October 29, 1990
TO: CONTRACTUAL PLANS COMMITTEE NO. 13-90
RE: MAINE ISSUES SUPPLEMENTAL REPORT ON CONTRACTUAL PLAN FEES
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As we previously informed you, the Maine Securities
Division issued a study, dated March 26, 1990, analyzing the fees
assessed by contractual plans offered by one sponsor. (See
Memorandum to Contractual Plans Committee No. 5-90, dated May 16,
1990). As a result of this study, several states have raised
questions concerning contractual plans and a meeting has been
scheduled between the NASAA Investment Company Registration/
Trading Practices Committee and contractual plan sponsors to
discuss state concerns with contractual plans. (See Memorandum
to Contractual Plans Committee No. 11-90, dated October 26,
1990.)
The Maine Securities Division recently has issued a
supplemental analysis (a copy of which is attached), which
incorporates data from other plan sponsors. The supplemental
study states that although these other sponsors generally
reported higher persistency rates, "the problem does not appear
limited to [the first] sponsor". The study notes that the
overall persistency rate for all plans sold in Maine was under
50%.
The study concludes that unless either a means can be found
to guarantee that plans sold will have high persistency rates or
the plans are restructured so costs "are spread more equitably"
(presumably through reduced loads on early payments), the "final
alternative is to prohibit the plans, as has been done in
California and Wisconsin".
Patricia Louie
Assistant General Counsel
Attachment