NAFA Works with Treasury Department on Fixed Annuity Inclusion for QLACs
July 2, 2014 by NAFA
NAFA responded when asked that all fixed rate annuities and fixed indexed annuities must pay at least 1% interest on the minimum guaranteed surrender value in order to comply with Standard Non-forfeiture Laws (SNFL). I personally own a fixed indexed annuity and thought it might be helpful to show you my recent – once again demonstrating the minimum guaranteed account value of my annuity and the actual account value. In addition, we have included a NAFA member’s personal fixed indexed annuity annual statement, showing the same minimum guarantee as a fixed rate annuity. (View the annual statement here.)
Also attached is a study completed by Wink, Inc. describing, on a carrier by carrier basis, the minimum guaranteed value provided by the annuity contract. The NAIC Standard Non-Forfeiture Law for Individual Deferred Annuities Model Regulation is based on the 5-Year Constant Maturity Treasury Rate, and, depending on the rate, credits between 1% and 3%. The 1% to 3% guaranteed return paid is based on the minimum guaranteed value which cannot be lower than 87.5%. The minimum guaranteed value is not the same thing as accumulated value; the annuity accumulated value is based on 100% of premium.
NAFA’s legal counsel, Pam Heinrich, Esq., has completed a state-by-state survey of the Standard Non-Forfeiture Laws, with links to the actual state language regarding the required minimum nonforfeiture amounts so that you can be assured that a fixed indexed annuity contract that is approved as an insurance contract by a state’s Department of Insurance follows the exact same SNFL as other fixed rate annuities. In fact, the SNFL language does not delineate between fixed rate and indexed rate products, which clearly demonstrates that fixed indexed annuities appropriately reside in the fixed annuity insurance marketplace.
In addition, we submitted the peer-reviewed study “Real World Index Annuity Returns” published in the Journal of Financial Planning, which was discussed in D.C. The research was conducted by Professor David Babbel, University of Pennsylvania – The Wharton School; Professor Geoffrey VanderPal, Webster University; and Dr. Jack Marrion, NAFA’s Director of Research. The study was the first empirical exploration of fixed indexed annuity returns based upon actual contracts that were sold and actual interest that was credited. The conclusions were:
* Annuity returns have been competitive with alternative portfolios of stocks and bonds.
* Their design has limited the downside returns associated with declining markets.
* Annuities have achieved respectable returns in more robust equity markets.
Finally, we also included a demonstration created by American Equity Investment Life Insurance Company, a leader in the fixed indexed annuity marketplace. This is not an illustration but a depiction of an actual policyholder’s INDEX-5 annuity earnings. The INDEX-5 did exactly what it was supposed to do: it gave the contract owner the opportunity to accumulate value based on the appreciation of the S&P 500 Index, without risk of loss of premium in years when the S&P 500 was negative. All of this was supported by a minimum guarantee.
