New Jersey becomes 50th state to adopt annuity best-interest rules
New Jersey became the 50th state Monday to adopt a best-interest annuity sales standard.
Like nearly all of the other states, the New Jersey statute is based on a model regulation created by the National Association of Insurance Commissioners.
In February 2020, the NAIC adopted a best-interest standard requiring the following four obligations: care, disclosure, conflict of interest and documentation. The best-interest model was designed to harmonize with the Securities and Exchange Commission’s Regulation Best Interest.
The best-interest standard is strongly supported by a financial services industry wary of efforts to bring annuity sales under a fiduciary umbrella.
“With New Jersey’s action today, all 50 states have now adopted a best interest standard for annuity sales—an important milestone for consumers,” reads a joint statement by David Chavern, president and CEO of the American Council of Life Insurers, and National Association of Insurance and Financial Advisors Trustee Dennis Cuccinelli.
“This ensures people will get professional financial guidance they can trust on products that provides a reliable lifetime stream of income in retirement. At a time when millions of workers are nearing retirement without a pension, this kind of certainty matters more than ever.”
The 50-state success comes 15 months after industry trade associations stepped up lobbying efforts in order to get the last nine states to the finish line. And it comes almost one year to the day since the U.S. Department of Labor published its Retirement Security Rule, the latest attempt to rope annuity sales into a fiduciary standard.
Since the RSR was published on April 25, 2024, President Donald Trump assumed office again, almost certainly casting DOL fiduciary efforts to the waste bin.
‘Retirement savings gap’
The Obama administration’s 2016 fiduciary rule took effect briefly before being vacated by the federal appeals court in 2018. That was followed by an NAIC effort to bolster its Suitability in Annuity Transactions model, seen by many as a weak standard.
State insurance regulators took the offensive against DOL efforts, issuing several comment letters defending the primacy of state regulation of insurance. An official NAIC comment letter noted the need for retirement products such as annuities by many middle-market Americans in or nearing retirement.
“[T]he elderly population in the U.S. has continued to grow at an unprecedented rate, while the working-age population has contracted, placing an increased strain on public assistance programs like Social Security and exacerbating the retirement savings gap,” the Dec. 21, 2023 letter stated. “Further, defined-benefit pension plans have been largely replaced by defined contribution plans in the workplace, which offer less certainty to retirement savers.”
Each year through 2027, more than 4.1 million Americans will turn 65, the joint ACLI-NAIFA letter said Monday.
While all 50 states have some form of a best-interest standard, that does not equal a uniform standard. New York bypassed the NAIC model in favor of Regulation 187, which took effect in 2019 for annuity sales and a year later for life insurance.
Regulation 187 includes language not found in other rules: “any recommendation must reflect the care, skill, prudence, and diligence that a prudent person would exercise, considering only the interests of the consumer and not the financial interests of the producer or insurer.” The New York rule also requires insurance companies to do training and monitor producers.
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