INSURER CHECKLIST FOR FILINGS SUBMITTED TO DEMONSTRATE COMPLIANCE WITH SECTION 4228

Section 4228 of the New York Insurance Law establishes limits on the agent compensation that individual life and annuity companies may pay in the acquisition of new business. An insurer that is inaugurating a new product form or agent compensation structure is required to establish that the associated compensation scales are within these limits. In conjunction with this demonstration, which is outlined below in Table 5, an additional statement is required, to the effect that each product has been established as self-supporting under reasonable assumptions for a specified list of factors that includes sales levels.

As an aid to insurers who need to make this filing, we have put together a summary/checklist of the elements usually needed.  In general, the Department's review of a filing will be expedited if the insurer submits a completed version of this checklist.

Name of Company
     	

Name, Address, and Telephone Number of Contact Person for the Company
     	
     	
     	
     	
     	

Date of Submission   xx/xx/xx	Date Plan Started (or will start)   xx/xx/xx	
     	     	

TABLE 1	PRODUCTS AND AGENTS COVERED UNDER THIS FILING
We need to know which life/annuity products and agent groups you are covering with your filing category decision.  This section lists them.

Section 4228 (Subsection (f), paragraph one) describes the circumstances under which a filing with the Insurance Department is required in order to pay agents compensation. In particular, circumstances under which a filing is needed include

Introduction of a new product with commission percentages never in excess of Section 4228 limits (subparagraph (A))
Periodic verification that actual agent compensation paid on previously filed product forms falls within the limits (subparagraph (A))
Introduction of compensation arrangements that exceed commission limits, but not on a cumulative basis (subparagraph (B)).
A change in the compensation arrangements on previously filed product forms (subparagraph (B))
Introduction of a non-standard fund-based compensation plan (subparagraph (C))

A filing is required before agents may receive payment from compensation arrangements covered under subparagraph (B).  In addition, prior approval of the Insurance Superintendent is required before payment may be made from compensation plans that are governed by subparagraph (C).

List all of the products in A., below. The product listing may be sent in as an attachment, if too voluminous for a table.

A. PRODUCTS           
List each Product Name and associated Product Type, one per line, in the lines provided below.

Product Name	Product Type (e.g., Ordinary Life, Universal Life, Single Premium Life, Deferred Annuity, etc.)	
     	     	
     	     	
     	     	
     	     	
     	     	
     	     	
Are all of these products licensed for sale in NY?  Yes   No , If No, explain:	
     	
     	
     	

 B.	AGENTS

Agent compensation scale limits vary by agent type. Once the insurer identifies the type(s) of agent receiving compensation, then associated limits are known.  The insurer will need to demonstrate that, under the applicable compensation scale(s), no agent will exceed these limits for the products listed above.  More than one of the following may apply.

1) General Agent receives own and any subagents' comp from the Plan and distributes subagents' comp to them?	YES		NO		
2) Soliciting Agent receives payments from the Plan?	YES		NO		
3) Other Agent receives payments from the Plan 	YES		NO		
Describe what kind of Other Agent - e.g., employee assisting in the sales process	
     	
     	
     	

 TABLE 2	FILING CATEGORY

The demonstration of compliance will vary with the filing category that is required. In this section, describe what category your compensation plan falls under. In making this determination for life policies, note that the first year limits are applicable only to 'qualifying' first year premium, as defined in subsection (b), article (21).

Subsection (f), paragraph one, subparagraph (A) states that  a "company shall make annual information filings with respect to any newly-introduced plans or changes under which the company makes payments to agents if such plans are commission plans for which  the commission percentages are, in all policy or contract years, no greater than the commission percentages set forth . . . in subsection (d)".
A product filing with annual compensation maximums that fall within the limits of Section 4228, may be filed on an 'ANNUAL INFORMATION' basis.

Subsection (f), paragraph one, subparagraph (B) states that  "filings are required on or before the effective date of any changes to compensation arrangements as defined in this section…".  Separately, subsection (e), paragraph (8) establishes that this definition includes a compensation arrangement wherein the company will "pay the agent … a commission based on a higher percentage than the percentage set forth in … this section, to the extent that the total of the percentages on which actual commissions were calculated in the preceding policy or contract years was lower than the total of the percentages set forth in … subsection (d) of this Section, whichever is appropriate, for such preceding policy or contract years."
 A product filing which satisfies all cumulative compensation limits, but not all annual inside limits, should be submitted on a 'FILE & USE' basis.

Subsection (f), paragraph one, subparagraph (C) states that  "filings for prior approval of the superintendent are required before plans described in subparagraph (B) of paragraph one . . . of subsection (e) of this section can be used". That subparagraph states that "any company may compensate an agent on a plan of fund-based compensation using translations other than those set forth in subparagraph (A)  … provided that the translation factors are equivalent to those set forth therein."
A product filing, which requires a translation of fund equivalence that is on a different basis from the one specified in subsection (e), paragraph one, subparagraph (A) to establish compliance within the limits, will need to be filed on a 'PRIOR APPROVAL' basis.

 Subsection (f), paragraph one, subparagraph (D) states that  "for plans described under subparagraphs (A), (B), (C) and (D) of paragraph two of subsection (e) of this section, if the plan is still to be used six months after the end of the two year period ... the company must, within six months after the end of the two year period, make a filing with the superintendent and obtain his approval for the continued use of the plan".
 Certain limit exceptions due to agent plan continuations will also need to be filed on a  'PRIOR APPROVAL' basis.  They should be indicated as a 'PLAN CONTINUATION', below.

Choose ONE from the categories below.  Mark an X next to your choice:
§4228(f)(1)(A) ANNUAL INFORMATION		
§4228(f)(1)(B) FILE & USE		
§4228(f)(1)(C) PRIOR APPROVAL REQUIRED		
§4228(f)(1)(D) PLAN CONTINUATION		
Other (e.g., as in some TRANSITION PROVISIONS)		
	
Explain below, if ‘Other’:	
     	
     	
     	
     	

TABLE 3	PRIOR FILINGS
In order to properly review the current filing, we need to know about its prior filing history.

A) If the product is new, do the following:
Write 'NEW PRODUCT' under the column 'Changes', below.
If the product will contribute to an already-filed compensation plan, reference the file # and approval date of the plan.

B) If the compensation plan is new, with no prior filed version, write 'NEW PLAN' in the column 'Changes', below.

C) If the product or compensation plan  is new, but with a prior filing, explain, in the 'Changes' section, differences from the prior filing.

D) If this filing includes a change to an EXISTING compensation plan, reference the File Number and Department approval date, and then indicate the nature of the changes from the prior filing.

Compensation Element	File Number	Approved?
Yes(Y), No(N), or Other(O)
If Other explain	Date of Depart-ment Approval Letter xx/xx/xx	Changes From Prior Filing
(please describe briefly)	
     	     	      	     	     	
     	     	      	     	     	
     	     	      	     	     	
     	     	      	     	     	

You may wish to describe the changes from  Prior Filing in the space below.  Describe each change in, at most, 3-4 sentences.

Changes:

     

TABLE 4	ELEMENTS OF AGENT PLAN
There are many potential elements of compensation. Using the Table below, summarize the elements applicable to your agent compensation plan.  For each element, you will need to show compliance with Section 4228, using a demonstration basis indicated in Table 5.

For each compensation element, indicate if approval is sought with this filing, already approved or not applicable.  For each particular element for which approval is sought, check an 'X' in the 'Approval sought' column for that element.  If already approved, fill in the File # and date of the Department approval letter.

Check an "X' in the 'N/A' column for any compensation element which is not a contributor to any of the products/Plans listed in Table 3, above.

It is possible that most, if not all, of the elements from each of the subsections listed below will be 'N/A'.

	Approval
Sought	Already approved		
		File 
Number	Date xx/xx/xx	N/A	
	Compensation		
(1)	Premium Based		     	     		
(2)	Fund Based only		     	     		
(3)	Other (describe below)		     	     		
	
	Expense Allowance		
(4)	Premium Based		     	     		
(5)	Fund Based		     	     		
(6)	Goods+Services		     	     		
(7)	Other (describe below)		
	
(8)	Loans or Advances		     	     		
	
	Agent Benefit Plans		
(9)	Qualifies as Security Benefit Plan		     	     		
(10)	Does not qualify as Security Benefit Plan		     	     		
	
	*******OTHER*******		
	     		     	     		
	     		     	     		
	     		     	     		
	     		     	     		
	     		     	     		
	
(11)	Training Allowance Plans*		     	     		
	
* (a) If Approval sought or Already approved, are Training Allowance payments only       made to inexperienced agents as defined in Section 4228? Yes  or No  	
	
If No, please explain: 	     	
	
(b) Describe (In 2 or 3 sentences) how the company ensures that payments will only go to inexperienced agents.	
     	

TABLE 5	DEMONSTRATION OF COMPLIANCE
Use the Table below to demonstrate compliance with the compensation limits. You will need to show this either by a direct comparison of the proposed rates to the regulatory limits, or, for compensation plans falling under (e)(2)(A), by means of a calculation. The calculation is as per subsection (e), paragraph two, subparagraph (B), and establishes that an agent compensated under the proposed compensation plan would be expected to receive, over the course of a projected career, no more than a plan limited . . . as described in subsection (d) of this section.           

METHOD FOR DEMONSTRATION OF COMPLIANCE
CHOOSE ONE OF THE THREE CATEGORIES BELOW.  MARK AN X NEXT TO YOUR CHOICE:

(1) Plan is automatically within Limits		
(2) Plan is cumulatively within the Limits 		
(3) Demonstration over agent's Projected Working Lifetime		

Check (1) only if all payments are based on a formula that mathematically insures that the Section 4228 inside limits won't be exceeded.  Demonstrate in tabular form that, on a yearly basis, the maximum agent compensation available under the Plan is no greater than the Section 4228 inside limits. Subsection (f), paragraph one, subparagraph (A) provides for this method of demonstration in this instance.

If you have checked (2), demonstrate in tabular form that, on a cumulative basis, the maximum agent compensation available under the Plan is no greater than the Section 4228 inside limits. Subsection (f), paragraph one, subparagraph (B) provides for this method of demonstration in this instance.

All spreadsheets must clearly identify the columns representing payments under the plan, the column representing the Section 4228 inside limits, and the columns showing the excess of the inside limits over the value of the payments.

If you have checked (3), do the following:
Enclose a Spreadsheet which shows payments for each policy year. If the plan is non-commission and non-fund based, the spreadsheet can be over the agent's career, with years of service with the company substituted for policy years. Provision for this method of demonstration in this instance is afforded by subsection (f), paragraph one, subparagraph (C) and subsection (e), paragraph one, subparagraph (B).  Include identifying information for all decrements used: e.g., agent burnout, policyholder death or lapse, etc.

MONITORING SYSTEM
There are instances where potential total agent compensation may exceed allowable limits. In this section you should:

(a)	Enclose a description of the Monitoring System (2 or 3 sentences).

     

(b)	Include, if applicable, a statement that monitoring reflects the Benchmark Gross Level Premium (BGLP) defined in the 1/1/98 revision of Section 4228.

     

(c)	Include a description of how you verify that the Monitoring System works in the way described.