STATE OF NEW YORK
25 BEAVER STREET
NEW YORK, NEW YORK 10004
|George E. Pataki
Re: N.Y. Ins. Law § 3214(c) Crediting Interest on Death Benefit Payments
Is ABC Financial Services Inc. (the "Company") required to pay interest on lump sum death benefit payments made on behalf of a retirement group annuity contract holder in the factual situation described below?
No, under the below-described facts, ABC Financial Services Inc. (the "Company") is not required to pay interest on lump sum death benefit payments made on behalf of a retirement group annuity contract holder.
The Company issued a group annuity contract ("the Contract") to a retirement plan sponsor. The retirement plan (the "Plan") in question is a "defined benefit plan" as that term is defined under the Employee Retirement Income Security Act ("ERISA").1 Under the Plan a lump sum death benefit payment may be made to Plan participants. Under the terms of the Contract, the Plan sponsor may direct the Company to make certain lump sum payments to Plan participants who would not otherwise be entitled to such a benefit under the Contract.
The Contract is only one of the Plans funding vehicles and other assets of the Plan are invested separately. The Contract does not maintain allocated accounts for plan participants. A plan participant is neither an insured nor an annuitant during his or her working years under the group annuity contract. Plan participants are not direct named beneficiaries of the Contract and benefits payable pursuant to the Plan are not linked to the benefits payable under the Contract. In addition, each of the following apply to the Contract: (1) there is no interest settlement option under its terms; (2) the death benefit payable by the Plan is not an annuity under its terms; (3) the death benefit is not insured or guaranteed under its terms; and (4) in light of each of the above no liability or reserve for the death benefit has been established by the Company in connection with the Contract. Furthermore, the benefits payable to many of the Plan participants are not funded by the Company annuity. In the case of other participants, only a portion of their benefits are funded by the terms of the Contract.
The Company provides administrative services to the Plan in connection with the making of benefit payments to Plan participants, including payments that are not funded by the Contract.
New York Ins. Law § 3214 (c) requires the payment of interest on the proceeds of an insurance policy or annuity contract that are paid to a beneficiary following a death claim thereon. The statute provides as follows:
§ 3214. Interest upon proceeds of life insurance policies and annuity contracts.
* * * *
(c) If no action has been commenced, interest upon the principal sum paid to the beneficiary or policyholder shall be computed daily at the rate of interest currently paid by the insurer on proceeds left under the interest settlement option, from the date of the death of an insured or annuitant in connection with a death claim on such a policy of life insurance or contract of annuity and from the date of maturity of an endowment contract to the date of payment and shall be added to and be a part of the total sum paid.
N.Y. Ins. Law § 3214(c) (McKinney 2000) (emphasis added).
In the instant case, the Contract is not of the type to which the above-referenced statute applies. First, the Contract is an unallocated group annuity contract, under which the insurer does not maintain any separate accounting for earning or deposits of the individual Plan participants. The Plan participants are thus not properly classifiable as annuitants or insureds under the Contract. In addition, the Contract has no "interest settlement option" as referenced in the statute. Finally, the death benefit paid under the Plan is not being paid as a result of a death claim on the Contract. Rather, the proposed payments are to be made solely pursuant to the terms of the Plan. In light of the above, it appears that neither the Contract nor the proposed payments under the Plan fall within the ambit of the statute. Therefore, interest would not be required to be paid pursuant to N.Y. Ins. Law § 3214 on the lump sum death benefit payments proposed under the Plan.
For further information you may contact Supervising Attorney Michael Campanelli at the New York City Office
1 See 29 U.S.C.A. § 1002 (35) (West 1998).