity benefits, and considerations for all such additional benefits, shall be
  disregarded in ascertaining the minimum nonforfeiture amounts, paid-up annuity, cash
  surrender, and death benefits that may be required by this section. The inclusion
  of such additional benefits shall not be required in any paid-up benefits, unless
  such additional benefits separately would require minimum nonforfeiture amounts, paid-up
  annuity, cash surrender, and death benefits. (l) After the effective date of this section, any company may file with the Commissioner
  a written notice of its election to comply with the provisions of this section after
  a specified date before the second anniversary of the effective date of this section.
  After the filing of such notice, then upon such specified date, which shall be the
  operative date of this section for such company, this section shall become operative
  with respect to annuity contracts thereafter issued by such company. If a company
  makes no such election, the operative date of this section for such company shall
  be the second anniversary of the effective date of this section. (Added 1981, No. 43, § 10, eff. April 21, 1981; amended 2003, No. 11, § 1, eff. May 6, 2003; 2003, No. 105 (Adj. Sess.), § 17; 2021, No. 139 (Adj. Sess.), § 9, eff. May 27, 2022.)