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

Eliot Spitzer
Governor

Louis Pietroluongo
Acting Superintendent

The Office of General Counsel issued the following opinion on January 5, 2007, representing the position of the New York State Insurance Department.

Re: Applicability of Regulation 60 to Movement of Employee Investments in a 403(b) Program

Question Presented:

Does the movement of employee investments in a 403(b) program from Insurer A and Insurer B to Insurer C with respect to new contributions to the program constitute a transaction that is exempt from the disclosure requirements of N.Y. Comp. Codes R. & Regs. tit. 11, Part 51 (Regulation 60)?

Conclusion:

Yes, the transaction is exempt from the disclosure requirements of N.Y. Comp. Codes R. & Regs. tit. 11, Part 51 (Regulation 60). (See analysis below)

Facts:

Insurer C was selected by ABC Hospital to be the exclusive investment and service provider for its ERISA-compliant 403(b) program. Insurer A, Insurer B and Insurer C had been jointly serving as providers, but the hospital decided to select a single provider going forward. If the participants of the program took no action, their existing investments would remain with their current insurers. However, all new contributions to the 403(b) program would automatically be moved to Insurer C's Guaranteed Interest Account, a group annuity contract. As part of this change, a letter, which contains both the hospital's and Insurer C's logos, was sent to all affected participants announcing the change, and detailing the new investment options for new contributions. For purposes of this opinion, we will assume that the letter was sent jointly by Insurer C and the hospital. The letter did not address whether participants had the option of moving their existing balances to Insurer C, except to indicate that Insurer C gives the participant the opportunity to consolidate all of their retirement assets in one location.

Analysis:

Section 51.2 of N.Y. Comp. Codes R. & Regs. tit. 11, Part 51 (Regulation 60) states, in relevant part, that:

[T]he term replacement of a life insurance policy or annuity contract . . . means, except as exempted in section 51.3 of this part, that new life insurance or new annuities are to be purchased and delivered or issued for delivery in New York and it is known to the department licensee that, as part of the transaction, existing life insurance policies or annuity contracts have been or are likely to be: 1) lapsed, surrendered, partially surrendered, forfeited, assigned to the insurer replacing the life insurance policy or annuity contract or otherwise terminated . . ." (emphasis supplied)

Section 51.3 of N.Y. Comp. Codes R. & Regs. tit. 11, Part 51 (Regulation 60) states, in relevant part, that:

This Part shall not apply when: . . .

(c) The new coverage is provided under:

(1) [A] group life insurance policy or 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. . . .

Pursuant to Section 51.3(c)(1), group life insurance policies and annuity contracts are exempted from the notice and disclosure requirements of Regulation 60, except where an agent, broker or insurer directly solicits the applicant for the new coverage and a portion of the premium or consideration is borne, directly or indirectly by the applicant. Therefore, if both conditions are met, the exemption would not apply.

Thus, the pivotal questions are whether the letter that was sent to participants of the 403(b) program constitutes a direct solicitation and whether Insurer C's investment options require participants to bear a portion of the premium.

N.Y. Ins. Law § 2101(o) (McKinney 2006) defines the term solicitation as:

(o) [A]ttempting to sell insurance or asking or urging a person to apply for a particular kind of insurance from a particular licensed insurer, fraternal benefit society or health maintenance organization.

The letter that was sent to participants of the 403(b) program provided participants with information regarding the new investment options available through Insurer C for new contributions to the program. There is nothing in the letter that asks or urges participants to move their existing account balances from their current insurers to Insurer C. The decision to utilize Insurer C as the sole provider for new contributions had already been made by the hospital at the time that the letter was sent. The letter merely informs participants of the change and explains the new investment options. Thus, the direct solicitation of participants was not involved.

Since we have concluded that there was no direct solicitation of participants, it is not necessary to consider whether Insurer C's investment options require participants to bear a portion of the premium. Both conditions are not met and the exemption in Section 51.3(c)(1) of Regulation 60 applies. Consequently, Insurer C is not required to comply with the disclosure requirements contained in Regulation 60 in this instance.

For further information you may contact Associate Attorney Pascale Jean-Baptiste at the New York City Office.