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

George E. Pataki
Governor

Howard Mills
Superintendent

The office of General Counsel issued the following opinion on June 16, 2005 representing the position of the New York State Insurance Department.

Re: Group Annuity 401(k) Product

Question:

May a group annuity issued by an unauthorized foreign insurer be issued in connection with a 401(k) plan, which covers the New York resident employees of a corporation that is a subsidiary of a Nebraska entity?

Conclusion:

Yes, provided that the plan is not funded solely by employee contributions, a group annuity issued by an unauthorized foreign insurer may be issued in connection with a 401(k) plan, which covers the New York resident employees of a corporation that is a subsidiary of a Nebraska entity.

Facts:

Based on your facsimile and our subsequent telephone conversations, it is my understanding that a client of yours is a New York employer (N.Y. Company) that is considering purchase of a group annuity in connection with its 401(k) plan. N.Y. Company, however, is a subsidiary of a Nebraska entity. The Nebraska parent prefers to have a single company as the provider of any 401(k) funding options to be provided to its or its subsidiary’s employees. The provider that the Nebraska parent prefers to use is not licensed by New York as a life insurer or annuity provider.

Analysis:

N.Y. Ins. Law § 1102(a) (McKinney 2000 & Supp. 2005)prohibits a person, firm, association, corporation or joint-stock company from doing an insurance business in New York state without a proper license. That section states:

(a) No person, firm, association, corporation or joint-stock company shall do an insurance business in this state unless authorized by a license in force pursuant to the provisions of this chapter, or exempted by the provisions of this chapter from such requirement. Any person, firm, association, corporation or joint-stock company which transacts any insurance business in this state while not authorized to do so by a license issued and in force pursuant to this chapter, or exempted by this chapter from the requirement of having such license, shall, in one addition to any other penalty provided by law, forfeit to the people of this state the sum of thousand dollars for the first violation and two thousand five hundred dollars for each subsequent violation.

N.Y. Ins. Law § 1101(b)(1) (McKinney 2000 & Supp. 2005) provides examples of what activities constitute the doing of an insurance business and states in pertinent part:

(b)(1) Except as provided in paragraph two, three or three-a of this subsection, any of the following acts in this state, effected by mail from outside this state or otherwise, by any person, firm, association, corporation or joint-stock company shall constitute doing an insurance business in this state and shall constitute doing business in the state within the meaning of section three hundred two of the civil practice law and rules:

(A) making, or proposing to make, as insurer, any insurance contract, including either issuance or delivery of a policy or contract of insurance to a resident of this state or to any firm, association, or corporation authorized to do business herein, or solicitation of applications for any such policies or contracts;

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(C) collecting any premium, membership fee, assessment or other consideration for any policy or contract of insurance;

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(E) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this chapter.

Notwithstanding the above provisions, N.Y. Ins. Law § 1101(b)(2) (McKinney 2000 & Supp. 2005) establishes certain "mail order" exceptions allowing an unauthorized insurer to engage in certain activities from without the state, so long as those activities are done by mail. That section states in relevant part:

(b)(2) Notwithstanding the foregoing, the following acts or transactions, if effected by mail from outside this state by an unauthorized foreign or alien insurer duly licensed to transact the business of insurance in and by the laws of its domicile, shall not constitute doing an insurance business in this state, but section one thousand two hundred thirteen of this chapter shall nevertheless be applicable to such insurers:

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(B) transactions with respect to group life, group annuity, group accident and health or blanket accident and health insurance (other than any transaction with respect to a group annuity contract funding individual retirement accounts or individual retirement annuities, as defined in section four hundred eight of the Internal Revenue Code, funding annuities in accordance with subdivision (b) of section four hundred three of such code or providing a plan of retirement annuities under which the payments are derived wholly from funds contributed by the persons covered):

(i) where such groups conform to the definitions of eligibility contained in;

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(III) section four thousand two hundred thirty-eight (except paragraphs six and seven of subsection (b) thereof) of this chapter; and

(ii) where the master policies or contracts were lawfully issued without this state in a jurisdiction where the insurer was authorized to do an insurance business.

N. Y. Ins. Law § 4238(b) (McKinney 2000) states in pertinent part:

(b) No authorized insurer shall deliver or issue for delivery in this state any group annuity contract except the following:

(1) A contract issued to an employer, which permits all of the employees of such employer or of any specified class or classes thereof to become annuitants.

Based upon our discussions, it appears that the employer in question fits into the N. Y. Ins. Law § 4238(b) (McKinney 2000) definition of permissible groups, in that all employees are permitted to enroll in the plan. In addition, the insurer is authorized to do an insurance business in the jurisdiction where the master policy was or will be issued, i.e., Nebraska. You have not stated whether the 401(k) plan will be funded, at least in part, by employer matching and/or profit sharing contributions, and not wholly from funds contributed by the persons covered, including employee salary reduction contributions. If it is the former, the mail order exception contained in N.Y. Ins. Law § 1101(b)(2), would appear to apply to the plan in question and the plan may be offered to the corporation’s New York employees via mailing of enrollment kits only. If the latter (i.e., the 401(k) is to be funded solely by employee contributions), then the exception would not apply and the plan may not be offered to the New York employees. Please note, however, that the mail order exception only applies to contacts done by mail.

The Department has interpreted the mail order exception to also include electronic mail. That exception, however, has not been extended to include internet conference calls. In addition, an unauthorized/unlicensed insurer may not enroll the New York employees in question via face to face contacts or telephone conference calls from outside of the state, because such acts are clearly excluded by N.Y. Ins. Law § 1101(b)(2) mail order exception.

In addition, N.Y. Ins. Law § 2117(a) (McKinney 2000 & Supp. 2005) provides:

(a) No person, firm, association or corporation shall in this state act as an agent for any insurer or health maintenance organization which is not licensed or authorized to do an insurance or health maintenance organization business in this state or in soliciting, negotiating or effectuating any insurance, health maintenance organization or annuity contract or shall in this state act as an insurance broker in soliciting, negotiating or in any way effectuating any insurance, health maintenance organization or annuity contract of, or in placing risks with, any such insurer or health maintenance organization, or shall in this state in any way or manner aid any such insurer or health maintenance organization in effecting any insurance, health maintenance organization or annuity contract.

Note that the Department has consistently construed the prohibition against aiding an unauthorized insurer to be consonant with the mail order exception found in N.Y. Ins. Law § 1101(b)(2) because only activities of the insurer that are permitted by mail under that section may be conducted in the same manner by persons acting on behalf of the insurer without violating N.Y. Ins. Law § 2117(a). Thus, unless specific acts fall within the mail order exception, a broker, whether licensed or not, may not engage in such acts in New York on behalf of an unauthorized insurer, if such acts constitute the doing of an insurance business.

For further information you may contact Supervising Attorney Michael Campanelli at the New York City office.