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

George E. Pataki
Governor

Gregory V. Serio
Superintendent

The Office General Counsel issued the following opinion on June 2, 2004, representing the position of the New York State Insurance Department

RE: Group Annuity Contracts, Transfer of Assets

Question Presented:

Is an employer that has purchased a group annuity contract obligated to obtain the consent of individual employees before moving assets from one insurer to another?

Conclusion:

The Department has interpreted New York Insurance Law § 4223 (McKinney 2000 and 2004 Supplement) to require that such consent be obtained.

Facts:

A governmental entity has established a tax-advantaged plan for its employees to defer a percentage of their income through voluntary contributions. As part of the plan, the governmental entity became the contract holder under multiple Group Annuity Contracts it had purchased with an insurer that is licensed to transact an annuity business in New York. The governmental entity ("Contract Holder") is dissatisfied with the level of service being provided by the current insurer and desires to transfer all or a portion of the assets from that insurer to another insurer.

The contracts between the Contract Holder and the current insurer provide, with respect to such transfers:

The Contract Holder may request [Insurer] to make transfer payments to another financial institution named in the request. . . .

[Insurer] will promptly notify each Participant and each Beneficiary of a deceased Participant whose Account is being transferred, that the request has been received. . . . Each notified person may elect, within 30 days following his receipt of the notice from [Insurer], to have his Account included in the transfer payment to be made. Each person who does not make this election will have his Account retained under this contract pursuant to its terms.

Confirmation is sought that neither N.Y. Comp. Codes R. & Regs. tit. 11, Part 40 (1995) (Regulation 139), nor any other portion of the New York Insurance Law or the regulations promulgated thereunder, impose an affirmative requirement that the Contract Holder secure participant consent to the transfer of assets.

Analysis:

Based upon the information furnished, it appears that the Contract Holder’s plan constitutes an employee pension benefit plan, as that term is defined in the Employee Retirement Income Security Act (ERISA). 29 U.S.C.A. § 1002(2) (West 1999). It further appears that the plan is a governmental plan, as that term is defined in ERISA. 29 U.S.C.A. § 1002(32). Since governmental plans are not encompassed within ERISA requirements, 29 U.S.C.A. § 1103(b)(1) (West 1999 and 2003 Supplement), there is no need to consider whether ERISA fiduciary requirements preempt any state requirements.

It further appears that the Contract Holder’s plan is authorized pursuant to the Internal Revenue Code. 26 U.S.C.A. § 457 (West 2002). Such plans are, in accordance with 26 U.S.C.A. § 403(b)(12)(C) (West 2002 and 2003 Supplement), subject to the general requirements of 26 U.S.C.A. § 403(b). Affirmative requirements may be imposed on plan sponsors pursuant to the Internal Revenue Code or the regulations promulgated thereunder.

The Standard Non-Forfeiture Law for Annuities, New York Insurance Law § 4223 (McKinney 2000 and 2004 Supplement), provides in subsection (b) thereof:

This section shall apply to any certificate issued, or issued for delivery, under a group annuity contract to a person solicited for the sale of such certificate in this state if: A) such certificate provides benefits under an individual retirement account or is issued as an individual retirement annuity, both as defined in section four hundred eight of the Internal Revenue Code . . . or (B) such certificate is issued as an annuity contract in accordance with subsection (b) of section four hundred three of such code under a program for the purchase of such annuity contract where the payments are derived wholly from a salary reduction agreement or an agreement to forego an increase in salary; or (C) the benefits provided under such group annuity contract are derived wholly from funds contributed by the persons covered thereunder.

It has been the consistent position of the Department since the enactment, 1979 N.Y. Laws 662, of the predecessor to New York Insurance Law § 4223, New York Insurance Law § 208-c (McKinney 1983), and indicated to insurers as part of the guidelines for approval of such contracts, that participant consent to contract-holder initiated withdrawals is required. These guidelines may be found on the Department’s website, www.ins.state.ny.us.

Based upon the information furnished, it appears that New York Insurance Law § 4223 is applicable to the Contract Holder’s contracts and that the consent requirement is met by the above quoted extract from the group annuity contract.

In order to protect the interests of the public and to enable individuals to make educated decisions as to replacement of, among other things, annuity contracts, the Department has promulgated N.Y. Comp. Codes R. & Regs. tit. 11, Part 51 (2003) (Regulation 60). Regulation 60 provides, N.Y. Comp. Codes R. & Regs. tit. 11, § 51.3 (2003):

This Part shall not apply when: . . . (c) The new coverage is provided under: (1) a . . . group annuity contract, except when an agent, broker 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; . . . .

Accordingly, only if the proposed change in insurers is a result of a direct solicitation of the certificate holder by either the new insurer or an agent thereof, would Regulation 60 would be applicable to the transaction.

Regulation 139 provides disclosure requirements for entities contemplating the purchase of group annuity

contracts. Based upon the material provided, it appears that, because the contracts are subject to New

York Insurance Law § 4223, in accordance with N.Y. Comp. Codes R. & Regs. tit. 11, § 40.1(a)(1) (1995), Regulation 139 is not applicable to the contracts. While it is correct that Regulation 139 would not impose any obligation on the Contract Holder, under the particular circumstances presented, stating that Regulation 139 is inapplicable is in error because there are disclosure requirements, N.Y. Comp. Codes R. & Regs. tit. 11, § 40.3(a) (1995), imposed on the insurer assuming the transferred assets.

It should also be noted that, in accordance with New York State Finance Law § 5(3)(a) (McKinney 2002), deferred compensation plans of local governments are regulated by the New York State Deferred Compensation Board (Board). As part of its contract review process, the Department ascertains whether contracts are in compliance with the regulations of the Board, N.Y. Comp, Codes R. & Regs. tit. 9, Subtitle II (1998). Information as to any requirements imposed by the Board may be secured from:

New York State Deferred Compensation Board
P.O. Box 2103
Albany, NY 12220-2103.

For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.