Compliance November 6, 2019

State Insurance Regulators Seeking Harmony with Reg BI

The National Association of Insurance Commissioners is seeking to update its rules and restrictions on the sales of annuities so they better harmonize with the SEC’s Regulation Best Interest.

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As the enforcement dates of the SEC’s Regulation Best Interest (Reg BI) approach, the National Association of Insurance Commissioners (NAIC) is making progress on updating its own suitability standards applying to the sale and service of annuities.  

The NAIC is the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer review, and coordinate their regulatory oversight.

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Since 2003, state insurance regulators have overseen the sale of annuities to ensure products sold to consumers are suitable for them, based on a review of their needs. The NAIC’s “Suitability in Annuity Transactions Model Regulation #275” serves as a basis for this regulatory framework.

Model #275 sets forth standards and procedures for recommending annuity products to consumers to ensure their insurance and financial objectives are appropriately addressed. Since the model’s original adoption, the standards have been updated for consistency with those issued by the Financial Industry Regulatory Authority (FINRA). Most states have enacted the updated version of Model #275.

Now, the NAIC appears to be preparing to take another step forward to harmonize Model #275 with the requirements of the SEC Regulation Best Interest. According to the agenda published by the NAIC Annuity Suitability Working Group ahead of its November 5th meeting, the NAIC planned to finish its discussion of the industry comments received on its proposed revisions to Model #275.

According to the Insured Retirement Institute’s (IRI) chief legal and regulatory affairs officer, Jason Berkowitz, all signs are that the NAIC’s revised Model #275 will attempt to hold state-regulated insurance producers to a higher standard, which he says is a “best interest standard.”

“The NAIC engaged in a comprehensive, transparent and inclusive process to revise its Suitability in Annuity Transactions Model,” Berkowitz says. “IRI will carefully review the next iteration of this proposal with our members, but the overall effort to date appears to achieve a workable best interest standard of conduct and a framework for compliance by producers and insurers.”

Berkowitz says the NAIC effort to enhance the current model in a manner that is consistent with the U.S. Securities and Exchange Commission’s Regulation Best Interest, to the extent possible, is the right approach to provide stronger consumer protection.

“As the proposal moves to the next step of the NAIC process, it now includes IRI-recommended language to provide a safe harbor for all insurance producers who are subject to, and actually comply with, equivalent or greater standards such as Regulation Best Interest or the Investment Advisors Act,” Berkowitz says. “This will avoid duplicative compliance requirements for those who already comply with rigorous standards.”

Compliance November 6, 2019

2020 Contribution and Benefit Limits Announced

The limit on deferrals to 401(k), 403(b) and most 457 plans has been increased by $500.

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The IRS has announced contribution and benefit limits for 2020.

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $19,000 to $19,500.

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The catch-up contribution limit for employees aged 50 and over who participate in these plans is increased from $6,000 to $6,500.

The limitation regarding SIMPLE retirement accounts for 2020 is increased to $13,500, up from $13,000 for 2019.

The limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $65,000 for married couples filing jointly, up from $64,000; $48,750 for heads of household, up from $48,000; and $32,500 for singles and married individuals filing separately, up from $32,000.

Other limits included in IRS Notice 2019-59 include:

  • Effective January 1, 2020, the limitation on the annual benefit under a defined benefit (DB) plan under § 415(b)(1)(A) is increased from $225,000 to $230,000.
  • The limitation for defined contribution (DC) plans under § 415(c)(1)(A) is increased in 2020 from $56,000 to  $57,000.
  • The annual compensation limit under §§ 401(a)(17), 404(l), 408(k)(3)(C), and408(k)(6)(D)(ii) is increased from $280,000 to $285,000.
  • The dollar limitation under § 416(i)(1)(A)(i) concerning the definition of “key employee” in a top-heavy plan is increased from $180,000 to $185,000.
  • The limitation used in the definition of “highly compensated employee” under§ 414(q)(1)(B) is increased from $125,000 to $130,000.

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