Zero Bonus Provision for Annuities

The focus of this weekly tip is bonus features in annuity products. The Additional Standards for Bonus Benefits provide “(3) A zero entry in a range for any benefit or credit is unacceptable.”  This requirement appears in the Scope and the Variability of Information sections, as well as in Filing Information Notice 2010-2. The purpose of the provision is to prevent a form from indicating that a bonus is guaranteed if there is a possibility that the conditions of the bonus are met, yet the value of the bonus would be zero. At a very basic level the title of the standard expresses the expectation that the benefit is provided in addition to the contract benefit. This requirement has been present and actively reviewed since the bonus standards were first adopted in 2009.
Turning to the uncommon situation when a bonus feature carries an identifiable charge, the requirement continues to apply. Consequently, the charge must be taken into consideration to achieve compliance. The range of the charge and the range of the bonus have to result in a positive bonus. In other words, the cumulative charges applied cannot exceed the bonus payable or vested at any time.

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