April 15, 1992
TO: CONTRACTUAL PLANS COMMITTEE NO. 8-92
RE: NASAA ADOPTS FINAL GUIDELINES FOR CONTRACTUAL PLANS
__________________________________________________________
At the 1992 NASAA Spring Conference, members of NASAA
officially adopted the NASAA Investment Company
Registration/Trading Practices Committee's proposed guidelines
for registration of periodic payment plans. As you know, the
Institute and its contractual plan members have been working with
the NASAA Committee for the past two years in drafting these
guidelines.
A summary of the guidelines is as follows:
1. Extension of Refund Provision. The guidelines extend
the federally mandated 18 month refund period to 28 months and
require a notice informing investors of this refund right to be
sent not less than 30 nor more than 60 days prior to the
expiration of the 28 month refund period. The guidelines also
require that each investor in a contractual plan be provided with
a disclosure document at the time of sale which sets forth the 28
month refund provision.
2. Persistency Rate. The guidelines require plan sponsors
to file a persistency report within 60 days of the end of the
plan's fiscal year end to all states that have adopted the
guidelines (starting with all fiscal years beginning on or after
January 1, 1993). A plan sponsor who fails to maintain a
persistency rate of 70% or higher within a particular state must
furnish a report explaining the reason(s) for the lower
persistency rate in that state. Failure to furnish the report or
to provide a satisfactory explanation regarding the low
persistency rate shall be grounds for the administrator to deny,
suspend or revoke the registration of the contractual plan.
Moreover, an administrator may take administrative action based
upon low persistency rates in other jurisdictions; however, this
provision does not apply to the renewal of any contractual plan
currently registered.
3. Investment Objective. The guidelines require that the
investment objective of the underlying fund be a fundamental
policy as defined in Section (8) of the Investment Company Act of
1940 (i.e., may not be changed without shareholder approval). If
the fund's investment objective is not currently a fundamental
policy, it shall be made one at the next meeting of shareholders.
Moreover, the investment objective of the underlying fund shall
be one that is "consistent with the goal of providing a long-term
investment opportunity suitable for persons of relatively modest
means."
4. Effective Date. The effective date of the guidelines
is 60 days after the date upon which the vote for adoption occurs
(March 29, 1992). However, the cover letter from the Chair of
the NASAA Committee indicates that some states may exercise their
discretion and adopt portions of the guidelines sooner. Also, it
is unclear whether or not individual states must formally adopt
the guidelines before such may be applied in a particular
jurisdiction. The Institute is seeking clarification on these
points inasmuch as plan sponsors will need to know in advance the
states that have adopted the guidelines in order to make the
appropriate arrangements to comply with such.
A copy of the guidelines as adopted by the NASAA
membership is attached. We will keep you advised of
developments.
Patricia Louie
Assistant General Counsel
Attachment
cc: Joel Goldberg, Esq.