CONTINGENT DEFERRED ANNUITIES

Illinois General Assembly - Full Text of SB2872

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SB2872 - 104th General Assembly

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SB2872 Enrolled
LRB104 16830 BAB 30239 b
1

AN ACT concerning regulation.

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 229.4a as follows:

6

(215 ILCS 5/229.4a)
7

Sec. 229.4a.
Standard Nonforfeiture Law for Individual
8
Deferred Annuities.
9

(1) Title. This Section shall be known as the Standard
10
Nonforfeiture Law for Individual Deferred Annuities.
11

(2) Applicability.
12

(A)
This Section shall not apply to any reinsurance,
13

group annuity purchased under a retirement plan or plan of
14

deferred compensation established or maintained by an
15

employer (including a partnership or sole proprietorship)
16

or by an employee organization, or by both, other than a
17

plan providing individual retirement accounts or
18

individual retirement annuities under Section 408 of the
19

Internal Revenue Code, as now or hereafter amended,
20

premium deposit fund, variable annuity, investment
21

annuity, immediate annuity, any deferred annuity contract
22

after annuity payments have commenced, or reversionary
23

annuity, nor to any contract which shall be delivered

SB2872 Enrolled
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LRB104 16830 BAB 30239 b
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outside this State through an agent or other
2

representative of the company issuing the contract.
3

(B) Subsections (3) through (8) shall not apply to
4

contingent deferred annuities. Notwithstanding this
5

exemption, the Director shall have the authority to adopt,
6

by rule, nonforfeiture benefits for contingent deferred
7

annuities that are, in the opinion of the Director,
8

equitable to the contract holder, appropriate given the
9

risks insured, and, to the extent possible, consistent
10

with the general intent of this Section.

11

(3) Nonforfeiture Requirements.
12

(A) In the case of contracts issued on or after the
13

operative date of this Section as defined in subsection
14

(13), no contract of annuity, except as stated in
15

subsection (2), shall be delivered or issued for delivery
16

in this State unless it contains in substance the
17

following provisions, or corresponding provisions which in
18

the opinion of the Director of Insurance are at least as
19

favorable to the contract holder, upon cessation of
20

payment of considerations under the contract:
21

(i) That upon cessation of payment of
22

considerations under a contract, or upon the written
23

request of the contract owner, the company shall grant
24

a paid-up annuity benefit on a plan stipulated in the
25

contract of such value as is specified in subsections
26

(5), (6), (7), (8), and (10);

SB2872 Enrolled
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LRB104 16830 BAB 30239 b
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(ii) If a contract provides for a lump sum
2

settlement at maturity, or at any other time, that
3

upon surrender of the contract at or prior to the
4

commencement of any annuity payments, the company
5

shall pay in lieu of a paid-up annuity benefit a cash
6

surrender benefit of such amount as is specified in
7

subsections (5), (6), (8), and (10). The company may
8

reserve the right to defer the payment of the cash
9

surrender benefit for a period not to exceed 6 months
10

after demand therefor with surrender of the contract
11

after making written request and receiving written
12

approval of the Director. The request shall address
13

the necessity and equitability to all policyholders of
14

the deferral;
15

(iii) A statement of the mortality table, if any,
16

and interest rates used calculating any minimum
17

paid-up annuity, cash surrender, or death benefits
18

that are guaranteed under the contract, together with
19

sufficient information to determine the amounts of the
20

benefits; and
21

(iv) A statement that any paid-up annuity, cash
22

surrender, or death benefits that may be available
23

under the contract are not less than the minimum
24

benefits required by any statute of the state in which
25

the contract is delivered and an explanation of the
26

manner in which the benefits are altered by the

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LRB104 16830 BAB 30239 b
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existence of any additional amounts credited by the
2

company to the contract, any indebtedness to the
3

company on the contract, or any prior withdrawals from
4

or partial surrenders of the contract.
5

(B) Notwithstanding the requirements of this Section,
6

a deferred annuity contract may provide that if no
7

considerations have been received under a contract for a
8

period of 2 full years and the portion of the paid-up
9

annuity benefit at maturity on the plan stipulated in the
10

contract arising from prior considerations paid would be
11

less than $20 monthly, the company may at its option
12

terminate the contract by payment in cash of the then
13

present value of the portion of the paid-up annuity
14

benefit, calculated on the basis on the mortality table,
15

if any, and interest rate specified in the contract for
16

determining the paid-up annuity benefit, and by this
17

payment shall be relieved of any further obligation under
18

the contract.
19

(4) Minimum values. The minimum values as specified in
20
subsections (5), (6), (7), (8), and (10) of any paid-up
21
annuity, cash surrender, or death benefits available under an
22
annuity contract shall be based upon minimum nonforfeiture
23
amounts as defined in this subsection.
24

(A)(i) The minimum nonforfeiture amount at any time at
25

or prior to the commencement of any annuity payments shall
26

be equal to an accumulation up to such time at rates of

SB2872 Enrolled
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LRB104 16830 BAB 30239 b
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interest as indicated in subdivision (4)(B) of the net
2

considerations (as hereinafter defined) paid prior to such
3

time, decreased by the sum of paragraphs (a) through (d)
4

below:
5

(a) Any prior withdrawals from or partial
6

surrenders of the contract accumulated at rates of
7

interest as indicated in subdivision (4)(B);
8

(b) An annual contract charge of $50, accumulated
9

at rates of interest as indicated in subdivision
10

(4)(B);
11

(c) Any premium tax paid by the company for the
12

contract, accumulated at rates of interest as
13

indicated in subdivision (4)(B); and
14

(d) The amount of any indebtedness to the company
15

on the contract, including interest due and accrued.
16

(ii) The net considerations for a given contract year
17

used to define the minimum nonforfeiture amount shall be
18

an amount equal to 87.5% of the gross considerations,
19

credited to the contract during that contract year.
20

(B) The interest rate used in determining minimum
21

nonforfeiture amounts shall be an annual rate of interest
22

determined as the lesser of 3% per annum and the
23

following, which shall be specified in the contract if the
24

interest rate will be reset:
25

(i) The 5-year Constant Maturity Treasury Rate
26

reported by the Federal Reserve as of a date, or

SB2872 Enrolled
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LRB104 16830 BAB 30239 b
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average over a period, rounded to the nearest 1/20th
2

of one percent, specified in the contract no longer
3

than 15 months prior to the contract issue date or
4

redetermination date under subdivision (4)(B)(iv);
5

(ii) Reduced by 125 basis points;
6

(iii) Where the resulting interest rate is not
7

less than 0.15%; and
8

(iv) The interest rate shall apply for an initial
9

period and may be redetermined for additional periods.
10

The redetermination date, basis, and period, if any,
11

shall be stated in the contract. The basis is the date
12

or average over a specified period that produces the
13

value of the 5-year Constant Maturity Treasury Rate to
14

be used at each redetermination date.
15

(C) During the period or term that a contract provides
16

substantive participation in an equity indexed benefit, it
17

may increase the reduction described in subdivision
18

(4)(B)(ii) above by up to an additional 100 basis points
19

to reflect the value of the equity index benefit. The
20

present value at the contract issue date, and at each
21

redetermination date thereafter, of the additional
22

reduction shall not exceed market value of the benefit.
23

The Director may require a demonstration that the present
24

value of the additional reduction does not exceed the
25

market value of the benefit. Lacking such a demonstration
26

that is acceptable to the Director, the Director may

SB2872 Enrolled
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LRB104 16830 BAB 30239 b
1

disallow or limit the additional reduction.
2

(D) The Director may adopt rules to implement the
3

provisions of subdivision (4)(C) and to provide for
4

further adjustments to the calculation of minimum
5

nonforfeiture amounts for contracts that provide
6

substantive participation in an equity index benefit and
7

for other contracts that the Director determines
8

adjustments are justified.
9

(5) Computation of Present Value. Any paid-up annuity
10
benefit available under a contract shall be such that its
11
present value on the date annuity payments are to commence is
12
at least equal to the minimum nonforfeiture amount on that
13
date. Present value shall be computed using the mortality
14
table, if any, and the interest rates specified in the
15
contract for determining the minimum paid-up annuity benefits
16
guaranteed in the contract.
17

(6) Calculation of Cash Surrender Value. For contracts
18
that provide cash surrender benefits, the cash surrender
19
benefits available prior to maturity shall not be less than
20
the present value as of the date of surrender of that portion
21
of the maturity value of the paid-up annuity benefit that
22
would be provided under the contract at maturity arising from
23
considerations paid prior to the time of cash surrender
24
reduced by the amount appropriate to reflect any prior
25
withdrawals from or partial surrenders of the contract, such
26
present value being calculated on the basis of an interest

SB2872 Enrolled
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LRB104 16830 BAB 30239 b
1
rate not more than 1% higher than the interest rate specified
2
in the contract for accumulating the net considerations to
3
determine maturity value, decreased by the amount of any
4
indebtedness to the company on the contract, including
5
interest due and accrued, and increased by any existing
6
additional amounts credited by the company to the contract. In
7
no event shall any cash surrender benefit be less than the
8
minimum nonforfeiture amount at that time. The death benefit
9
under such contracts shall be at least equal to the cash
10
surrender benefit.
11

(7) Calculation of Paid-up Annuity Benefits. For contracts
12
that do not provide cash surrender benefits, the present value
13
of any paid-up annuity benefit available as a nonforfeiture
14
option at any time prior to maturity shall not be less than the
15
present value of that portion of the maturity value of the
16
paid-up annuity benefit provided under the contract arising
17
from considerations paid prior to the time the contract is
18
surrendered in exchange for, or changed to, a deferred paid-up
19
annuity, such present value being calculated for the period
20
prior to the maturity date on the basis of the interest rate
21
specified in the contract for accumulating the net
22
considerations to determine maturity value, and increased by
23
any additional amounts credited by the company to the
24
contract. For contracts that do not provide any death benefits
25
prior to the commencement of any annuity payments, present
26
values shall be calculated on the basis of such interest rate

SB2872 Enrolled
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LRB104 16830 BAB 30239 b
1
and the mortality table specified in the contract for
2
determining the maturity value of the paid-up annuity benefit.
3
However, in no event shall the present value of a paid-up
4
annuity benefit be less than the minimum nonforfeiture amount
5
at that time.
6

(8) Maturity Date. For the purpose of determining the
7
benefits calculated under subsections (6) and (7), in the case
8
of annuity contracts under which an election may be made to
9
have annuity payments commence at optional maturity dates, the
10
maturity date shall be deemed to be the latest date for which
11
election shall be permitted by the contract, but shall not be
12
deemed to be later than the anniversary of the contract next
13
following the annuitant's seventieth birthday or the tenth
14
anniversary of the contract, whichever is later.
15

(9) Disclosure of Limited Death Benefits. A contract that
16
does not provide cash surrender benefits or does not provide
17
death benefits at least equal to the minimum nonforfeiture
18
amount prior to the commencement of any annuity payments shall
19
include a statement in a prominent place in the contract that
20
such benefits are not provided.
21

(10) Inclusion of Lapse of Time Considerations. Any
22
paid-up annuity, cash surrender, or death benefits available
23
at any time, other than on the contract anniversary under any
24
contract with fixed scheduled considerations, shall be
25
calculated with allowance for the lapse of time and the
26
payment of any scheduled considerations beyond the beginning

SB2872 Enrolled
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LRB104 16830 BAB 30239 b
1
of the contract year in which cessation of payment of
2
considerations under the contract occurs.
3

(11) Proration of Values; Additional Benefits. For a
4
contract which provides, within the same contract by rider or
5
supplemental contract provision, both annuity benefits and
6
life insurance benefits that are in excess of the greater of
7
cash surrender benefits or a return of the gross
8
considerations with interest, the minimum nonforfeiture
9
benefits shall be equal to the sum of the minimum
10
nonforfeiture benefits for the annuity portion and the minimum
11
nonforfeiture benefits, if any, for the life insurance portion
12
computed as if each portion were a separate contract.
13
Notwithstanding the provisions of subsections (5), (6), (7),
14
(8), and (10), additional benefits payable in the event of
15
total and permanent disability, as reversionary annuity or
16
deferred reversionary annuity benefits, or as other policy
17
benefits additional to life insurance, endowment, and annuity
18
benefits, and considerations for all such additional benefits,
19
shall be disregarded in ascertaining the minimum nonforfeiture
20
amounts, paid-up annuity, cash surrender, and death benefits
21
that may be required under this Section. The inclusion of such
22
benefits shall not be required in any paid-up benefits, unless
23
the additional benefits separately would require minimum
24
nonforfeiture amounts, paid-up annuity, cash surrender, and
25
death benefits.
26

(12) Rules. The Director may adopt rules to implement the

SB2872 Enrolled
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LRB104 16830 BAB 30239 b
1
provisions of this Section.
2

(13) Effective Date. After August 6, 2004 (the effective
3
date of Public Act 93-873), a company may elect to apply its
4
provisions to annuity contracts on a contract form-by-contract
5
form basis before July 1, 2006. In all other instances, this
6
Section shall become operative with respect to annuity
7
contracts issued by the company on or after July 1, 2006.
8

(14) (Blank).
9
(Source: P.A. 102-775, eff. 5-13-22; 103-154, eff. 6-30-23.)

10

Section 99.
Effective date.
This Act takes effect upon
11
becoming law.

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