OLR Bill Analysis
AN ACT CONCERNING THE PURCHASE OF AN ANNUITY TO FUND PENSION BENEFITS.
This bill requires insurers issuing certain annuity contracts to disclose (1) before the contract becomes effective, detailed information, including participants' or beneficiaries' legal protections, and (2) the contract's financial status annually. Employers may enter into group annuity contracts to fund employee retirement benefits or otherwise decrease the risk associated with managing a retirement plan.
The bill also (1) prohibits the transfer of an annuity unless it is made to an entity that maintains an A or better rating, or its equivalent, from two or more nationally recognized rating agencies and (2) authorizes the insurance commissioner to adopt implementing regulations, including any penalties, fines, or assessments for violations.
The bill applies to allocated or unallocated annuity contracts issued to Connecticut employers or pension plans providing Connecticut employees or retirees with retirement benefits and under which the:
1. original retirement benefits are protected under the federal Employee Retirement Income Security Act (ERISA) or Pension Benefit Guaranty Corporation (PBGC) and
2. group annuity contract is not protected by ERISA or the PBGC (see BACKGROUND).
Under the bill, an “employer” is any person engaged in a business in Connecticut employing two or more people, excluding the state, its political subdivisions, and municipalities.
EFFECTIVE DATE: January 1, 2018
DISCLOSURE OF PARTICIPANTS' AND BENEFICIARIES' LEGAL PROTECTIONS
For annuity contracts covered by the bill, insurers must disclose, at least 30 days before the contract's effective date, certain information in writing to employees or retirees who are participants or beneficiaries under the contract. The disclosure must include:
1. a description of the differences between the annuity contract's protections and those afforded by ERISA or the PBGC;
2. a list of applicable state laws governing annuity payments;
3. the amount and scope of and conditions precedent for coverage under (a) the Connecticut Life and Health Insurance Guaranty Association (CLHIGA, see BACKGROUND) or any subsequent corresponding guaranty association and (b) any supplemental coverage provided by state law due to an insolvent insurer;
4. the extent to which annuity payments are subject to the insurers' creditors' claims or trustees' bankruptcy avoidance actions;
5. detailed annuity contract information, including cost and expense schedules paid in connection with the contract's issuance; and
6. a copy of the insurer's fairness opinions or solvency analysis performed in connection with selecting the annuity.
For annuity contracts issued on or after January 1, 2018, the bill additionally requires annual disclosures of:
1. the funding level of all assets relative to the expected liabilities under the assumed pension benefit schedules;
2. an investment performance summary and detail report, by asset class;
3. a list of all the annuity contract's associated expenses, including administrative expenses and beneficiaries' payments;
4. any changes in actuarial assumptions; and
5. a list of any of the annuity contract's public documents filed with the insurance department, including instructions for obtaining them.
ERISA AND PBGC
ERISA sets minimum standards for private pension plans, including standards for participation, vesting, benefit accrual, funding, and pension management responsibility.
Under ERISA, most private defined benefit pension plans must obtain pension benefit insurance through the PBGC. The PBGC pays certain benefits if these plans are terminated (e.g., when the employer can no longer meet the plan's fiduciary obligations.)
By law, eligible life and health insurers must participate in and pay CLHIGA. If an insurance company defaults, the guaranty association pays valid claims of policyholders and other claimants up to the dollar limits of the applicable policy, subject to minimum and maximums fixed by state law. CLHIGA covers direct, non-group life, health, and annuity policies.
Insurance and Real Estate Committee