Summary
Transactions that involve an annuity purchase in an IRA that are funded by an annuity product held in a qualified plan will be reviewed as rollovers rather than replacements. Reps should update their presentation of such cases on ESI paperwork accordingly.
Background
After a review of ESI business practices with partners across the industry, the ESI Suitability team will be adopting standards regarding annuity replacements that are consistent with the model (613 S. 1.) set forth by the National Association of Insurance Commissioners (NAIC).
Among the transactions generally considered exempt from replacement under NAIC Model 613 S. 1., and are therefore NOT considered replacements, are funding sources that generally include:
- Group life insurance or group annuities where there is no direct solicitation from an insurance producer.
- Policies or contracts used to fund:
- An employee pension or welfare benefit plan that is covered by ERISA
- 401(a), 401(k) or 403(b) plans
- Section 414 or 457 plans
- A nonqualified compensation arrangement established or maintained by an employer or plan sponsor
Operational Impact
Funding sources that meet the criteria above should be presented as qualified plan rollovers rather than annuity replacements. A familiar example may be when a client holds an annuity in their 403(b) account and would like to move it to an IRA annuity. This should be presented as a rollover rather than a replacement.
Implementation of this change impacts how reps will present transactions on ESI paperwork. For new business, the “Qualified Plan Distribution” section on page 1 of the Annuity Purchase and Exchange Disclosure will be completed rather than page 2 and 5 for annuity replacements. For subsequent deposits, the “Qualified Plan Distribution” section on page 1 of the Source of Funds form will be used rather than the “Annuity” section. This will reduce the amount of information that is required on each form.
The change will become effective January 3rd, 2023 and relates to the presentation of transactions on ESI paperwork only. There are no changes to vendor or state requirements which are not impacted by this change.
Please contact Direct Business Suitability with questions at 800-344-7437.
TC130210(1222)1