Relates to expanding the authority to issue group annuity contracts

Title of bill

An act to amend the insurance law, in relation to permissible group annuity contracts

Purpose

This bill would amend § 4238 of the insurance law to permit life insurers to issue an additional type of group annuity contract.

Summary of provisions

This bill would amend subsection (b) of § 4238 of the insurance law by adding a new paragraph (12) to permit the issuance of a synthetic group annuity contract to another insurer's separate account.

Justification

The amendments to this bill will permit the issuance of a group annuity contract to another insurer's separate account, as an alternative to the use of a funding agreement. Separate accounts are often used by insurers in connection with corporate owned (COLI) and bank owned (BOLL) life insurance policies, as well as for the benefit of ERISA plans, employee benefit plans and deferred compensation arrangements, and other analogous structures. The provisions of this bill would allow a New York insurer to obtain and implement synthetic stable value mechanics related to: (i) COLI and BOLL insurance policies issued by such insurer and supported by assets held by such insurer in a separate account, as well as (ii) separate accounts established by such New York insurer for the benefit of ERISA plans, employee benefit plans, or deferred compensation or analogous structures, through the purchase of a synthetic group annuity contract from another insurer.

Synthetic group annuity contracts do not clearly fit within any of the current eligible categories for the group annuity contracts identified in § 4238(b) of New York Insurance Law. Adding an additional eligible category to the law that expressly permits the use of a synthetic group annuity contract would give New York insurers engaged in the business of providing stable value wraps greater flexibility in offering these products when addressing the needs of a prospective New York customer (generally, a stable value wrap is a contract issued by an insurer that provides for a specified rate of return for a specific period of time, provides book value accounting, and may make payments in the event of certain qualifying redemptions).

Business clients often prefer synthetic group annuity contracts for various reasons, which include (i) greater flexibility and the potential for lower asset management fees, (ii) reduced asset risk because the assets are not transferred to the wrap provider, (iii) reduced credit exposure and (iv) greater ability to replace the asset manager given that they will not maintain the assets. According to the Stable Value Investment Association, as of December 31, 2012, approximately 40% of all stable value investments in the U.S. were in synthetic investment contracts.

The proposal would bring New York law in line with the prevailing use of synthetic group annuity contracts in the 401(k) plan and would facilitate compliance with tax diversification requirements applicable to funds or divisions underlying variable products which have stable value wraps associated with them.

Legislative history

New bill.

Effective date

Immediately.