CHAPTER 299
(SB 148)
Nonforfeiture statute for individual deferred annuities.
ENTITLED, An Act to
repeal and reenact the standard nonforfeiture statute for individual deferred
annuities.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF SOUTH DAKOTA:
Section
1.
That
§
§
58-15-72 to 58-15-81, inclusive, be repealed.
Section
2.
That chapter
58-15
be amended by adding thereto a NEW SECTION to read as
follows:
This Act does 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 amended to January 1, 1977, 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 which shall be delivered
outside this state through an agent or other representative of the company issuing the contract.
Section
3.
That chapter
58-15
be amended by adding thereto a NEW SECTION to read as
follows:
In the case of contracts issued on or after the operative date of this Act as defined in section
13 of this Act, no contract of annuity, except as stated in section 2 of this Act, may be delivered
or issued for delivery in this state unless it contains in substance the following provisions, or
corresponding provisions which in the opinion of the director are at least as favorable to the
contract holder, upon cessation of payment of considerations under the contract:
(1) That upon cessation of payment of considerations under a contract, or upon the written
request of the contract owner, the company shall grant a paid-up annuity benefit on a
plan stipulated on the contract of such value as is specified in sections 5, 6, 7, 8, and 10
of this Act;
(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 shall pay in lieu of a paid-up annuity benefit a cash surrender
benefit of such amount as is specified in sections 5, 6, 8, and 10 of this Act. The
company may reserve the right to defer the payment of the cash surrender benefit for a
period not to exceed six months after demand therefor with surrender of the contract
after making written request and receiving written approval of the director. The request
shall address the necessity and equitability to all policyholders of the deferral;
(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 the
benefits; and
(4) 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 the benefits are altered by the existence of any additional amounts credited by
the company to the contract, and indebtedness to the company on the contact, or any
prior withdrawals from or partial surrenders of the contract.
Notwithstanding the requirements of this section, a 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
prior considerations paid would be less than twenty dollars monthly, the company may, at its
option, terminate the contract by payment in cash of the then present value of the portion of the
paid-up annuity benefit, calculated on the basis on the mortality table, if any, and interest rate
specified in the contract for determining the paid-up annuity benefit, and by this payment shall be
relieved of any further obligation under the contract.
Section
4.
That chapter
58-15
be amended by adding thereto a NEW SECTION to read as
follows:
The minimum values as specified in sections 5, 6, 7, 8, and 10 of this Act 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) 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 the second paragraph of this section of considerations (as hereinafter
defined) paid prior to such time, decreased by the sum of the following:
(a) Any prior withdrawals from or partial surrenders of the contract accumulated at
rates of interest as indicated in the second paragraph of this section; and
(b) An annual contract charge of fifty dollars accumulated at rates of interest as
indicated in second paragraph of this section;
(c) Any premium tax paid by the company for the contract, accumulated at rates of
interest as indicated in second paragraph of this section; and
(d) The amount of any indebtedness to the company on the contract, including
interest due and accrued;
(2) The net considerations for a given contract year used to define the minimum
nonforfeiture amount shall be an amount equal to eighty-seven and one-half percent of
the gross considerations credited to the contract during that contract year.
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 rate will be reset:
(1) 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 fifteen months prior to the contract issue date
or redetermination date pursuant to this section;
(2) Reduced by one hundred twenty-five basis points;
(3) Where the resulting interest rate is not less than one percent; and
(4) 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 each redetermination date.
During the period or term that a contract provides substantive participation in an equity
indexed benefit, it may increase the reduction described above by up to an additional one hundred
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 may not exceed the
market value of the benefit. The director 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 director, the director may disallow or limit the additional reduction.
The director may promulgate rules pursuant to chapter 1-26 to implement the provisions of this
section 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 director determines adjustments are justified.
Section
5.
That chapter
58-15
be amended by adding thereto a NEW SECTION to read as
follows:
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. Present value shall be computed using the mortality table, if any, and the interest rates
specified in the contract for determining the minimum paid-up annuity benefits guaranteed in the
contract.
Section
6.
That chapter
58-15
be amended by adding thereto a NEW SECTION to read as
follows:
For contracts that provide cash surrender benefits, the cash surrender benefits available prior
to maturity may 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 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 may 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.
Section
7.
That chapter
58-15
be amended by adding thereto a NEW SECTION to read as
follows:
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 may 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 value 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 maturity value, and increased by any 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, present values 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 may the present value of
a paid-up annuity benefit be less than the minimum nonforfeiture amount at that time.
Section
8.
That chapter
58-15
be amended by adding thereto a NEW SECTION to read as
follows:
For the purpose of determining the benefits calculated under sections 6 and 7 of this Act, in
the case of annuity contracts under which an 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 may not be deemed to be later than the
anniversary of the contract next following the annuitant's seventieth birthday or the tenth
anniversary of the contract, whichever is later.
Section
9.
That chapter
58-15
be amended by adding thereto a NEW SECTION to read as
follows:
A 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.
Section
10.
That chapter
58-15
be amended by adding thereto a NEW SECTION to read as
follows:
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.
Section
11.
That chapter
58-15
be amended by adding thereto a NEW SECTION to read as
follows:
For a contract which 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 sections 5, 6, 7, 8, and 10 of
this Act, additional benefits payable in the event of total and permanent disability, as reversionary
annuity or deferred reversionary annuity benefits, 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-up annuity, cash
surrender, and death benefits that may be required by this Act. The inclusion of such benefits may
not be required in any paid-up benefits, unless the additional benefits separately would require
minimum nonforfeiture amounts, paid-up annuity, cash surrender, and death benefits.
Section
12.
That chapter
58-15
be amended by adding thereto a NEW SECTION to read as
follows:
After the effective date of this Act, a company may elect to apply its provisions to annuity
contracts on a contract form-by-contract form basis before the second anniversary of the effective
date of this Act. In all other instances, this Act shall become operative with respect to annuity
contracts issued by the company after the second anniversary of this Act.
Signed February 25, 2004.