The New York Insurance Department (“NYID”) issued a draft circular letter last year regarding the implications of excess withdrawals from annuities with guaranteed minimum withdrawal benefits (“GMWB”). On February 7, 2011, the NYID finalized and issued the circular letter as Circular Letter No. 5 (“Circular Letter”).
The Circular Letter requires insurers to advise consumers that future guaranteed withdrawals will be permanently reduced if they withdraw more than the specified guaranteed amount from the contract. See our prior post for an example of how the reduction works. As such, the Circular Letter requires insurers to disclose the effect of taking an excess withdrawal in the annual or other periodic statement sent to a contract owner, and at the time that a contract owner requests an excess withdrawal. A general explanation of the effect is acceptable if the disclosure also indicates that the contract owner may request a personalized, transaction-specific calculation. The Circular Letter indicates that the following disclosure would be acceptable:
Withdrawals in excess of the guaranteed withdrawal amount, called “excess withdrawals”, will result in a permanent reduction in future guaranteed withdrawal amounts. If you would like to make an excess withdrawal and are uncertain how an excess withdrawal will reduce your future guaranteed withdrawal amounts, then you may contact us prior to requesting the withdrawal to obtain a personalized, transaction specific calculation showing the effect of the excess withdrawal.
The manner in which the disclosure is provided at the time of the withdrawal request will depend on how the request is submitted, e.g. if a contract owner makes a request by phone, then the insurer may provide the disclosure orally over the phone.
Insurers are required to implement the disclosure within 90 days of the date of the Circular Letter.