§ 58-58-61. Standard nonforfeiture law for individual deferred annuities. - North Carolina Statutes

§ 58‑58‑61. Standard nonforfeiture law for individual deferred annuities.

(a)        Title. – Thissection is and may be cited as the Standard Nonforfeiture Law for IndividualDeferred Annuities.

(b)        Applicability. –This section does not apply to any:

(1)        Reinsurance.

(2)        Group annuitypurchased under a retirement plan or plan of deferred compensation establishedor maintained by an employer, including a partnership or sole proprietorship,or by an employee organization, or by both, other than a plan providing individualretirement accounts or individual retirement annuities under section 408 of theInternal Revenue Code, as amended.

(3)        Premium depositfund.

(4)        Variable annuity.

(5)        Investment annuity.

(6)        Immediate annuity.

(7)        Deferred annuitycontract after annuity payments have commenced.

(8)        Reversionaryannuity.

(9)        Contract deliveredoutside this State through an agent or other representative of the companyissuing the contract.

(c)        NonforfeitureRequirements. – In the case of contracts issued on or after the operative dateof this section as defined in subsection (o) of this section, no contract ofannuity, except as stated in subsection (b) of this section, shall be deliveredor issued for delivery in this State unless it contains in substance the followingprovisions, or corresponding provisions that in the opinion of the Commissionerare at least as favorable to the contract holder, upon cessation of payment ofconsiderations under the contract:

(1)        That upon cessationof payment of considerations under a contract, or upon the written request ofthe contract owner, the company shall grant a paid‑up annuity benefit ona plan stipulated in the contract of the value specified in subsections (g),(h), (i), (j), and (l) of this section.

(2)        If a contract providesfor a lump sum settlement at maturity or at any other time, that upon surrenderof the contract at or before the commencement of any annuity payments, thecompany shall pay in lieu of a paid‑up annuity benefit a cash surrenderbenefit of the amount specified in subsections (g), (h), (j), and (l) of thissection. The company may reserve the right to defer the payment of the cashsurrender benefit for a period not to exceed six months after demand for thepayment with surrender of the contract after making written request andreceiving written approval of the Commissioner. The request shall address thenecessity and equitability to all policyholders of the deferral.

(3)        A statement of themortality table, if any, and interest rates used in calculating any minimumpaid‑up annuity, cash surrender, or death benefits that are guaranteedunder the contract, together with sufficient information to determine theamounts of the benefits.

(4)        A statement that anypaid‑up annuity, cash surrender, or death benefits that may be availableunder the contract are not less than the minimum benefits required by anystatute of the state in which the contract is delivered and an explanation ofthe manner in which the benefits are altered by the existence of any additionalamounts credited by the company to the contract, any indebtedness to thecompany on the contract, or any prior withdrawals from or partial surrenders ofthe contract.

Notwithstanding therequirements of this subsection, a deferred annuity contract may provide thatif no considerations have been received under the contract for a period of twofull years and the portion of the paid‑up annuity benefit at maturity onthe plan stipulated in the contract arising from prior considerations paidwould be less than twenty dollars ($20.00) monthly, the company may at itsoption terminate the contract by payment in cash of the then‑presentvalue of the portion of the paid‑up annuity benefit, calculated on thebasis of the mortality table, if any, and interest rate specified in thecontract for determining the paid‑up annuity benefit, and by this paymentshall be relieved of any further obligation under the contract.

(d)        Minimum Values. –The minimum values specified in subsections (g), (h), (i), (j), and (l) of thissection of any paid‑up annuity, cash surrender, or death benefitsavailable under an annuity contract shall be based upon minimum nonforfeitureamounts as defined in this section. The minimum nonforfeiture amount at anytime at or before the commencement of any annuity payments shall be equal to anaccumulation up to that time at rates of interest as indicated in subsection(e) of this section of the net considerations, as hereinafter defined, paidbefore that time, decreased by the sum of the following:

(1)        Any priorwithdrawals from or partial surrenders of the contract accumulated at rates ofinterest as indicated in subsection (e) of this section.

(2)        An annual contractcharge of fifty dollars ($50.00), accumulated at rates of interest as indicatedin subsection (e) of this section.

(3)        Any premium tax paidby the company for the contract, accumulated at rates of interest as indicatedin subsection (e) of this section.

(4)        The amount of anyindebtedness to the company on the contract, including interest due and accrued.

The net considerations for agiven contract year used to define the minimum nonforfeiture amount shall be anamount equal to eighty‑seven and one‑half percent (87 1/2%) of thegross considerations credited to the contract during that contract year.

(e)        The interest rateused in determining minimum nonforfeiture amounts shall be an annual rate ofinterest determined as the lesser of three percent (3%) per annum and thefollowing, which shall be specified in the contract if the interest rate willbe reset:

(1)        The five‑yearConstant Maturity Treasury Rate reported by the Federal Reserve as of a date,or average over a period, rounded to the nearest one‑twentieth of onepercent (0.05%), specified in the contract no longer than 15 months before thecontract issue date or redetermination date under subdivision (4) of thissubsection.

(2)        Reduced by 125 basispoints.

(3)        Where the resultinginterest guarantee is not less than one percent (1%).

(4)        The interest rateshall apply for an initial period and may be redetermined for additionalperiods. The redetermination date, basis, and period, if any, shall be statedin the contract. The basis is the date or average over a specified period thatproduces the value of the five‑year Constant Maturity Treasury Rate to beused at each redetermination date.

(f)         During the periodor term that a contract provides substantive participation in an equity indexedbenefit, it may increase the reduction described in subdivision (e)(2) of thissection by up to an additional 100 basis points to reflect the value of theequity index benefit. The present value at the contract issue date, and at eachsubsequent redetermination date, of the additional reduction shall not exceedthe market value of the benefit. The Commissioner may require a demonstrationthat the present value of the additional reduction does not exceed the marketvalue of the benefit. Absent a demonstration that is acceptable to theCommissioner, the Commissioner may disallow or limit the additional reduction.The Commissioner may adopt rules to implement the provisions of this subsectionand to provide for further adjustments to the calculation of minimumnonforfeiture amounts for contracts that provide substantive participation inan equity index benefit and for other contracts for which the Commissionerdetermines adjustments are justified.

(g)        Computation ofPresent Value. – Any paid‑up annuity benefit available under a contractshall be such that its present value on the date annuity payments are tocommence is at least equal to the minimum nonforfeiture amount on that date.Present value shall be computed using the mortality table, if any, and theinterest rates specified in the contract for determining the minimum paid‑upannuity benefits guaranteed in the contract.

(h)        Calculation of CashSurrender Value. – For contracts that provide cash surrender benefits, the cashsurrender benefits available before maturity shall not be less than the presentvalue as of the date of surrender of that portion of the maturity value of thepaid‑up annuity benefit that would be provided under the contract atmaturity arising from considerations paid before the time of cash surrenderreduced by the amount appropriate to reflect any prior withdrawals from orpartial surrenders of the contract, such present value being calculated on thebasis of an interest rate not more than one percent (1%) higher than theinterest rate specified in the contract for accumulating the net considerationsto determine maturity value, decreased by the amount of any indebtedness to thecompany on the contract, including interest due and accrued, and increased byany existing additional amounts credited by the company to the contract. In noevent shall any cash surrender benefit be less than the minimum nonforfeitureamount at that time. The death benefit under such contracts shall be at leastequal to the cash surrender benefit.

(i)         Calculation ofPaid‑Up Annuity Benefits. – For contracts that do not provide cashsurrender benefits, the present value of any paid‑up annuity benefitavailable as a nonforfeiture option at any time before maturity shall not beless than the present value of that portion of the maturity value of the paid‑upannuity benefit provided under the contract arising from considerations paidbefore the time the contract is surrendered in exchange for, or changed to, adeferred paid‑up annuity, the present value being calculated for theperiod before the maturity date on the basis of the interest rate specified inthe contract for accumulating the net considerations to determine maturityvalue, and increased by any additional amounts credited by the company to thecontract. For contracts that do not provide any death benefits before thecommencement of any annuity payments, present values shall be calculated on thebasis of the interest rate and the mortality table specified in the contractfor determining the maturity value of the paid‑up annuity benefit.However, in no event shall the present value of a paid‑up annuity benefitbe less than the minimum nonforfeiture amount at that time.

(j)         Maturity Date. –For the purpose of determining the benefits calculated under subsections (h)and (i) of this section, in the case of annuity contracts under which anelection may be made to have annuity payments commence at optional maturitydates, the maturity date shall be the latest date for which election ispermitted by the contract but not later than the anniversary of the contractnext following the annuitant's seventieth birthday or the tenth anniversary ofthe contract, whichever is later.

(k)        Disclosure ofLimited Death Benefits. – A contract that does not provide cash surrenderbenefits or does not provide death benefits at least equal to the minimumnonforfeiture amount before the commencement of any annuity payments shallinclude a statement in a prominent place in the contract that those benefitsare not provided.

(l)         Inclusion of Lapseof Time Considerations. – Any paid‑up annuity, cash surrender, or deathbenefits available at any time, other than on the contract anniversary underany contract with fixed scheduled considerations, shall be calculated withallowance for the lapse of time and the payment of any scheduled considerationsbeyond the beginning of the contract year in which cessation of payment ofconsiderations under the contract occurs.

(m)       Proration of Values;Additional Benefits. – For a contract that provides within the same contract,by rider or supplemental contract provision, both annuity benefits and lifeinsurance benefits that are in excess of the greater of cash surrender benefitsor a return of the gross considerations with interest, the minimumnonforfeiture benefits shall be equal to the sum of the minimum nonforfeiturebenefits for the annuity portion and the minimum nonforfeiture benefits, ifany, for the life insurance portion computed as if each portion were a separatecontract. Notwithstanding the provisions of subsections (g), (h), (i), (j), and(l) of this section, additional benefits payable in the event of total andpermanent disability, as reversionary annuity or deferred reversionary annuitybenefits, or 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‑upannuity, cash surrender, and death benefits that may be required by thissection. The inclusion of those benefits shall not be required in any paid‑upbenefits, unless the additional benefits separately would require minimumnonforfeiture amounts, paid‑up annuity, cash surrender, and deathbenefits.

(n)        Rules. – TheCommissioner may adopt rules to implement the provisions of this section.

(o)        Effective Date. –On and after October 1, 2003, a company may elect to apply the provisions ofthis section to annuity contracts on a contract form‑by‑contractform basis before October 1, 2004. In all other instances, this section shallbecome operative with respect to annuity contracts issued by the company on andafter October 1, 2004. (2003‑144, s. 1.)