93RD GENERAL ASSEMBLY
State of Illinois
2003 and 2004
SB2439

 

Introduced 2/3/2004, by Denny Jacobs

 

SYNOPSIS AS INTRODUCED:
 
215 ILCS 5/229.4   from Ch. 73, par. 841.4

    Amends the Illinois Insurance Code. In provisions pertaining to the minimum values, as specified in the Section, of any paid-up, cash surrender or death benefits available under an annuity contract be based upon minimum nonforfeiture amounts as defined, modifies the definition determining the minimum nonforfeiture amount. Provides that the interest rate used in determining minimum nonforfeiture amounts to be an annual rate of interest determined as the lesser of 3% per annum and the following, which shall be specified in the contract if the interest rate will be reset, (i) the 5-year Constant Maturity Rate reported by the Federal Reserve, (ii) reduced by 125 basis points, (iii) the resulting interest rate is not less than 1%, and (iv) the interest rate applies for an initial period and may be redetermined for additional periods. Clarifies existing language and makes other changes. Effective July 1, 2006.


LRB093 17013 SAS 42674 b

 

 

A BILL FOR

 

SB2439 LRB093 17013 SAS 42674 b

1     AN ACT concerning insurance.
 
2     Be it enacted by the People of the State of Illinois,
3 represented in the General Assembly:
 
4     Section 5. The Illinois Insurance Code is amended by
5 changing Section 229.4 as follows:
 
6
7     (215 ILCS 5/229.4)  (from Ch. 73, par. 841.4)
8     Sec. 229.4. Standard Non-forfeiture Law for Individual
9 Deferred Annuities.
10     (1) Title. This Section shall be known as the Standard
11 Nonforfeiture Law for Individual Deferred Annuities.
12     (2) Applicability. This Section shall not apply to any
13 reinsurance, group annuity purchased under a retirement plan or
14 plan of deferred compensation established or maintained by an
15 employer (including a partnership or sole proprietorship) or by
16 an employee organization, or by both, other than a plan
17 providing individual retirement accounts or individual
18 retirement annuities under Section 408 of the Internal Revenue
19 Code, as now or hereafter amended, premium deposit fund,
20 variable annuity, investment annuity, immediate annuity, any
21 deferred annuity contract after annuity payments have
22 commenced, or reversionary annuity, nor to any contract which
23 shall be delivered outside this State through an agent or other
24 representative of the company issuing the contract.
25     (3) Nonforfeiture Requirements.
26         (A) In the case of contracts issued on or after the
27     effective date of this Section as defined in Section 13, no
28     contract of annuity, except as stated in Section 2, shall
29     be delivered or issued for delivery in this State unless it
30     contains in substance the following provisions, or
31     corresponding provisions which in the opinion of the
32     Director of Insurance are at least as favorable to the

 

 

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1     contract holder, upon cessation of payment of
2     considerations under the contract:
3         (1) That upon cessation of payment of considerations
4     under a contract, or upon the written request of the
5     contract owner, the company shall grant will paid-up
6     annuity benefit on a plan stipulated in the contract of
7     such value as is specified in Sections 5, 6, 7, 8 and 10;
8         (2) If a contract provides for a-lump sum settlement at
9     maturity, or at any other time, that upon surrender of the
10     contract at or prior to the commencement of any annuity
11     payments, the company shall pay in lieu of a paid-up
12     annuity benefit a cash surrender benefit of such amount as
13     is specified in Sections 5, 6, 8 and 10. The company may
14     reserve the right to defer the payment of the cash
15     surrender benefit for a period not to exceed 6 months to
16     demand therefor with surrender of the contract after making
17     written request and receiving written approval of the
18     Director. The request shall address the necessity and
19     equitability to all policyholders of the deferral;
20         (3) A statement of the mortality table, if any, and
21     interest rates used calculating any minimum paid-up
22     annuity, cash surrender, or death benefits that are
23     guaranteed under the contract, together with sufficient
24     information to determine the amounts of the benefits; and
25         (4) A statement that any paid-up annuity, cash
26     surrender or death benefits that may be available under the
27     contract are not less than the minimum benefits required by
28     any statute of the state in which the contract is delivered
29     and an explanation of the manner in which the benefits are
30     altered by the existence of any additional amounts credited
31     by the company to the contract, any indebtedness to the
32     company on the contract or any prior withdrawals from or
33     partial surrenders of the contract.
34             (B) Notwithstanding the requirements of this
35         Section, a deferred annuity contract may provide that
36         if no considerations have been received under a

 

 

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1         contract for a period of 2 full years and the portion
2         of the paid-up annuity benefit at maturity on the plan
3         stipulated in the contract arising from prior
4         considerations paid would be less than $20 monthly, the
5         company may at its option terminate the contract by
6         payment in cash of the then present value of the
7         portion of the paid-up annuity benefit, calculated on
8         the basis on the mortality table, if any, and interest
9         rate specified in the contract for determining the
10         paid-up annuity benefit, and by this payment shall be
11         relieved of any further obligation under the contract.
12     (4) Minimum values. The minimum values as specified in
13 Sections 5, 6, 7, 8 and 10 of any paid-up annuity, cash
14 surrender or death benefits available under an annuity contract
15 shall be based upon minimum nonforfeiture amounts as defined in
16 this Section.
17         (A)(1) The minimum nonforfeiture amount at any time at
18     or prior to the commencement of any annuity payments shall
19     be equal to an accumulation up to such time at rates of
20     interest as indicated in subsection B of the net
21     considerations (as hereinafter defined) paid prior to such
22     time, decreased by the sum of paragraphs (a) through (d)
23     below:
24                 (a) Any prior withdrawals from or partial
25         surrenders of the contract accumulated at rates of
26         interest as indicated in subsection B; and
27                 (b) An annual contract charge of $50,
28         accumulated at rates of interest as indicated in
29         subsection B; and
30                 (c) Any premium tax paid by the company for the
31         contract, accumulated at rates of interest as
32         indicated in subsection B; and
33                 (d) The amount of any indebtedness to the
34         company on the contract including interest due and
35         accrued.
36         (2) The net considerations for a given contract year

 

 

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1     used to define the minimum nonforfeiture amount shall be an
2     amount equal to 87.5% of the gross considerations, credited
3     to the contract during that contract year.
4             (B) The interest rate used in determining minimum
5         nonforfeiture amounts shall be an annual rate of
6         interest determined as the lesser of (3%) per annum and
7         the following, which shall be specified in the contract
8         if the interest rate will be reset:
9         (1) The five-year Constant Maturity Treasury Rate
10     reported by the Federal Reserve as of a date, or average
11     over a period, rounded to the nearest 1/20th of one
12     percent, specified_in_the_contract _no_longer than 15_
13     months prior to the contract issue date or redetermination
14     date under Section 4B(4)
15         (2) Reduced by 125 basis points:
16         (3) Where the resulting interest rate is not less than
17     l%; and
18         (4) The interest rate shall apply for an initial period
19     and may be redetermined for additional periods. The
20     redetermination date, basis and period, if any, shall be
21     stated in the contract. The basis is the date or average
22     over a specified period that produces the value of the
23     five-year Constant Maturity Treasury Rate to be used at
24     each redetermination date.
25             (C) During the period or term that a contract
26         provides substantive participation in an equity
27         indexed benefit, it may increase the reduction
28         described in subsection B(2) above by up to an
29         additional 100 basis points to reflect the value of the
30         equity index benefit. The present value at the contract
31         issue date, and at each redetermination date
32         thereafter of the additional reduction shall not
33         exceed market value of the benefit. The Director may
34         require a demonstration that the present value of the
35         additional reduction does not exceed the market value
36         of the benefit. Lacking such a demonstration that is

 

 

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1         acceptable to the Director, the Director may disallow
2         or limit the additional reduction.
3             (D) The Director may adopt rules to implement the
4         provisions of Section 4C and to provide for further
5         adjustments to the calculation of minimum
6         nonforfeiture amounts for contracts that provide
7         substantive articulation in an equity index benefit
8         and for other contracts that the Director determines
9         adjustments are justified.
10     (5) Computation of Present Value. Any paid-up annuity
11     benefit available under a contract shall be such that its
12     present value on the date annuity payments are to commence is
13     at least equal to the minimum nonforfeiture amount on that
14     date. Present value shall be computed using the mortality
15     table, if any, and the interest rates specified in the contract
16     for determining the minimum paid-up annuity benefits
17     guaranteed in the contract.
18     (6) Calculation of Cash Surrender Value. For contracts that
19     provide cash surrender benefits, the cash surrender benefits
20     available prior to maturity shall not be less than the present
21     value as of the date of surrender of that portion of the
22     maturity value of the paid-up annuity benefit that would be
23     provided under the contract at maturity arising from
24     considerations paid prior to the time of cash surrender reduced
25     by the amount appropriate to reflect any prior withdrawals from
26     or partial surrenders of the contract, such present value being
27     calculated on the basis of an interest rate not more than 1%
28     higher than the interest rate specified in the contract for
29     accumulating the net considerations to determine maturity
30     value, decreased by the amount of any indebtedness to the
31     company on the contract, including interest due and accrued,
32     and increased by any existing additional amounts credited by
33     the company to the contract. In no event shall any cash
34     surrender benefit be less than the minimum nonforfeiture amount
35     at that time. The death benefit under such contracts shall be
36     at least equal to the cash surrender benefit.

 

 

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1     (7) Calculation of Paid-up Annuity Benefits. For contracts
2     that do not provide cash surrender benefits, the present value
3     of any paid-up annuity benefit available as a nonforfeiture
4     option at any time prior to maturity shall not be less than the
5     present value of that portion of the maturity value of the
6     paid-up annuity benefit provided under the contract arising
7     from considerations paid prior to the time the contract is
8     surrendered in exchange for, or changed to, a deferred paid-up
9     annuity, such present value being calculated for the period
10     prior to the maturity date on the basis of the interest rate
11     specified in the contract for accumulating the net
12     considerations to determine maturity value, and increased by
13     any additional amounts credited by the company to the contract.
14     For contracts that do not provide any death benefits prior to
15     the commencement of any annuity payments, present values shall
16     be calculated on the basis of such interest rate and the
17     mortality table specified in the contract for determining the
18     maturity value of the paid-up annuity benefit. However, in no
19     event shall the present value of a paid-up annuity benefit be
20     less than the minimum nonforfeiture amount at that time.
21     (8) Maturity Date. For the purpose of determining the
22     benefits calculated under Sections 6 and 7, in the case of
23     annuity contracts under which an election may be made to have
24     annuity payments commence at optional maturity dates, the
25     maturity date shall be deemed to be the latest date for which
26     election shall be permitted by the contract, but shall not be
27     deemed to be later than the anniversary of the contract next
28     following the annuitant's seventieth birthday or the tenth
29     anniversary of the contract, whichever is later.
30     (9) Disclosure of Limited Death Benefits. A contract that
31     does not provide cash surrender benefits or does not provide
32     death benefits at least equal to the minimum nonforfeiture
33     amount prior to the commencement of any annuity payments shall
34     include a statement in a prominent place in the contract that
35     such benefits are not provided.
36     (10) Inclusion of Lapse of Time Considerations. Any paid-up

 

 

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1     annuity, cash surrender or death benefits available at any
2     time, other than on the contract anniversary under any contract
3     with fixed scheduled considerations, shall be calculated with
4     allowance for the lapse of time and the payment of any
5     scheduled considerations beyond the beginning of the contract
6     year in which cessation of payment of considerations under the
7     contract occurs.
8     (11) Proration of Values; Additional Benefits. For a
9     contract which provides, within the same contract by rider or
10     supplemental contract provision, both annuity benefits and
11     life insurance benefits that are in excess of the greater of
12     cash surrender benefits or a return of the gross considerations
13     with interest, the minimum nonforfeiture benefits shall be
14     equal to the sum of the minimum nonforfeiture benefits for the
15     annuity portion and the minimum nonforfeiture benefits, if any,
16     for the life insurance portion computed as if each portion were
17     a separate contract. Notwithstanding the provisions of
18     Sections 5, 6, 7, 8 and 10, additional benefits payable in the
19     event of total and permanent disability, as reversionary
20     annuity or deferred reversionary annuity benefits, or as other
21     policy benefits additional to life insurance, endowment and
22     annuity benefits, and considerations for all such additional
23     benefits, shall be disregarded in ascertaining the minimum
24     nonforfeiture amounts, paid-up annuity, cash surrender and
25     death benefits that may be required under this Section. The
26     inclusion of such benefits shall not be required in any paid-up
27     benefits, unless the additional benefits separately would
28     require minimum nonforfeiture amounts, paid-up annuity, cash
29     surrender and death benefits.
30     (12) Rules. The Director may adopt rules to implement the
31     provisions of this Section.
32     (13) Effective Date. After the effective date of this
33     Section, a company may elect to apply its provisions to annuity
34     contracts on a contract form-by-contract form basis before
35     the_effective date of this Section. In all other instances,
36     this Act shall become operative with respect to annuity

 

 

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1     contracts issued by_ the company after July 1, 2006.
2     (1) No contract of annuity issued on or after the operative
3 date of this Section except as stated in subsection (11) shall
4 be delivered or issued for delivery in this State unless it
5 contains in substance the following provisions or
6 corresponding provisions which in the opinion of the Director
7 are at least as favorable to the contract holder upon cessation
8 of payment of considerations under the contract:
9         (a) That upon cessation of payment of considerations
10     under a contract, the company will grant a paid-up annuity
11     benefit on a plan stipulated in the contract of such value
12     as is specified in subsections (3), (4), (5), (6) and (8).
13         (b) If a contract provides for a lump sum settlement at
14     maturity, or at any other time, that upon surrender of the
15     contract at or prior to the commencement of any annuity
16     payments, the company will pay in lieu of any paid-up
17     annuity benefit a cash surrender benefit of such amount as
18     is specified in subsections (3), (4), (6) and (8). The
19     company shall reserve the right to defer the payment of
20     such cash surrender benefit for a period of 6 months after
21     demand therefor with surrender of the contract.
22         (c) A statement of the mortality table, if any, and
23     interest rates used in calculating any minimum paid-up
24     annuity, cash surrender or death benefits that are
25     guaranteed under the contract, together with sufficient
26     information to determine the amount of such benefits.
27         (d) A statement that any paid-up annuity, cash
28     surrender or death benefits that may be available under the
29     contract are not less than the minimum benefits required by
30     any statute of the state in which the contract is delivered
31     and an explanation of the manner in which such benefits are
32     altered by the existence of any additional amounts credited
33     by the company to the contract, any indebtedness to the
34     company on the contract or any prior withdrawals from or
35     partial surrenders of the contract.
36     Notwithstanding the requirements of this subsection, any

 

 

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1 deferred annuity contract may provide that if no considerations
2 have been received under a contract for a period of 2 full
3 years and the portion of the paid-up annuity benefit at
4 maturity on the plan stipulated in the contract arising from
5 considerations paid prior to such period would be less than
6 $20.00 monthly, the company may at its option terminate such
7 contract by payment in cash of the present value of such
8 portion of the paid-up annuity benefit, calculated on the basis
9 of the mortality table, if any, and interest rate specified in
10 the contract for determining the paid-up annuity benefit, and
11 by such payment shall be relieved of any further obligation
12 under such contract.
13     (2) The minimum values as specified in subsections (3),
14 (4), (5), (6) and (8) of any paid-up annuity, cash surrender or
15 death benefits available under an annuity contract shall be
16 based upon minimum nonforfeiture amounts as defined in this
17 subsection.
18         (a) With respect to contracts providing for flexible
19     considerations, the minimum nonforfeiture amount at any
20     time at or prior to the commencement of any annuity
21     payments shall be equal to an accumulation up to such time
22     at a rate of interest of 3% per annum of percentages of the
23     net considerations, as hereinafter defined, paid prior to
24     such time, decreased by the sum of (i) any prior
25     withdrawals from or partial surrenders of the contract
26     accumulated at a rate of interest of 3% per annum and (ii)
27     the amount of any indebtedness to the company on the
28     contract, including interest due and accrued, and
29     increased by any existing additional amounts credited by
30     the company to the contract.
31         The net considerations for a given contract year used
32     to define the minimum nonforfeiture amount shall be an
33     amount not less than zero and shall be equal to the
34     corresponding gross considerations credited to the
35     contract during that contract year less an annual contract
36     charge of $30.00 and less a collection charge of $1.25 per

 

 

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1     consideration credited to the contract during that
2     contract year. The percentages of net considerations shall
3     be 65% of the net consideration for the first contract year
4     and 87 1/2% of the net considerations for the second and
5     later contract years. Notwithstanding the provisions of
6     the preceding sentence, the percentage shall be 65% of the
7     portion of the total net consideration for any renewal
8     contract year which exceeds by not more than two times the
9     sum of those portions of the net considerations in all
10     prior contract years for which the percentage was 65%.
11         (a-5) Notwithstanding the provisions of paragraph (a)
12     of this subsection, the minimum nonforfeiture amount for
13     any contract issued on or after July 1, 2002 and before
14     July 1, 2005 shall be based on a rate of interest of 1.5%
15     per annum.
16         (b) With respect to contracts providing for fixed
17     scheduled considerations, minimum nonforfeiture amounts
18     shall be calculated on the assumption that considerations
19     are paid annually in advance and shall be defined as for
20     contracts with flexible considerations which are paid
21     annually, with two exceptions:
22             (i) The portion of the net consideration for the
23         first contract year to be accumulated shall be the sum
24         of 65% of the net consideration for the first contract
25         year plus 22 1/2% of the excess of the net
26         consideration for the first contract year over the
27         lesser of the net considerations for the second and
28         third contract years.
29             (ii) The annual contract charge shall be the lesser
30         of (A) $30.00 or (B) 10% of the gross annual
31         consideration.
32         (c) With respect to contracts providing for a single
33     consideration, minimum nonforfeiture amounts shall be
34     defined as for contracts with flexible considerations
35     except that the percentage of net consideration used to
36     determine the minimum nonforfeiture amount shall be equal

 

 

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1     to 90% and the net consideration shall be the gross
2     consideration less a contract charge of $75.00.
3     (3) Any paid-up annuity benefit available under a contract
4 shall be such that its present value on the date annuity
5 payments are to commence is at least equal to the minimum
6 nonforfeiture amount on that date. Such present value shall be
7 computed using the mortality table, if any, and the interest
8 rate specified in the contract for determining the minimum
9 paid-up annuity benefits guaranteed in the contract.
10     (4) For contracts which provide cash surrender benefits,
11 such cash surrender benefits available prior to maturity shall
12 not be less than the present value as of the date of surrender
13 of that portion of the maturity value of the paid-up annuity
14 benefit which would be provided under the contract at maturity
15 arising from considerations paid prior to the time of cash
16 surrender reduced by the amount appropriate to reflect any
17 prior withdrawals from or partial surrenders of the contract,
18 such present value being calculated on the basis of an interest
19 rate not more than 1% higher than the interest rate specified
20 in the contract for accumulating the net considerations to
21 determine such maturity value, decreased by the amount of any
22 indebtedness to the company on the contract, including interest
23 due and accrued, and increased by any existing additional
24 amounts credited by the company to the contract. In no event
25 shall any cash surrender benefit be less than the minimum
26 nonforfeiture amount at that time. The death benefit under such
27 contracts shall be at least equal to the cash surrender
28 benefit.
29     (5) For contracts which do not provide cash surrender
30 benefits, the present value of any paid-up annuity benefit
31 available as a nonforfeiture option at any time prior to
32 maturity shall not be less than the present value of that
33 portion of the maturity value of the paid-up benefit provided
34 under the contract arising from considerations paid prior to
35 the time of the contract is surrendered in exchange for, or
36 changed to, a deferred paid-up annuity, such present value

 

 

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1 being calculated for the period prior to the maturity date on
2 the basis of the interest rate specified in the contract for
3 accumulating the net considerations to determine such maturity
4 value, and increased by any existing additional amounts
5 credited by the company to the contract. For contracts which do
6 not provide any death benefits prior to the commencement of any
7 annuity payments, such present values shall be calculated on
8 the basis of such interest rate and the mortality table
9 specified in the contract for determining the maturity value of
10 the paid-up annuity benefit. However, in no event shall the
11 present value of a paid-up annuity benefit be less than the
12 minimum nonforfeiture amount at that time.
13     (6) For the purpose of determining the benefits calculated
14 under subsections (4) and (5), in the case of annuity contracts
15 under which an election may be made to have annuity payments
16 commence at optional maturity dates, the maturity date shall be
17 deemed to be the latest date for which election shall be
18 permitted by the contract, but shall not be deemed to be later
19 than the anniversary of the contract next following the
20 annuitant's seventieth birthday or the tenth anniversary of the
21 contract, whichever is later.
22     (7) Any contract which does not provide cash surrender
23 benefits or does not provide death benefits at least equal to
24 the minimum nonforfeiture amount prior to the commencement of
25 any annuity payments shall include a statement in a prominent
26 place in the contract that such benefits are not provided.
27     (8) Any paid-up annuity, cash surrender or death benefits
28 available at any time, other than on the contract anniversary
29 under any contract with fixed scheduled considerations, shall
30 be calculated with allowance for the lapse of time and the
31 payment of any scheduled considerations beyond the beginning of
32 the contract year in which cessation of payment of
33 considerations under the contract occurs.
34     (9) For any contract which provides, within the same
35 contract by rider or supplemental contract provision, both
36 annuity benefits and life insurance benefits that are in excess

 

 

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1 of the greater of cash surrender benefits or a return of the
2 gross considerations with interest, the minimum nonforfeiture
3 benefits shall be equal to the sum of the minimum nonforfeiture
4 benefits for the annuity portion and the minimum nonforfeiture
5 benefits, if any, for the life insurance portion computed as if
6 each portion were a separate contract. Notwithstanding the
7 provisions of subsections (3), (4), (5), (6) and (8),
8 additional benefits payable (a) in the event of total and
9 permanent disability, (b) as reversionary annuity or deferred
10 reversionary annuity benefits, or (c) as other policy benefits
11 additional to life insurance, endowment, and annuity benefits,
12 and considerations for all such additional benefits, shall be
13 disregarded in ascertaining the minimum nonforfeiture amounts,
14 paid-up annuity, cash surrender and death benefits that may be
15 required by this section. The inclusion of such additional
16 benefits shall not be required in any paid-up benefits, unless
17 such additional benefits separately would require minimum
18 nonforfeiture amounts, paid-up annuity, cash surrender and
19 death benefits.
20     (10) After the effective date of this Section, any company
21 may file with the Director a written notice of its election to
22 comply with the provisions of this Section after a specified
23 date before the second anniversary of the effective date of
24 this Section. After the filing of such notice, then upon such
25 specified date, which shall be the operative date of this
26 section for such company, this Section shall become operative
27 with respect to annuity contracts thereafter issued by such
28 company. If a company makes no such election, the operative
29 date of this section for such company shall be the second
30 anniversary of the effective date of this Section.
31     (11) This Section shall not apply to any reinsurance, group
32 annuity purchased under a retirement plan or plan of deferred
33 compensation established or maintained by an employer
34 (including a partnership or sole proprietorship) or by an
35 employee organization, or by both, other than a plan providing
36 individual retirement accounts or individual retirement

 

 

SB2439 - 14 - LRB093 17013 SAS 42674 b

1 annuities under Section 408 of the Internal Revenue Code, as
2 now or hereafter amended, premium deposit fund, variable
3 annuity, investment annuity, immediate annuity, any deferred
4 annuity contract after annuity payments have commenced, or
5 reversionary annuity, nor to any contract which shall be
6 delivered outside this State through an agent or other
7 representative of the company issuing the contract.
8 (Source: P.A. 92-541, eff. 7-1-02.)