New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

The Office of General Counsel has issued the following informal opinion on January 14, 2000 representing the current position of the New York State Insurance Department.

Necessity for the Execution of Client Replacement Authorization Form under Regulation 60 in the Context of the Transfer of the Administrative Functions of a Section 457 Plan to a Different Insurance Carrier

Question presented:

When a municipality sponsoring a model plan under the New York State Deferred Compensation Board elects to transfer administration, funding and trust services of the entire plan from one carrier to another, does Insurance Department Regulation 60 (N.Y. Comp. Codes R. & Regs. tit 11, §§ 51.1 – 51-8 (1998)) require each individual plan participant to sign a Client Replacement Authorization form (NY: CRA 10b-1; 2/99)?

Conclusion:

The subject transaction is exempt from the application of Insurance Department Regulation 60, N.Y. Comp. Codes R. & Regs. tit 11, §§ 51.1 – 51-8 (1998), by Section 51.3 thereof, because there is no direct solicitation of the group annuity certificateholder by the insurer or its agent for the new coverage. Therefore, each individual plan participant is not required to sign a Client Replacement Authorization form.

Facts:

Each of the characteristics listed below is applicable to the entity making the instant inquiry to the Department.

The Rules and Regulations of the N.Y.S. Deferred Compensation Board govern the establishment and operation of Section 457 plans in N.Y.S.

Section 9003 details the procedures for selection of financial organizations by the municipalities not by individual plan participants.

Assets in Section 457 plans are most often invested within variable annuity contracts.

Such contracts are held within a trust under the trust’s tax ID number, not the individual participant’s social security number.

The sponsoring municipality owns the plan assets until they are distributed to plan participants.

Ownership by the municipality avoids constructive receipt and current taxation for the participants.

Section 457 plans may have thousands of participants.

Analysis:

N.Y. Comp. Codes R. & Regs. tit 11, § 51.3 (Regulation 60) provides, in pertinent part, as follows:

§51.3 Exemptions.

This part shall not apply when:

(c) The new coverage is provided under: (1) a group life insurance or group annuity contract, except when an agent or insurer directly solicits the certificateholder for the new coverage and a portion of the premium or consideration is borne, directly or indirectly, by the certificateholder;

The exemption provision clearly provides that where there is no direct solicitation of the certificateholder by the insurer or its agent for the new coverage of the group annuity contact, each individual plan participant is not required to sign a Client Replacement Authorization form. The solicitation in the question presented is of the municipality sponsoring the model plan under the Rules and Regulations of the New York State Deferred Compensation Board and it, and not the individual certificateholder, makes the election to transfer administration, funding and trust services of the entire plan from one carrier to another.

For further information you may contact Assistant Counsel Sidney Glaser at the Department’s New York office.