PRINTER'S NO. 2545
No. 2013 Session of 1979
INTRODUCED BY VROON AND F. TAYLOR, NOVEMBER 28, 1979
REFERRED TO COMMITTEE ON INSURANCE, NOVEMBER 28, 1979
AN ACT
1 Amending the act of May 17, 1921 (P.L.682, No.284), entitled "An
2 act relating to insurance; amending, revising, and
3 consolidating the law providing for the incorporation of
4 insurance companies, and the regulation, supervision, and
5 protection of home and foreign insurance companies, Lloyds
6 associations, reciprocal and inter-insurance exchanges, and
7 fire insurance rating bureaus, and the regulation and
8 supervision of insurance carried by such companies,
9 associations, and exchanges, including insurance carried by
10 the State Workmen's Insurance Fund; providing penalties; and
11 repealing existing laws," further providing for uniform
12 policy provisions for contracts of annuities and pure
13 endowment contracts and providing for policy provisions for
14 individual deferred annuitants.
15 The General Assembly of the Commonwealth of Pennsylvania
16 hereby enacts as follows:
17 Section 1. Subsection (f) of section 410B, act of May 17,
18 1921 (P.L.682, No.284), known as "The Insurance Company Law of
19 1921," added July 17, 1935 (P.L.1116, No.358) is amended to
20 read:
21 Section 410B. Uniform Provisions for Contracts of Annuities
22 and Pure Endowment Contracts.--No annuity or pure endowment
23 contract shall be delivered in this Commonwealth, except
1 policies of industrial insurance where the premiums are payable
2 monthly or oftener, and except in the case of a reversionary
3 annuity, otherwise called a survivorship annuity, or an annuity
4 contracted by an employer in behalf of his employes, unless it
5 contains in substance the following provisions:
6 * * *
7 (f) [A provision that, if the contract, after having been in
8 force for three full years, shall by its terms lapse or become
9 forfeited because any stipulated payment to the company shall
10 not have been made, the reserve on such contract, computed
11 according to the standard adopted by said company in accordance
12 with section three hundred and one of this act shall, after
13 deducting one-fifth of the said entire reserve and any
14 indebtedness to the company under the contract, be applied as a
15 net single payment according to said standard for the purchase
16 of a paid up annuity or pure endowment contract, which may be
17 nonparticipating and which shall be payable by the company under
18 the same terms and conditions, except as to amount of the
19 original contract. A company may provide, in lieu of said paid
20 up values, for a paid up annuity or pure endowment contract in
21 an amount bearing the same proportion to the original annuity or
22 pure endowment contract as the number of stipulated payments,
23 which shall have been made to the company, shall bear to the
24 total number of stipulated payments required to be made to the
25 company under the contract, and if there be any indebtedness to
26 the company under the contract, the amount of such paid up
27 annuity or pure endowment shall be reduced by an amount bearing
28 the same proportion to such paid up annuity or pure endowment as
29 such indebtedness bears to the reserve on such paid up annuity
30 or pure endowment, computed according to the standard adopted by
19790H2013B2545 - 2 -
1 said company in accordance with section three hundred and one of
2 an act, approved the seventeenth day of May, one thousand nine
3 hundred and twenty-one (Pamphlet Laws, seven hundred and eighty-
4 nine), as amended;] A provision specifying the options available
5 upon cessation of payment of considerations under the contract:
6 (1) In the case of a contract issued prior to the effective
7 date of this amendatory act, such contract shall specify that,
8 if the contract, after having been in force for three full
9 years, shall by its terms lapse or become forfeited because any
10 stipulated payment to the company shall not have been made, the
11 reserve on such contract, computed according to the standard
12 adopted by said in accordance with section three hundred and one
13 of this act shall, after deducting one-fifth of the said entire
14 reserve and any indebtedness to the company under the contract,
15 be applied as a net single payment according to said standard
16 for the purchase of a paid up annuity or pure endowment
17 contract, which may be nonparticipating and which shall be
18 payable by the company under the same terms and conditions,
19 except as to amount of the original contract. A company may
20 provide, in lieu of said paid up values, for a paid annuity or
21 pure endowment contract in an amount bearing the same proportion
22 to the original annuity or pure endowment contract as the number
23 of stipulated payments, which shall have been made to the
24 company, shall bear to the total number of stipulated payments
25 required to be made to the company under the contract, and if
26 there be any indebtedness to the company under the contract, the
27 amount of such paid up annuity to endowment as such indebtedness
28 bears to the reserve on such paid up annuity or pure endowment,
29 computed according to the standard adopted by said company in
30 accordance with section three hundred and one of an act,
19790H2013B2545 - 3 -
1 approved the seventeenth day of May, one thousand nine hundred
2 and twenty-one (Pamphlet Laws, seven hundred and eighty-nine),
3 as amended; or
4 (2) In the case of contracts issued on or after the
5 effective date of this amendatory act, that shall be in
6 accordance with section 410C.
7 * * *
8 Section 2. The act is amended by adding a section to read:
9 Section 410C. Nonforfeiture Provisions for Individual
10 Deferred Annuities.--(a) This section shall not apply to any
11 reinsurance, group annuity purchased under a retirement plan or
12 plan of deferred compensation established or maintained by an
13 employer (including a partnership or sole proprietorship) or by
14 an employe organization, or by both, other than a plan providing
15 individual retirement accounts or individual retirement
16 annuities under section 408 of the Internal Revenue Code, as now
17 or hereafter amended, premium deposit fund, variable annuity,
18 investment annuity, immediate annuity, any deferred annuity
19 contract after annuity payments have commenced, or reversionary
20 annuity, nor to any contract which shall be delivered outside
21 this State through an agent or other representative of the
22 company issuing the contract.
23 (b) In the case of contracts issued on or after the
24 effective date of this amendatory act and in accordance with
25 subsection (a) no contract of annuity, except as stated in
26 subsection (a) shall be delivered or issued for delivery in this
27 State unless it contains in substance the following provisions,
28 or corresponding provisions which in the opinion of the
29 commissioner are at least as favorable to the contract holder,
30 upon cessation of payment of considerations under the contract:
19790H2013B2545 - 4 -
1 (1) That upon cessation of payment of considerations under a
2 contract, the company will grant a paid-up annuity benefit on a
3 plan stipulated in the contract of such value as is specified in
4 subsections (d), (e), (f), (g) and (i).
5 (2) If a contract provides for a lump sum settlement at
6 maturity, or at any other time, that upon surrender of the
7 contract at or prior to the commencement of any annuity
8 payments, the company will pay in lieu of any paid-up annuity
9 benefit a cash surrender benefit of such amount as is specified
10 in subsections (d), (e), (g) and (i). The company shall reserve
11 the right to defer the payment of such cash surrender benefit
12 for a period of six months after demand therefor with surrender
13 of the contract.
14 (3) A statement of the mortality table, if any, and interest
15 rates used in calculating any minimum paid-up annuity, cash
16 surrender or death benefits that are guaranteed under the
17 contract, together with sufficient information to determine the
18 amounts of such benefits.
19 (4) A statement that any paid-up annuity, cash surrender, or
20 death benefits that may be available under the contract are not
21 less than the minimum benefits required by any statute of the
22 state in which the contract is delivered and an explanation of
23 the manner in which such benefits are altered by the existence
24 of any additional amounts credited by the company to the
25 contract, any indebtedness to the company on the contract or any
26 prior withdrawals from or partial surrenders of the contract.
27 (5) Notwithstanding the requirements of this subsection, any
28 deferred annuity contract may provide that if no considerations
29 have been received under a contract for a period of two full
30 years and the portion of the paid-up annuity benefit at maturity
19790H2013B2545 - 5 -
1 on the plan stipulated in the contract arising from
2 considerations paid prior to such period would be less than
3 twenty dollars ($20) monthly, the company may at its option
4 terminate such contract by payment in cash of the then present
5 value of such portion of the paid-up annuity benefit, calculated
6 on the basis of the mortality table, if any, and interest rate
7 specified in the contract for determining the paid-up annuity
8 benefit, and by such payment shall be relieved of any further
9 obligation under such contract.
10 (c) The minimum values as specified in subsections (d), (e),
11 (f), (g) and (i) of any paid-up annuity, cash surrender or death
12 benefits available under an annuity contract shall be based upon
13 minimum nonforfeiture amounts calculated in accordance with the
14 following formulae:
15 (1) With respect to contracts providing for flexible
16 considerations, the minimum nonforfeiture amount at any time at
17 or prior to the commencement of any annuity payments shall be
18 equal to an accumulation up to such time at a rate of interest
19 of three per centum per annum of percentages of the net
20 considerations (as hereinafter defined) paid prior to such time,
21 decreased by the sum of;
22 (i) any prior withdrawals from or partial surrenders of the
23 contract accumulated at a rate of interest of three per centum
24 per annum; and
25 (ii) the amount of any indebtedness to the company on the
26 contract, including interest due and accrued,
27 and increased by any existing additional amounts credited by the
28 company to the contract.
29 The net considerations for a given contract year used to
30 define the minimum nonforfeiture amount shall be an amount not
19790H2013B2545 - 6 -
1 less than zero and shall be equal to the corresponding gross
2 considerations credited to the contract during that contract
3 year less an annual contract charge of thirty dollars ($30) and
4 less a collection charge of one dollar and twenty-five cents
5 ($1.25) per consideration credited to the contract during that
6 contract year. The percentages of net considerations shall be
7 sixty-five per centum of the net considerations for the first
8 contract year and eighty-seven and one-half per centum of the
9 net considerations for the second and later contract years.
10 Notwithstanding the provisions of the preceding sentence, the
11 percentage shall be sixty-five per centum of the portion of the
12 total net consideration for any renewal contract year which
13 exceeds by not more than two times the sum of those portions of
14 the net considerations in all prior contract years for which the
15 percentage was sixty-five per centum.
16 (2) With respect to contracts providing for fixed scheduled
17 considerations, minimum nonforfeiture amounts shall be
18 calculated on the assumption that considerations are paid
19 annually in advance and shall be defined as for contracts with
20 flexible considerations which are paid annually with two
21 exceptions:
22 (i) The portion of the net consideration for the first
23 contract year to be accumulated shall be the sum of sixty-five
24 per centum of the net consideration for the first contract year
25 plus twenty-two and one-half per centum of the excess of the net
26 consideration for the first contract year over the lesser of the
27 net considerations for the second and third contract years.
28 (ii) The annual contract charge shall be the lesser of (A)
29 thirty dollars ($30) or (B) ten per centum of the gross annual
30 considerations.
19790H2013B2545 - 7 -
1 (3) With respect to contracts providing for a single
2 consideration, minimum amount shall be defined as for contracts
3 with flexible considerations except that the percentage of net
4 consideration used to determine the minimum nonforfeiture amount
5 shall be equal to ninety per centum and the net consideration
6 shall be the gross consideration less a contract charge of
7 seventy-five dollars ($75).
8 (d) Any paid-up annuity benefit available under a contract
9 shall be such that its present value on the date of annuity
10 payments are to commence is at least equal to the minimum
11 nonforfeiture amount on that date. Such present value shall be
12 computed using the mortality table, if any, and the interest
13 rate specified in the contract for determining the minimum paid-
14 up benefits guaranteed in the contract.
15 (e) For contracts which provide cash surrender benefits,
16 such cash surrender benefits available prior to maturity shall
17 not be less than the present value as of the date of surrender
18 of that portion of the maturity value of the paid-up annuity
19 benefit which would be provided under the contract at maturity
20 arising from considerations paid prior to the time of cash
21 surrender reduced by the amount appropriate to reflect any prior
22 withdrawals from or partial surrenders of the contract, such
23 present value being calculated on the basis of an interest rate
24 not more than one per centum higher than the interest rate
25 specified in the contract for accumulating the net
26 considerations to determine such maturity value, decreased by
27 the amount of any indebtedness to the company on the contract,
28 including interest due and accrued, and increased by any
29 existing additional amounts credited by the company to the
30 contract. In no event shall any cash surrender benefit be less
19790H2013B2545 - 8 -
1 than the minimum nonforfeiture amount at that time. The death
2 benefit under such contracts shall be at least equal to the cash
3 surrender benefit.
4 (f) For contracts which do not provide cash surrender
5 benefits, the present value of any paid-up annuity benefit
6 available as a nonforfeiture option at any time prior to
7 maturity shall not be less than the present value of that
8 portion of the maturity value of the paid-up annuity benefit
9 provided under the contract arising from considerations paid
10 prior to the time the contract is surrendered in exchange for,
11 or changed to, a deferred paid-up annuity, such present value
12 being calculated for the period prior to that maturity date on
13 the basis of the interest rate specified in the contract for
14 accumulating the net considerations to determine such maturity
15 value, and increased by any existing additional amounts credited
16 by the company to the contract. For contracts which do not
17 provide any death benefits prior to the commencement of any
18 annuity payments, such present values shall be calculated on the
19 basis of such interest rate and the mortality table specified in
20 the contract for determining the maturity value of the paid-up
21 annuity benefit: Provided, however, That in no event shall the
22 present value of a paid-up annuity benefit be less than the
23 minimum nonforfeiture amount at that time.
24 (g) For the purpose of determining the benefits calculated
25 under subsections (e) and (f) in the case of annuity contracts
26 under which an election may be made to have annuity payments
27 commence at optional maturity dates, the maturity date shall be
28 deemed to be the latest date for which election shall be
29 permitted by the contract, but shall not be deemed to be later
30 than the anniversary of the contract next following the
19790H2013B2545 - 9 -
1 annuitant's seventieth birthday or the tenth anniversary of the
2 contract, whichever is later.
3 (h) Any contract which does not provide cash surrender
4 benefits or does not provide death benefits at least equal to
5 the minimum nonforfeiture amount prior to the commencement of
6 any annuity payments shall include a statement in a prominent
7 place in the contract that such benefits are not provided.
8 (i) Any paid-up annuity, cash surrender or death benefits
9 available at any time, other than on the contract anniversary
10 under any contract with fixed scheduled considerations, shall be
11 calculated with allowance for the lapse of time and the payment
12 of any scheduled considerations beyond the beginning of the
13 contract year in which cessation of payment of considerations
14 under the contract occurs.
15 (j) For any contract, which provides, within the same
16 contract by rider or supplemental contract provision, both
17 annuity benefits and life insurance benefits that are in excess
18 of the greater of cash surrender benefits or a return of the
19 gross considerations with interest, the minimum nonforfeiture
20 benefits shall be equal to the sum of the minimum nonforfeiture
21 benefits for the annuity portion and the minimum nonforfeiture
22 benefits, if any, for the life insurance portion computed as if
23 each portion were a separate contract. Notwithstanding the
24 provisions of subsections (d), (e), (f), (g) and (i), additional
25 benefits payable (1) in the event of total and permanent
26 disability, (2) as reversionary annuity or deferred reversionary
27 annuity benefits, or (3) as other policy benefits additional to
28 life insurance, endowment and annuity benefits, and
29 considerations for all such additional benefits, shall be
30 disregarded in ascertaining the minimum nonforfeiture amounts,
19790H2013B2545 - 10 -
1 paid-up annuity, cash surrender and death benefits that may be
2 required by this section. The inclusion of such additional
3 benefits shall not be required in any paid-up benefits, unless
4 such additional benefits separately would require minimum
5 nonforfeiture amounts, paid-up annuity, cash surrender and death
6 benefits.
7 (k) After the effective date of this amendatory act, any
8 company may file with the commissioner a written notice of its
9 election to comply with the provisions of this section after a
10 specified date before the second anniversary of the effective
11 date of this amendatory act. After the filing of such notice,
12 then upon such specified date, this section shall control with
13 respect to annuity contracts thereafter issued by such company.
14 If a company makes no such election, this section shall control
15 with respect to annuity contracts issued by such company on and
16 after two years following the effective date of this amendatory
17 act.
18 Section 3. This act shall take effect immediately.
J5L37WMB/19790H2013B2545 - 11 -