M E M O R A N D U M CONTRIBUTION LIMITS ON CERTAIN ANNUITY PRODUCTS

Transcription

1 M E M O R A N D U M TO: FROM: RE: AGENTS & AGENCY MANAGERS DAVID B. HURT, LUTCF CONTRIBUTION LIMITS ON CERTAIN ANNUITY PRODUCTS MATURITY DATE DEFERRALS DATE: JULY 17, Our annuity portfolio has played a vital role in securing the financial needs of our policyholders for many years. It is certainly not news to anyone that we are living in a persistently low interest rate environment, which creates significant challenges for life insurance companies with annuity portfolios. Our financial strength was built to withstand times like these, but it behooves us to react to this with all available tools and resources to protect our strength for the benefit of our current and future policyholders. To be certain, these conditions are testing the entire insurance industry; all life and p&c companies are dealing with the same issue because we all face the same investment opportunities. Our Company has determined that it is necessary at this time to limit the amount of annual contributions on all annuities with guaranteed interest rates of two percent (2%) or greater to the annual premium as set forth in the contract at time of issue. Effective July 17, 2012, unscheduled premiums will only be accepted if the total of scheduled and unscheduled premiums received in a policy year do not exceed the annual premium limit in the contract. In addition, many of our annuities require Company approval for deferral of their maturity dates. Effective immediately, the Company will not approve deferral of maturity dates on any annuities requiring Company approval. With assets exceeding $12 billion and surplus approaching $2 billion, the strength and stability of Southern Farm Bureau Life Insurance is quite evident. We appreciate your understanding of the aforementioned issues and your support for the action taken by Company management. When the low interest rate environment changes, we will revisit these issues.

2 Enclosed is a Q & A which will provide you with additional information. A special tollfree number, (800) has been established in our Policy Service department to answer questions you may have. In closing, let me tell you how much we appreciate each of you for the fine service you provide our membership base. Our Company s success is due in large part to the dedicated sales professionals and sales management across our eleven state operation. Thank you for what you do each and every day. You truly do make a difference. DBH:tmg Enclosure Copy: State Sales Managers Associate State Sales Directors District Sales Managers Estate Planning Specialists

3 Q & A: Contribution Limits on Annuity Contracts with Guaranteed Interest Rates of 2% or Greater Effective July 17, Why is Southern Farm Bureau Life limiting the amount of contributions a client can make to an existing annuity? Answer: Our Company s first priority is to make investment decisions that will protect the long term interests of our policy holders. That philosophy has brought us great success in the past and led us to the financial strength that we enjoy today. To continue that history of success and maintain that strength, we must take actions now to manage our annuity business and limit our risks due to the current ultra-low interest rate environment. We will certainly honor all provisions of each annuity contract. 2. How does this action impact non-qualified annuities? Answer: This action affects annuity policies issued with a guaranteed interest rate of 2% or greater. The Company will only accept contributions each policy year up to the amount of the scheduled premium. 3. How can an agent determine the guaranteed interest rate for a particular annuity? Answer: The guaranteed interest rate is stated on the Agent Web Site under the Fund tab for the policy in question. It is also included in the annuity contract. 4. What is the difference between scheduled and unscheduled premium payments for our Company s annuity products? Answer: The scheduled premium is the amount established by the policy holder when the policy is applied for and issued. An unscheduled premium payment is any payment other than a scheduled premium. 5. How will the Company treat unscheduled premium payments in light of the recent action? Answer: When an unscheduled premium payment is received, the Company will determine if this payment, along with all other payments made in the current policy year, exceeds the contract s maximum

4 scheduled premium. If it does not exceed this amount, the payment will be accepted. On the other hand, if the scheduled and unscheduled premiums exceed the contract s maximum scheduled premium for the current policy year, the payment will be returned to the policy holder with a letter of explanation. The servicing agent will receive a copy of our correspondence. 6. Can the scheduled premium be increased? The scheduled premium cannot be changed. 7. Can the mode of payment be changed? Answer: Yes. For example, the mode of payment can be changed from monthly to annual as long as the total annual premium does not exceed the maximum scheduled premium. 8. Can a payment be submitted on a non-qualified annuity that was issued as a single premium annuity? 9. Can a 1035 exchange be made to a non-qualified annuity that has a guaranteed interest rate of 2% or greater? Note: A client may wish to consider submitting a 1035 Exchange with a new annuity application. See question and answer # Can a client contribute up to the IRS limit each year on a Traditional IRA, Roth IRA, SEP IRA, SIMPLE IRA, TSA, HR-10, or qualified plan? Answer: Yes. 11. Can a rollover or transfer contribution be applied to a Traditional IRA, Roth IRA, SEP IRA, SIMPLE IRA, HR-10, or qualified plan that has a guaranteed interest rate of 2% or greater? 12. Can a rollover or transfer contribution be applied to a TSA (403(b)) that has a guaranteed interest rate of 2% or greater?

5 13. Will the Company honor rollovers, transfers and 1035 exchanges currently in progress? Answer: We will honor these requests if the AF017 or 1095AN form was signed by the policy owner on or before July 17, 2012 and received in a timely manner. Note: The signed form must be on file when the money is received. Please furnish the Company a copy of the forms that have been submitted to the other financial institution. These should be submitted to the attention of the Annuity Unit in the Policy Service department. 14. Can a regular rollover, direct rollover, direct transfer, or 1035 exchange be requested on a new application for clients who are no longer able to submit unscheduled premium payments? Answer: Yes. Note: All New Business forms must be completed and suitability requirements met. In addition, funds must be received before the new annuity can be issued. No funds should be requested from the other financial institution, nor can any regular rollover money be received until the Company has completed its suitability review and approval. New Business will send a prefilled AF017, 6225 or 01095AN form to the agent for the signature of the client, requesting funds to be released. The agent will then mail the original request to the other financial institution and send a copy to New Business.