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H0176..............................................................by BUSINESS
LIFE INSURANCE ANNUITIES - Amends existing law to provide the minimum
nonforfeiture amount for any individual deferred annuity contract issued on or
after July 1, 2003, and before July 1, 2005, shall be based on a rate of
interest of one and one-half percent per annum.
02/06 House intro - 1st rdg - to printing
02/07 Rpt prt - to Bus
02/12 Rpt out - rec d/p - to 2nd rdg
02/13 2nd rdg - to 3rd rdg
02/14 3rd rdg - PASSED - 63-0-7
AYES -- Andersen, Barraclough, Bauer, Bedke, Bell, Black, Block, Boe,
Bolz, Bradford, Campbell, Cannon, Clark, Crow, Cuddy, Deal, Denney,
Douglas, Edmunson, Ellsworth, Eskridge, Field(18), Field(23), Gagner,
Garrett, Harwood, Henbest, Jaquet, Kellogg, Kulczyk, Lake, Langford,
Langhorst, Martinez, McGeachin, McKague, Meyer, Miller, Mitchell, Moyle,
Naccarato, Nielsen, Raybould, Ridinger, Ring, Ringo, Roberts, Robison,
Sali, Sayler, Schaefer(Schaefer), Shepherd, Shirley, Skippen, Smith(30),
Smith(24), Smylie, Snodgrass, Stevenson, Tilman, Trail, Wills, Mr.
Speaker
NAYS -- None
Absent and excused -- Barrett, Bieter, Collins, Eberle, Jones, Rydalch,
Wood
Floor Sponsor - Deal
Title apvd - to Senate
02/17 Senate intro - 1st rdg - to Com/HuRes
02/28 Rpt out - rec d/p - to 2nd rdg
03/03 2nd rdg - to 3rd rdg
03/10 3rd rdg - PASSED - 33-0-2
AYES -- Andreason, Bailey, Brandt, Bunderson, Burtenshaw, Calabretta,
Cameron, Compton, Darrington, Gannon, Geddes, Goedde, Hill, Ingram,
Kennedy, Keough, Little, Lodge, Malepeai, Marley, McKenzie, McWilliams,
Noble, Noh, Pearce, Richardson, Schroeder, Sorensen, Stegner, Stennett,
Sweet, Werk, Williams
NAYS -- None
Absent and excused -- Burkett, Davis
Floor Sponsor - Cameron
Title apvd - to House
03/11 To enrol
03/12 Rpt enrol - Sp signed
03/13 Pres signed
03/14 To Governor
03/17 Governor signed
Session Law Chapter 86
Effective: 07/01/03
|||| LEGISLATURE OF THE STATE OF IDAHO ||||
Fifty-seventh Legislature First Regular Session - 2003
IN THE HOUSE OF REPRESENTATIVES
HOUSE BILL NO. 176
BY BUSINESS COMMITTEE
1 AN ACT
2 RELATING TO THE MINIMUM ANNUITY NONFORFEITURE INTEREST RATE FOR INDIVIDUAL
3 DEFERRED ANNUITIES; AMENDING SECTION 41-1927A, IDAHO CODE, TO PROVIDE FOR
4 A REDUCED MINIMUM RATE OF INTEREST UNTIL JULY 1, 2005 AND TO MAKE TECHNI-
5 CAL CORRECTIONS.
6 Be It Enacted by the Legislature of the State of Idaho:
7 SECTION 1. That Section 41-1927A, Idaho Code, be, and the same is hereby
8 amended to read as follows:
9 41-1927A. STANDARD NONFORFEITURE LAW FOR INDIVIDUAL DEFERRED ANNUITIES.
10 (1) This section shall be known as the standard nonforfeiture law for individ-
11 ual deferred annuities.
12 (2) This section shall not apply to any reinsurance, group annuity pur-
13 chased under a retirement plan or plan of deferred compensation established or
14 maintained by an employer (including a partnership or sole proprietorship) or
15 by an employee organization, or by both, other than a plan providing individ-
16 ual retirement accounts or individual retirement annuities under section 408
17 of the internal revenue code, as now or hereafter amended, premium deposit
18 fund, variable annuity, investment annuity, immediate annuity, any deferred
19 annuity contract after annuity payments have commenced, or reversionary annu-
20 ity, nor to any contract which shall be delivered outside this state through
21 an agent or other representative of the insurer issuing the contract.
22 (3) In the case of contracts issued on or after the operative date of
23 this section as defined in subsection (12) of this section, no contract of
24 annuity, except as stated in subsection (2) of this section shall be delivered
25 or issued for delivery in this state unless it contains in substance the fol-
26 lowing provisions, or corresponding provisions which in the opinion of the
27 director are at least as favorable to the contractholder, upon cessation of
28 payment of considerations under the contract.
29 (a) That upon cessation of payment of considerations under a contract,
30 the insurer will grant a paid-up annuity benefit on a plan stipulated in
31 the contract of such value as is specified in subsections (5), (6), (7),
32 (8) and (10) of this section.
33 (b) If a contract provides for a lump sum settlement at maturity, or at
34 any other time, that upon surrender of the contract at or prior to the
35 commencement of any annuity payments, the insurer will pay in lieu of any
36 paid-up annuity benefit a cash surrender benefit of such amount as is
37 specified in subsections (5), (6), (8) and (10) of this section. The
38 insurer shall reserve the right to defer the payment of such cash surren-
39 der benefit for a period of six (6) months after demand therefor with sur-
40 render of the contract. If the insurer defers payment of a cash surrender
41 benefit under this section, the insurer shall pay interest at the rate
42 specified in section 28-22-104(2), Idaho Code, as established and in exis-
43 tence at the time of the surrender demand.
2
1 (c) A statement of the mortality table, if any, and interest rates used
2 in calculating any minimum paid-up annuity, cash surrender or death bene-
3 fits that are guaranteed under the contract, together with sufficient
4 information to determine the amounts of such benefits.
5 (d) A statement that any paid-up annuity, cash surrender or death bene-
6 fits that may be available under the contract are not less than the mini-
7 mum benefits required by any statute of the state in which the contract is
8 delivered and an explanation of the manner in which such benefits are
9 altered by the existence of any additional amounts credited by the insurer
10 to the contract, any indebtedness to the insurer on the contract or any
11 prior withdrawals from or partial surrenders of the contract.
12 Notwithstanding the requirements of this section, any deferred annuity
13 contract may provide that if no considerations have been received under a con-
14 tract for a period of two (2) full years and the portion of the paid-up annu-
15 ity benefit at maturity on the plan stipulated in the contract arising from
16 considerations paid prior to such period would be less than twenty dollars
17 ($20.00) monthly, the insurer may at its option terminate such contract by
18 payment in cash of the then present value of such portion of the paid-up annu-
19 ity benefit, calculated on the basis of the mortality table, if any, and
20 interest rate specified in the contract for determining the paid-up annuity
21 benefit, and by such payment shall be relieved of any further obligation under
22 such contract.
23 (4) The minimum values as specified in subsections (5), (6), (7), (8) and
24 (10) of this section of any paid-up annuity, cash surrender or death benefits
25 available under an annuity contract shall be based upon minimum nonforfeiture
26 amounts as defined in this section.
27 (a) With respect to contracts providing for flexible considerations, the
28 minimum nonforfeiture amount at any time at or prior to the commencement
29 of any annuity payments shall be equal to an accumulation up to such time
30 at a rate of interest of three per cent percent (3%) per annum of percent-
31 ages of the net considerations (as hereinafter defined) paid prior to such
32 time, decreased by the sum of (i) any prior withdrawals from or partial
33 surrenders of the contract accumulated at a rate of interest of three per
34 cent percent (3%) per annum and (ii) the amount of any indebtedness to the
35 insurer on the contract, including interest due and accrued, and increased
36 by any existing additional amounts credited by the insurer to the con-
37 tract.
38 The net considerations for a given contract year used to define the mini-
39 mum nonforfeiture amount shall be an amount not less than zero and shall
40 be equal to the corresponding gross considerations credited to the con-
41 tract during that contract year less an annual contract charge of thirty
42 dollars ($30.00) and less a collection charge of one dollar and twenty-
43 five cents ($1.25) per consideration credited to the contract during that
44 contract year. The percentages of net considerations shall be sixty-five
45 per cent percent (65%) of the net consideration for the first contract
46 year and eighty-seven and one-half per cent percent (87 1/2%) of the net
47 considerations for the second and later contract years. Notwithstanding
48 the provisions of the preceding sentence, the percentage shall be sixty-
49 five per cent percent (65%) of the portion of the total net consideration
50 for any renewal contract year which exceeds by not more than two (2) times
51 the sum of those portions of the net considerations in all prior contract
52 years for which the percentage was sixty-five per cent percent (65%).
53 Notwithstanding the provisions of paragraph (a) of this subsection, the
54 minimum nonforfeiture amount for any contract issued on or after July 1, 2003,
55 and before July 1, 2005 shall be based on a rate of interest of one and one-
3
1 half percent (1.5%) per annum.
2 (b) With respect to contracts providing for fixed scheduled consider-
3 ations, minimum nonforfeiture amounts shall be calculated on the assump-
4 tion that considerations are paid annually in advance and shall be defined
5 as for contracts with flexible considerations which are paid annually with
6 two (2) exceptions:
7 1. The portion of the net consideration for the first contract year
8 to be accumulated shall be the sum of sixty-five per cent percent
9 (65%) of the net consideration for the first contract year plus
10 twenty-two and one-half per cent percent (22 1/2%) of the excess of
11 the net consideration for the first contract year over the lesser of
12 the net considerations for the second and third contract years.
13 2. The annual contract charge shall be the lesser of (i) thirty dol-
14 lars ($30.00) or (ii) ten per cent percent (10%) of the gross annual
15 considerations.
16 (c) With respect to contracts providing for a single consideration, mini-
17 mum nonforfeiture amounts shall be defined as for contracts with flexible
18 considerations except that the percentage of net consideration used to
19 determine the minimum nonforfeiture amount shall be equal to ninety per
20 cent percent (90%) and the net consideration shall be the gross consider-
21 ation less a contract charge of seventy-five dollars ($75.00).
22 (5) Any paid-up annuity benefit available under a contract shall be such
23 that its present value on the date annuity payments are to commence is at
24 least equal to the minimum nonforfeiture amount on that date. Such present
25 value shall be computed using the mortality table, if any, and the interest
26 rate specified in the contract for determining the minimum paid-up annuity
27 benefits guaranteed in the contract.
28 (6) For contracts which provide cash surrender benefits, such cash sur-
29 render benefits available prior to maturity shall not be less than the present
30 value as of the date of surrender of that portion of the maturity value of the
31 paid-up annuity benefit which would be provided under the contract at maturity
32 arising from considerations paid prior to the time of cash surrender reduced
33 by the amount appropriate to reflect any prior withdrawals from or partial
34 surrenders of the contract, such present value being calculated on the basis
35 of an interest rate not more than one per cent percent (1%) higher than the
36 interest rate specified in the contract for accumulating the net consider-
37 ations to determine such maturity value, decreased by the amount of any
38 indebtedness to the insurer on the contract, including interest due and
39 accrued, and increased by any existing additional amounts credited by the
40 insurer to the contract. In no event shall any cash surrender benefit be less
41 than the minimum nonforfeiture amount at that time. The death benefit under
42 such contracts shall be at least equal to the cash surrender benefit.
43 (7) For contracts which do not provide cash surrender benefits, the pres-
44 ent value of any paid-up annuity benefit available as a nonforfeiture option
45 at any time prior to maturity shall not be less than the present value of that
46 portion of the maturity value of the paid-up annuity benefit provided under
47 the contract arising from considerations paid prior to the time the contract
48 is surrendered in exchange for, or changed to, a deferred paid-up annuity,
49 such present value being calculated for the period prior to the maturity date
50 on the basis of the interest rate specified in the contract for accumulating
51 the net considerations to determine such maturity value, and increased by any
52 existing additional amounts credited by the insurer to the contract. For con-
53 tracts which do not provide any death benefits prior to the commencement of
54 any annuity payments, such present values shall be calculated on the basis of
55 such interest rate and the mortality table specified in the contract for
4
1 determining the maturity value of the paid-up annuity benefit. However, in no
2 event shall the present value of a paid-up annuity benefit be less than the
3 minimum nonforfeiture amount at that time.
4 (8) For the purpose of determining the benefits calculated under subsec-
5 tions (6) and (7) of this section, in the case of annuity contracts under
6 which an election may be made to have annuity payments commence at optional
7 maturity dates, the maturity date shall be deemed to be the latest date for
8 which election shall be permitted by the contract, but shall not be deemed to
9 be later than the anniversary of the contract next following the annuitant's
10 seventieth birthday or the tenth anniversary of the contract, whichever is
11 later.
12 (9) Any contract which does not provide cash surrender benefits or does
13 not provide death benefits at least equal to the minimum nonforfeiture amount
14 prior to the commencement of any annuity payments shall include a statement in
15 a prominent place in the contract that such benefits are not provided.
16 (10) Any paid-up annuity, cash surrender or death benefits available at
17 any time, other than on the contract anniversary under any contract with fixed
18 scheduled considerations, shall be calculated with allowance for the lapse of
19 time and the payment of any scheduled considerations beyond the beginning of
20 the contract year in which cessation of payment of considerations under the
21 contract occurs.
22 (11) For any contract which provides, within the same contract by rider or
23 supplemental contract provision, both annuity benefits and life insurance ben-
24 efits that are in excess of the greater of cash surrender benefits or a return
25 of the gross considerations with interest, the minimum nonforfeiture benefits
26 shall be equal to the sum of the minimum nonforfeiture benefits for the annu-
27 ity portion and the minimum nonforfeiture benefits, if any, for the life
28 insurance portion computed as if each portion were a separate contract. Not-
29 withstanding the provisions of subsections (5), (6), (7), (8) and (10) of this
30 section, additional benefits payable (i) in the event of total and permanent
31 disability, (ii) as reversionary annuity or deferred reversionary annuity ben-
32 efits, or (iii) as other policy benefits additional to life insurance, endow-
33 ment, and annuity benefits, and considerations for all such additional bene-
34 fits, shall be disregarded in ascertaining the minimum nonforfeiture amounts,
35 paid-up annuity, cash surrender and death benefits that may be required by
36 this section. The inclusion of such additional benefits shall not be required
37 in any paid-up benefits, unless such additional benefits separately would
38 require minimum nonforfeiture amounts, paid-up annuity, cash surrender and
39 death benefits.
40 (12) After the effective date of this section any insurer may file with
41 the director a written notice of its election to comply with the provisions of
42 this section after a specified date before the second anniversary of the
43 effective date of this section. After the filing of such notice, then upon
44 such specified date, which shall be the operative date of this section for
45 such insurer, this section shall become operative with respect to annuity con-
46 tracts thereafter issued by such insurer. If an insurer makes no such elec-
47 tion, the operative date of this section for such insurer shall be the second
48 anniversary of the effective date of this section.
STATEMENT OF PURPOSE
RS 12442
The current low interest rate environment, combined with a minimum
annuity nonforfeiture rate of three percent that was set nearly
thirty years ago, has contributed to a lack of availability of
short-term fixed annuities for consumers. This legislation would
reduce the minimum nonforfeiture interest rate for individual
deferred annuities to one and one half percent until July of 2005.
Such a change is beneficial to Idaho's consumers as well as
domestic life insurers. Fourteen other states have already
implemented this change, and the National Association of Insurance
Commissioners voted in support of this change in 2002.
FISCAL IMPACT
None.
Contact: John Mackey
322-2685
Rep. Bill Deal
332-1145
STATEMENT OF PURPOSE/FISCAL NOTE H 17