Unallocated Annuity Contracts

  • NOLGHA - Policyholder Information - Frequently Asked Questions - [link]
  • 8. Unallocated Annuity Contracts
    1. What is an unallocated annuity contract?
      • Under the NAIC Model Act, an unallocated annuity contract is “an annuity contract or group annuity certificate that is not issued to and owned by an individual, except to the extent of any annuity benefits guaranteed to an individual by an insurer under the contract or certificate.” (See NAIC Model Act § 5(X)).
        • Unallocated annuity contracts typically are contracts purchased by sophisticated institutional investors, such as retirement plans that use such contracts as funding vehicles for participants.
    2. Are unallocated annuity contracts covered?
      • Given the institutional nature of unallocated annuities, not all states provide coverage for such contracts.
        • Under the NAIC Model Act (and the laws of many states that do cover unallocated annuities), coverage runs to the contract owner and is limited to $5 million in benefits per plan sponsor, regardless of the number of plans or contracts involved. In the case of governmental retirement plans established under Section 401, 403(b), or 457 of the U.S. Internal Revenue Code, the NAIC Model Act and some states provide a coverage level of $250,000 in present value of annuity benefits, in the aggregate, with respect to each plan participant.
        • Coverage is typically provided by the guaranty association in the state where the plan sponsor has its principal place of business.
        • States covering unallocated annuity contracts typically exclude from coverage
          • (1) portions of such contracts that are not issued to or in connection with a specific employee, union, or association of natural persons benefit plan or a government lottery; and
          • (2) unallocated annuity contracts issued to or in connection with benefit plans that are protected under the federal Pension Benefit Guaranty Corporation Act.
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