Committees Active on This Topic

Additional Resources

401(k) Dilemma: Advisers Weather a Fog of Uncertainty Surrounding IRA Rollovers
December 1, 2018, Investment News

How The DOL Fiduciary Rule Changed Norms
July 4, 2018, Insurance News Net

DOL Fiduciary Rule Vacated. Now What?
April 4, 2018, Think Advisor

18-Month Extension
November 2017, Federal Register

Field Assistance Bulletin No. 2017-03
August 2017, EBSA

Presidential Memorandum on Fiduciary Duty Rule
February 2017, The White House

NAIC Comment Letter
July 2015, NAIC



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Annuity Suitability

Last Updated 12/31/18

Issue: 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 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.

Background: In April 2016, the U.S. Department of Labor (DOL) completed regulations broadening its definition of "fiduciary investment advice" under the federal Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (IRC). These regulations expanded the scope of who is considered a fiduciary to ERISA retirement plans and individual retirement accounts (IRAs). This included a broader set of insurance agents, insurance brokers and insurers, resulting in far-reaching implications for the retirement marketplace.

However, on March 15, 2018, the 5th U.S. Circuit Court of Appeals issued a decision vacating the DOL fiduciary rule in its entirety, which was officially mandated June 21, 2018. The 5^th^ Circuit held the rule, which expanded the definition of "fiduciary investment advice" under ERISA and the IRC, was "arbitrary, capricious and exceeded the agency's regulatory authority under ERISA." The DOL did not appeal the court's decision and the rule is now vacated. It is unclear what the next steps will be for the DOL.

Separately, the U.S. Securities and Exchange Commission (SEC) released a proposed rule package on April 18, 2018, updating the standard of care broker-dealers and investment advisers would apply for retail investors. The rule was published in the Federal Register May 9, 2018, which specified a 90-day comment period ending Aug. 7, 2018. The NAIC submitted comments to the SEC to further coordinate our efforts so that our respective regulatory developments can be as compatible, clear and as efficient as possible.

Status: The Annuity Suitability (A) Working Group was appointed in 2017 to review and revise, as necessary, Model #275, to promote greater uniformity across NAIC-member jurisdictions. Renewed interest in the model was prompted, in part, by the work being done at the federal level.

It is not believed the Fifth Circuit ruling will affect the work being done by the NAIC in updating the Annuity Suitability Model (#275). The NAIC model regulation goes into much detail about what constitutes suitability information and what factors must be considered when determining product suitability. Insurance producers are held to accountable to the suitability standard when selling a new or replacement annuity.

Revisions to Model #275 are anticpated to be completed in 2019. The Working Group's draft amendments to Model #275 include a requirement producers and insurers, where no producer is involved, act "in the interests of the consumer at the time the recommendation is made, without placing the producer's or the insurer's financial interest ahead of the consumer's interests." The Working Group has also considered revisions to Section 2—Scope, Section 5—Definitions, Section 6—Duties of Insurers and Insurance Producers, and Section 8—Compliance Mitigation; Penalties. In addition, the Working Group continues to discuss the possibility of developing separate sections for consumer disclosures, producer and insurer prohibited practices, and compensation issues.