January 28, 1992
TO: CONTRACTUAL PLANS COMMITTEE NO. 2-92
RE: NASAA COMMITTEE ISSUES REVISED PROPOSED GUIDELINES FOR
COMMENT
__________________________________________________________
As we previously advised you, the NASAA Investment Company
Registration/Trading Practices Committee ("Committee") issued
proposed guidelines with respect to state regulation of
contractual plans last month. (See Memorandum to Contractual
Plans Committee No. 21-91, dated December 31, 1991.)
The Committee recently issued revised proposed guidelines
for comment. The revisions were made by the NASAA Committee as a
result of reviewing comment letters from the contractual plan
sponsors and various state administrators and after meetings with
representatives from both industry and the NASAA Board of
Directors. The revised proposed guidelines differ from the
initial proposed guidelines as follows:
1. Definitions. The definition for "persistency rate" has
been amended to provide that "[i]nvestors in the Plan shall
include only those investors whose Plan was purchased at
least forty-five (45) days prior to the Persistency Rate
calculation and who are less than twelve (12) months in
arrears in their payments." The definition also offers two
alternatives with respect to calculating persistency.
2. Suitability Standards. An additional factor, the
likelihood that investing in a contractual plan will be
more beneficial to an investor than investing in a
conventional mutual fund, has been included in determining
an investor's suitability. In addition, the revised
proposals state that contractual plans shall be considered
inappropriate for certain retirement plans.
3. Limitations on Commissions. The refund period has been
extended from the federally mandated 18 month period to 28
months. If an investor decides to withdraw from the plan
within 28 months, all charges and commissions (including
sales or redemption fees) in excess of 15% of the gross
payments made by the investor must be refunded. In
addition, a notice must be provided to each investor which
sets forth his or her cancellation rights. The notice must
be sent not less than 30 days nor more than 60 days prior
to the expiration of the investor's cancellation rights.
During this 60 day time period, the plan sponsor (or agent)
is prohibited from initiating contact with the investor
regarding the investor's cancellation rights.
4. Persistency Rates and Reports. The revised proposals offer
two alternatives with respect to submitting persistency
rates to the states. Alternative 1 would require a report
disclosing the persistency for all sales originating in a
particular jurisdiction during the preceding five year
period. Alternative 2 would require a report disclosing
persistency within a particular state as of the last day of
the plan's fiscal year end. Both alternatives require the
report to be submitted to all states in which the plan is
registered or filed within 60 days of the plan's fiscal
year end.
If an issuer fails to maintain persistency of a certain
percentage within a particular state, the issuer must
furnish the administrator of that state a letter explaining
the reason for such low persistency. The proposed
guidelines do not identify the percentage that must be
maintained prior to this requirement being applicable to a
plan sponsor.
5. Investment Objective. The revised proposals require that a
plan's investment objective be a fundamental policy and
that such objective be "consistent with the principles of
long-term capital growth." The initial proposals required
that the investment objective of the underlying fund be
"long term growth of principal."
A copy of the Committee's revised proposals is attached.
Comments on the revised proposals are due Thursday, February 13,
1992 and should be submitted to each NASAA Committee member.
The Institute has scheduled a conference call to discuss
the Committee's revised proposals for Monday, February 3, 1992 at
4:00 p.m. (EST). Please contact my secretary, Jennifer Thissen,
at (202) 955-8430 no later than 12:00 noon on Friday, January
31st if you are unable to participate in the conference call.
Patricia Louie
Assistant General Counsel
Attachment
cc: Joel H. Goldberg
Shereff, Friedman, Hoffman & Goodman