The NAIC Contingent Deferred Annuities (CDA) Working Group met on June 27th in Washington, D.C. to hear presentations from industry groups and regulators. The American Academy of Actuaries, the Insured Retirement Institute, and the American Council of Life Insurers emphasized that CDAs operate like stand-alone guaranteed lifetime withdrawal benefit (GLWB) riders, but with the assets held outside the insurance company (similar to synthetic guaranteed investment contracts). Because CDAs are similar to these products, the insurance industry has demonstrated the ability to manage CDA-type risks. Industry representatives emphasized that CDAs are subject to state and federal regulation; regulators would monitor CDAs and provide consumer protection safeguards.
CDAs can be individual or group products. CDAs sold to certain qualified pension plans are exempt from registration with the Securities Exchange Commission (SEC) (as well as from certain state insurance requirements), but remain subject to the securities laws’ antifraud and enforcement protections, and are also subject to regulation by the Department of Labor. An SEC staff member stated that its disclosure requirements for CDAs are similar to those for variable annuities, and that CDA prospectuses are subject to the SEC’s plain English rules. Unlike variable annuities, however, CDAs are not subject to the provisions of the 1940 Act because the underlying assets are not held by a separate account of the insurance company. FINRA also regulates CDA distribution by registered broker-dealers.
The US Government Accountability Office (GAO) is examining CDAs pursuant to a charge to explore lifetime income products from the Senate Committee on Aging and looking at the operation, risk profile, fees, and suitability issues associated with CDAs, as well as the regulation of these products at the federal and state level. The GAO plans to complete its work by February 2013.
The CDA Working Group will meet again at the NAIC Summer Meeting to discuss its progress to date. The Working Group plans to present its final recommendations on its charges to “evaluate the adequacy of existing laws and regulations applicable to the solvency and consumer protections of annuities as such laws are applied to CDAs” at the NAIC Fall Meeting.