On September 27, 2010, President Obama signed into law the "Small Business Jobs Act of 2010" (the "Act"). Although most of the provisions of the Act deal with tax breaks and other incentives for small businesses, one provision favorably affects annuity contract owners.

Section 2113 of the Act amends Section 72 of the Internal Revenue Code of 1986 ("IRC") to allow partial annuitization of an annuity contract. Specifically, IRC Section 72 is amended to provide that, if:

any amount [is] received as an annuity for a period of 10 years or more . . . such portion shall be treated as a separate contract . . . and the investment in the contract shall be allocated pro rata between each portion of the contract from which amounts are received as an annuity and the portion of the contract from which amounts are not received as an annuity . . . and a separate annuity starting date shall be determined with respect to each portion of the contract from which amounts are received as an annuity.

The provision is effective for amounts received under an annuity in taxable years after December 31, 2010.

Prior to the Act, holders of deferred annuity contracts who wanted to partially annuitize their annuities had to exchange their annuities for two separate annuities, annuitize one of the annuities, and comply with a complex set of rules established by the IRS.

Insurers may wish to review their annuity contract forms to determine whether partial annuitization is permitted without an endorsement to the contract. Insurers also may wish to review current disclosure documents with regard to partial annuitization.p