REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
x
Pre-Effective Amendment No.
o
Post-Effective Amendment
No. 18
x
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
x
Amendment No. 272
x
(Check appropriate box or boxes)
SEPARATE ACCOUNT A
(Exact Name of Registrant)
PACIFIC LIFE INSURANCE COMPANY
(Name of Depositor)
700 Newport Center Drive Newport Beach, California92660
(Address of Depositor’s Principal Executive Offices) (Zip Code)
(949) 219-3943
(Depositor’s Telephone Number, including Area Code)
Brandon J. Cage
Assistant Vice President
Pacific Life Insurance Company
700 Newport Center Drive Newport Beach, California92660
(Name and address of agent for service)
Approximate Date of Proposed Public
Offering:
It is proposed that this filing will
become effective (check appropriate box)
o immediately upon filing pursuant to paragraph (b) of Rule 485
þ on May 1, 2010 pursuant to paragraph (b) of Rule 485
o 60 days after filing pursuant to paragraph (a)(1) of Rule 485
o on ______________ pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following box:
o
this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
Title of Securities Being Registered: Interests in the Separate Account under
Pacific Voyages individual flexible
premium variable annuity contracts.
Pacific Voyages is
an individual flexible premium deferred variable annuity
contract issued by Pacific Life Insurance Company (Pacific
Life).
This Prospectus
provides information you should know before buying a Contract.
It’s accompanied by current Prospectuses for the Funds that
provide the underlying Portfolios for the Variable Investment
Options offered under the Contract. The Variable Investment
Options are funded by Separate Account A of Pacific Life. Please
read both Prospectuses carefully, and keep them for future
reference.
Here’s a list
of all the Investment Options currently available under your
Contract; the Variable Investment Options are listed according
to the underlying Funds:
VARIABLE
INVESTMENT OPTIONS
Pacific Select
Fund
International Value
Long/Short Large-Cap
International Small-Cap
Mid-Cap Value
Equity Index
Small-Cap Index
Small-Cap Equity
Equity
American
Funds®
Asset Allocation
American
Funds®
Growth-Income
American
Funds®
Growth
Large-Cap Value
Technology
Floating Rate Loan
Small-Cap Growth
Short Duration Bond
Comstock
Growth LT
Focused 30
Health Sciences
Mid-Cap Equity
International Large-Cap
Mid-Cap Growth
Real Estate
Small-Cap Value
Multi-Strategy
Main
Street®
Core
Emerging Markets
Cash Management (formerly called Money Market)
High Yield Bond
Managed Bond
Inflation Managed
Pacific Dynamix – Conservative Growth
Pacific Dynamix – Moderate Growth
Pacific Dynamix – Growth
Dividend Growth (formerly called Diversified Research) Large-Cap Growth
Diversified Bond
AIM Variable Insurance
Funds
(Invesco Variable Insurance Funds) Invesco V.I. Global Multi-Asset
Fund Series II (formerly called AIM V.I. PowerShares
ETF Allocation Fund Series II)
AllianceBernstein Variable
Products Series Fund, Inc. AllianceBernstein VPS
Balanced Wealth Strategy
Portfolio Class B
BlackRock Variable Series
Funds, Inc. BlackRock Global Allocation V.I.
Fund Class III
Franklin Templeton Variable
Insurance
Products Trust Franklin Templeton VIP
Founding Funds Allocation
Fund Class 4
GE Investments Funds,
Inc. GE Investments Total Return
Fund Class 3
PIMCO Variable Insurance
Trust PIMCO Global Multi-Asset Portfolio –
Advisor Class
Van Kampen Life Investment
Trust Van Kampen LIT Global Tactical Asset Allocation
Portfolio Class II
FIXED OPTION DCA Plus Fixed Option
You’ll find
more information about the Contract and Separate Account A in
the SAI dated May 1, 2010. The SAI has been filed with the
SEC and is considered to be part of this Prospectus because
it’s incorporated by reference. You’ll find a table of
contents for the SAI on page 92 of this Prospectus. You can
get a copy of the SAI without charge by calling or writing to
Pacific Life or you can visit our website at
www.pacificlife.com. You can also visit the SEC’s website
at www.sec.gov, which contains the SAI, material incorporated
into this Prospectus by reference, and other information about
registrants that file electronically with the SEC.
This Contract is not
available in all states. This Prospectus is not an offer in any
state or jurisdiction where we are not legally permitted to
offer the Contract.
The Contract is
described in detail in this Prospectus and its Statement of
Additional Information (SAI). A Fund is described in its
Prospectus and its SAI. No one has the right to describe the
Contract or a Fund any differently than they have been described
in these documents.
You should be aware
that the Securities and Exchange Commission (SEC) has not
reviewed the Contract and does not guarantee that the
information in this Prospectus is accurate or complete.
It’s a criminal offense to say otherwise.
This material is not
intended to be used, nor can it be used by any taxpayer, for the
purpose of avoiding U.S. federal, state or local tax penalties.
Pacific Life, its distributors and their respective
representatives do not provide tax, accounting or legal advice.
Any taxpayer should seek advice based on the taxpayer’s
particular circumstances from an independent tax advisor.
This Contract is
not a deposit or obligation of, or guaranteed or endorsed by,
any bank. It’s not federally insured by the Federal Deposit
Insurance Corporation (FDIC), the Federal Reserve Board, or any
other government agency. Investment in a Contract involves risk,
including possible loss of principal.
This overview tells
you some key things you should know about your Contract.
It’s designed as a summary only – please read
this Prospectus, your Contract and the Statement of Additional
Information (SAI) for more detailed information.
Certain Contract
features described in this Prospectus may vary or may not be
available in your state. The state in which your Contract is
issued governs whether or not certain features, Riders, charges
or fees are allowed or will vary under your Contract. These
variations are reflected in your Contract and in Riders or
Endorsements to your Contract. See your financial professional
or contact us for specific information that may be applicable to
your state. See ADDITIONAL INFORMATION – State
Considerations. This prospectus provides a description of
the material rights and obligations under the Contract. Your
Contract (including any riders and/or endorsements) represents
the contractual agreement between you and us. Any guarantees
provided for under your Contract or through optional riders are
backed by our financial strength and claims paying ability. You
must look to the strength of the insurance company with regard
to such guarantees. Your financial professional or financial
professional’s firm is not responsible for any Contract
guarantees.
In this Prospectus,
you and your mean the Contract Owner or
Policyholder. Pacific Life, we, us and our refer
to Pacific Life Insurance Company. Contract means a
Pacific Voyages variable annuity contract, unless we state
otherwise.
Some of the Terms
used in this Prospectus may be new to you. You will find a
glossary of certain terms in the TERMS USED IN THIS
PROSPECTUS section.
Pacific Voyages
Basics
An annuity contract may be appropriate if you are looking for
retirement income or you want to meet other long-term financial
objectives. Discuss with your financial professional whether a
variable annuity, optional benefits and underlying Investment
Options are appropriate for you, taking into consideration your
age, income, net worth, tax status, insurance needs, financial
objectives, investment goals, liquidity needs, time horizon,
risk tolerance and other relevant information. Together you can
decide if a variable annuity is right for you.
This Contract may not be the right one for you if you need to
withdraw money for short-term needs, because withdrawal charges
and tax penalties for early withdrawal may apply.
You should consider the Contract’s investment and income
benefits, as well as its costs.
Pacific Voyages is an annuity contract between you and Pacific
Life Insurance Company. Annuity contracts have two phases, the
accumulation phase and the annuitization (income) phase. The two
phases are discussed below.
This Contract is designed for long-term financial planning. It
allows you to invest money on a tax-deferred basis for
retirement or other goals, and/or to receive income in a variety
of ways, including a series of income payments for life or for a
specified period of years.
Non-Qualified and Qualified Contracts are available. You buy a
Non-Qualified Contract with “after-tax” dollars. You
buy a Qualified Contract under a qualified retirement or pension
plan, or some form of an individual retirement annuity or
account (IRA). It’s important to know that IRAs and
qualified plans are already tax-deferred which means the tax
deferral feature of a variable annuity does not provide a
benefit in addition to that already offered by an IRA or
qualified plan. An annuity contract should only be used to fund
an IRA or qualified plan to benefit from the annuity’s
features other than tax deferral.
Pacific Voyages is a variable annuity, which means that the
value of your Contract fluctuates depending on the performance
of the Investment Options you choose. The Contract allows you to
choose how often you make Investments (“Purchase
Payments”) and how much you add each time.
3
AN OVERVIEW OF
PACIFIC VOYAGES
Your
Right to Cancel (“Free Look”)
During the Free Look period, you have the right to cancel your
Contract and return it with instructions to us or to your
financial professional for a refund. The amount refunded may be
more or less than the Purchase Payments you have made, depending
on the state where you signed your application and the type of
Contract you purchased.
You will find more information about the Right to Cancel
(“Free Look”) period starting on page 40.
The Accumulation
Phase
The Investment Options you choose and how they perform will
affect the value of your Contract during the accumulation phase,
as well as the amount available to annuitize on the Annuity
Date.
The accumulation phase begins on your Contract Date and
continues until your Annuity Date. During the accumulation
phase, you can put money in your Contract by making Purchase
Payments, and choose Investment Options in which to allocate
them. You can also take money out of your Contract by making a
withdrawal.
Investments
(“Purchase Payments”)
Your initial Purchase Payment must be at least $5,000 for a
Non-Qualified Contract and at least $2,000 for a Qualified
Contract. Additional Purchase Payments must be at least $250 for
a Non-Qualified Contract and $50 for a Qualified Contract.
You will find more information about Making Your Investments
(“Purchase Payments”) starting on page 17.
Investment
Options
Ask your financial professional to help you choose the right
Investment Options for your goals and risk tolerance. Any
financial firm or financial professional you engage to provide
advice and/or make transfers for you is not acting on our
behalf. We are not responsible for any investment decisions or
allocations you make, recommendations such financial
professionals make or any allocations or specific transfers they
choose to make on your behalf. Some broker-dealers may not allow
or may limit the amount you may allocate to certain Investment
Options.
You can choose from a variety of Variable Investment Options
(also called Subaccounts), each of which invests in a
corresponding Portfolio of a Fund. The value of each Portfolio
will fluctuate with the value of the investments it holds, and
returns are not guaranteed.
You can also choose any available fixed option that earns a
guaranteed rate of interest of at least 3% annually.
We allocate your Purchase Payments to the Investment Options you
choose. The value of your Contract will fluctuate during the
accumulation phase depending on the Investment Options you have
chosen. You bear the investment risk of any Variable Investment
Options you choose.
You will find more information about the Investment Options
and the Investment Advisers starting on page 13.
Transferring
Among Investment Options
You can transfer among Investment Options any time, subject to
certain limitations, until your Annuity Date without paying any
current income tax. Transfers are limited to 25 for each
calendar year. Only 2 transfers per month may involve the
Invesco V.I. Global Multi-Asset Fund, BlackRock Global
Allocation V.I. Fund, GE Investments Total Return Fund,
International Value, International Small-Cap, International
Large-Cap, Emerging Markets, PIMCO Global Multi-Asset, or Van
Kampen LIT Global Tactical Asset Allocation Investment Options.
In addition, only 2 transfers into or out of the American Funds
Asset Allocation, American Funds Growth or American Funds
Growth-Income Investment Options may occur in any calendar
month. If you have used all 25 transfers in a calendar
year, you may make one additional transfer of all or a portion
of your Variable Account Value to the Cash Management Investment
Option before the start of the next calendar year. You can also
make systematic transfers by enrolling in our dollar cost
averaging, portfolio rebalancing or earnings sweep programs.
Transfers made under these systematic transfer programs or
transfers made by us to update a Portfolio Optimization Model
are excluded from the limitation. Some restrictions may apply to
transfers to or from any fixed option.
You will find more information about transfers and transfer
limitations starting on page 24.
Withdrawals
You can make full and partial withdrawals to supplement your
income or for other purposes. You can withdraw a certain amount
each year without paying a withdrawal charge, but any amount
withdrawn in excess of this amount may incur a withdrawal charge
on Investments that are less than 7 years old. Some restrictions
may apply to making partial withdrawals from any fixed option.
4
In general, you may have to pay income taxes on withdrawals or
other distributions from your Contract. If you’re under age
591/2,
a 10% federal tax penalty may also apply to taxable withdrawals.
You will find more information about withdrawals starting on
page 38.
The Income
Phase
The income phase of your Contract begins on your Annuity Date.
Generally, you can choose to surrender your Contract and receive
a single payment or you can annuitize your Contract and receive
a series of income payments over a fixed period or for life.
You can choose fixed or variable annuity payments, or a
combination of both. Variable annuity payments may not be
available in all states. You can choose monthly, quarterly,
semi-annual or annual payments. We will make the income payments
to you or your designated payee. The Owner is responsible for
any tax consequences of any annuity payments.
If you choose variable annuity payments, the amount of the
payments will fluctuate depending on the performance of the
Variable Investment Options you choose. After your Annuity Date,
if you choose variable annuity payments, you can exchange your
Subaccount Annuity Units among the Variable Investment Options
up to 4 times in any
12-month
period.
You will find more information about annuitization starting
on page 30 and annuity options available under the Contract
starting on page 32.
The Death
Benefit
Generally, the Contract provides a death benefit upon the first
death of an Owner or the death of the sole surviving Annuitant,
whichever occurs first, during the accumulation phase. Death
benefit proceeds are payable when we receive proof of death and
payment instructions in proper form. To whom we pay a death
benefit, and how we calculate the amount of the death benefit
depends on who dies first and the type of Contract you own.
You will find more information about the death benefit
starting on page 34.
Optional
Riders
Optional Riders are subject to availability (including state
availability). Before purchasing any optional Rider, make sure
you understand all of the terms and conditions and consult with
your financial professional for advice on whether an optional
Rider is appropriate for you. We reserve the right to restrict
the purchase of an optional living benefit Rider to only
Contract issue in the future.
Stepped-Up
Death Benefit Rider (SDBR)
This optional Rider offers you the ability to lock in market
gains for your beneficiaries with a stepped-up death benefit,
which is the highest Contract Value on any previous Contract
Anniversary (prior to the Annuitant’s
81st
birthday) adjusted for additional Purchase Payments and
withdrawals. You can only buy the SDBR when you buy your
Contract.
You will find more information about the SDBR starting on
page 36.
Earnings Enhancement Guarantee (EEG) Rider
This optional Rider provides for an additional amount (EEG
Amount) to be included in the death benefit proceeds when such
proceeds become payable as a result of the sole surviving
Annuitant’s death or first death of an Owner who is also an
Annuitant. You may buy the EEG Rider on the Contract Date or on
the first Contract Anniversary.
If you buy the EEG Rider within 60 days after the Contract
Date or within 60 days after the first Contract
Anniversary, we will make the effective date of the EEG Rider
coincide with that Contract Date or Contract Anniversary.
The Earnings Enhancement Guarantee (EEG) Rider, EEG Amount and
EEG Charge are called the Guaranteed Earnings Enhancement (GEE)
Rider, GEE Amount, and GEE Charge, respectively, in the Rider
attached to your Contract.
You will find more information about the EEG Rider starting
on page 37.
Optional
Living Benefit Riders
You may purchase an optional Rider on the Contract Date or on
any Contract Anniversary (if available). In addition, if you
purchase a Rider within 60 days after the Contract Date or,
if available, within 60 days after any Contract
Anniversary, the Rider Effective Date will be that Contract Date
or Contract Anniversary.
At initial purchase and during the entire time that you own an
optional living benefit Rider, you must invest your entire
Contract Value in an asset allocation program or in Investment
Options we make available for these Riders. The allocation
limitations associated with
5
AN OVERVIEW OF
PACIFIC VOYAGES
these Riders may limit the number of Investment Options that are
otherwise available to you under your Contract. See OTHER
OPTIONAL RIDERS – General Information –
Investment Allocation Requirements. Failure to adhere
to the Investment Allocation Requirements may cause your Rider
to terminate.
Taking a withdrawal before a certain age or a withdrawal that is
greater than the allowed annual withdrawal amount under a
particular Rider, may result in adverse consequences such as a
reduction in Rider benefits or the failure to receive lifetime
withdrawals under a Rider.
Some optional riders allow for owner elected
Resets/Step-Ups.
If you elect to
Reset/Step-Up,
your election must be received, in a form satisfactory to us, at
our Service Center within 60 days after the Contract Anniversary
(“60 day period”) on which the
Reset/Step-Up
is effective. We may, at our sole discretion, allow
Resets/Step-Ups
after the 60 day period. We reserve the right to refuse a
Reset/Step-Up
request after the 60 day period regardless of whether we
may have allowed you or others to
Reset/Step-Up
in the past. Each Contract Anniversary starts a new 60 day
period in which a
Reset/Step-Up
may be elected.
There may be adverse consequences to taking a loan while an
optional Rider is in effect. If you have an existing loan on
your Contract, you should carefully consider whether an optional
Rider is appropriate for you.
CoreIncome
Advantage 5 Rider
This Rider is available for purchase starting June 1, 2010
(subject to availability). This optional Rider lets you, before
the Annuity Date, withdraw up to 5% of your Protected Payment
Base per year, lock in market gains, and provides the potential
to receive 5% of a Protected Payment Base for life, if certain
conditions are met. Lifetime withdrawals are available if the
oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner) was age 65 or older when the first withdrawal
was taken after the Rider Effective Date or the most recent
Reset Date, whichever is later. If your total withdrawals in a
Contract Year exceed the annual withdrawal amount allowed under
the Rider, then the Protected Payment Base may decrease and the
amount you may withdraw in the future under the Rider may be
reduced.
Beginning with the first
(1st)
anniversary of the Rider Effective Date or most recent Reset
Date, whichever is later, the Rider provides for Automatic
Resets or Owner-Elected Resets of the Protected Payment Base and
Remaining Protected Balance to an amount equal to 100% of the
Contract Value. Any reset may include a change in the annual
charge percentage (up to a maximum of 1.00%) associated with the
Rider. Protected Payment Base, Remaining Protected Balance,
Automatic Reset, Owner-Elected Reset and Reset Date are
described in OTHER OPTIONAL RIDERS – CoreIncome
Advantage 5 Rider.
This Rider is called the Core Withdrawal Benefit Rider in the
Rider attached to your Contract.
You will find more information about the CoreIncome Advantage
5 Rider starting on page 44.
CoreProtect
Advantage Rider
This optional Rider lets you, before the Annuity Date, withdraw
up to 5% of your Protected Payment Base per year, lock in market
gains, and provides the potential to withdraw up to the
Protected Payment Amount for life, if certain conditions are
met. Lifetime withdrawals are available if the oldest Owner (or
youngest Annuitant, in the case of a Non-Natural Owner) was
age 65 or older when the first withdrawal was taken after
the Rider Effective Date or the most recent Reset Date,
whichever is later. If your total withdrawals in a Contract Year
exceed the annual withdrawal amount allowed under the Rider,
then the Protected Payment Base may decrease and the amount you
may withdraw in the future under the Rider may be reduced.
Before the first withdrawal or 10 Contract Anniversaries from
the Rider Effective Date (whichever occurs first), the Protected
Payment Base and Remaining Protected Balance will be increased
to the greater of the Annual Credit Value (a 5% Annual Credit is
added to this value) or the Highest Anniversary Value.
After the first withdrawal or 10 Contract Anniversaries
from the Rider Effective Date (whichever occurs first), the
Rider provides for Automatic Resets or Owner-Elected Resets of
the Protected Payment Base and Remaining Protected Balance to an
amount equal to 100% of the Contract Value. Any reset may
include a change in the annual charge percentage (up to a
maximum of 1.50%) associated with the Rider. Protected Payment
Base, Remaining Protected Balance, Rider Effective Date, Highest
Anniversary Value, Annual Credit Value, Annual Credit, Automatic
Reset, Owner-Elected Reset and Reset Date are described in
OTHER OPTIONAL RIDERS – CoreProtect Advantage
Rider.
This Rider is called the Guaranteed Withdrawal Benefit IV Rider
in the Rider attached to your Contract.
You will find more information about the CoreProtect
Advantage Rider starting on page 49.
6
CoreIncome
Advantage Rider
This optional Rider lets you, before the Annuity Date, withdraw
up to 4% of your Protected Payment Base per year, lock in market
gains, and provides the potential to receive 4% of a Protected
Payment Base for life, if certain conditions are met. Lifetime
withdrawals are available if the oldest Owner (or youngest
Annuitant, in the case of a Non-Natural Owner) was age 65 or
older when the first withdrawal was taken after the Rider
Effective Date or the most recent Reset Date, whichever is
later. If your total withdrawals in a Contract Year exceed the
annual withdrawal amount allowed under the Rider, then the
Protected Payment Base may decrease and the amount you may
withdraw in the future under the Rider may be reduced.
Beginning with the first
(1st)
anniversary of the Rider Effective Date or most recent Reset
Date, whichever is later, the Rider provides for Automatic
Resets or Owner-Elected Resets of the Protected Payment Base and
Remaining Protected Balance to an amount equal to 100% of the
Contract Value. Any reset may include a change in the annual
charge percentage (up to a maximum of 1.00%) associated with the
Rider. Protected Payment Base, Remaining Protected Balance,
Automatic Reset, Owner-Elected Reset and Reset Date are
described in OTHER OPTIONAL RIDERS – CoreIncome
Advantage Rider.
This Rider is called the Core Withdrawal Benefit Rider in the
Rider attached to your Contract.
You will find more information about the CoreIncome Advantage
Rider starting on page 54.
Income
Access Rider
This optional Rider lets you, before the Annuity Date, withdraw
up to 7% of your Protected Payment Base per year and lock in
market gains, if certain conditions are met. If your total
withdrawals in a Contract Year exceed the annual withdrawal
amount allowed under the Rider, then the Protected Payment Base
may decrease and the amount you may withdraw in the future under
the Rider may be reduced. This Rider does not provide lifetime
withdrawal benefits.
Starting May 1, 2007, on any Contract Anniversary beginning
with the first
(1st)
anniversary of the Rider Effective Date or most recent Step-Up
Date, whichever is later, this Rider provides for Automatic
Step-Ups or Owner-Elected Step-Ups of the Protected Payment Base
and Remaining Protected Balance to an amount equal to 100% of
the Contract Value. If you want to participate in Automatic
Step-Ups, you must make an affirmative election in a form
satisfactory to us. Any Step-Up may include a change in the
annual charge percentage (up to a maximum of 0.75%) associated
with the Rider. Protected Payment Base, Remaining Protected
Balance, Automatic Step-Up, Owner-Elected Step-Up, and Step-Up
Date are described in OTHER OPTIONAL RIDERS –
Income Access Rider.
You will find more information about the Income Access Rider
starting on page 59.
Guaranteed Protection Advantage 3 (GPA 3) Rider
This optional Rider allows for an additional amount that may be
added to your Contract Value at the end of a
10-year
period (the “Term”), if certain conditions are met.
The Rider also provides for an additional option (the
“Step-Up”) on any Contract Anniversary beginning with
the
3rd anniversary
of the Rider Effective Date and before the Annuity Date. If the
Step-Up is elected, your
10-year Term
would begin again as of the effective date of the Step-Up
election, and may include a change in the annual charge
percentage (up to a maximum of 1.00%) associated with the Rider.
You will find more information about the GPA 3 Rider
starting on page 63.
Guaranteed
Protection Advantage 5 (GPA 5) Rider
This optional Rider allows for an additional amount that may be
added to your Contract Value at the end of a
10-year
period (the “Term”), if certain conditions are met.
The Rider also provides for an additional option (the
“Step-Up”)
on any Contract Anniversary beginning with the
5th
anniversary of the Effective Date of the Rider and before the
Annuity Date. If the Step-Up is elected, your
10-year Term
would begin again as of the effective date of the Step-Up
election, and may include a change in the annual charge
percentage (up to a maximum of 0.75%) associated with the Rider.
You will find more information about the GPA 5 Rider
starting on page 64.
Guaranteed
Income Advantage Plus (GIA Plus) Rider
The optional Rider offers a guaranteed income annuity option, a
minimum fixed income payout, the ability to lock in market
gains, and withdraw money each year, if certain conditions are
met.
The GIA Plus Rider is called the Guaranteed Income Annuity
(GIA) Rider in the Rider attached to your Contract.
You will find more information about the GIA Plus Rider
starting on page 66.
7
AN OVERVIEW OF
PACIFIC VOYAGES
Fees and
Expenses
This section of the
overview explains the fees and expenses associated with your
Pacific Voyages Contract.
Contract
Transaction Expenses
The following describes the transaction fees and expenses that
you will pay when owning your Contract. Expenses are fixed under
the terms of your Contract. Premium taxes and/or other taxes may
also apply to your Contract. We generally charge state premium
taxes and/or other taxes when you annuitize your Contract, but
there are other times when we charge them to your Contract
instead. Please see your Contract for details.
• Maximum Withdrawal Charge (as a percentage of
Purchase Payments
withdrawn)1
“Age” of Payment in Years:
1
2
3
4
5
6
7 or more
Withdrawal Charge Percentage:
7%
7%
6%
5%
3%
1%
0%
Periodic
Expenses
The following describes the fees and expenses that you will pay
periodically during the time you own your Contract not including
Portfolio fees and expenses.
• Annual
Fee2
$
40.00
Separate
Account A Annual Expenses
(as a
percentage of the average daily Variable Account
Value3):
Without
With
Stepped-Up
Rider
Death Benefit
Rider
• Mortality and Expense Risk
Charge4
1.00%
1.00%
• Administrative
Fee4
0.15%
0.15%
• Stepped-Up Death Benefit Rider
Charge4,5
none
0.20%
• Total Separate Account A Annual Expenses
1.15%
1.35%
Loan Expenses (interest on Contract Debt) (Loans are only
available with certain Qualified Contracts.
See FEDERAL TAX ISSUES—Qualified Contracts—General
Rules—Loans on page 79):
• Guaranteed Income Advantage Plus (GIA Plus) Rider
Charge19
0.75%
0.75%
1
The
withdrawal charge may or may not apply or may be reduced under
certain circumstances. The age is measured from the date of each
Purchase Payment. See CHARGES, FEES AND DEDUCTIONS and
WITHDRAWALS.
2
We
deduct an Annual Fee on each Contract Anniversary up to your
Annuity Date and when you make a full withdrawal if the Contract
Value on these days is less than $50,000 after deducting any
outstanding loan and interest (your Net Contract Value). See
CHARGES, FEES AND DEDUCTIONS.
3
The
Variable Account Value is the value of your Variable Investment
Options on any Business Day.
8
4
This
is an annual rate and is assessed on a daily basis. The daily
rate is calculated by dividing the annual rate by 365.
5
If
you buy the Stepped-Up Death Benefit Rider we add this charge to
the Mortality and Expense Risk Charge until your Annuity Date.
6
If
we process a loan on your Contract, we will charge you a gross
interest rate of 5.00% on your outstanding principal amount. We
will credit you the amount of 3.00% on any Contract Value
attributed to your Loan Account. The net amount of interest
you pay on your loan will be 2.00% annually. See FEDERAL TAX
ISSUES—Qualified Contracts—General
Rules—Loans.
7
Only
one CoreIncome Advantage 5, CoreProtect Advantage, CoreIncome
Advantage, Flexible Lifetime Income Plus (Single), Flexible
Lifetime Income Plus (Joint), Foundation 10, Automatic Income
Builder, Flexible Lifetime Income (Single), Flexible Lifetime
Income (Joint), or Income Access Rider may be owned or in effect
at the same time. Only one GPA 3 or GPA 5 Rider may be
owned or in effect at the same time.
8
If
you buy the EEG Rider (subject to availability), we deduct this
charge proportionately from your Investment Options on each
Contract Anniversary following the date you purchase the Rider,
and when you make a full withdrawal, if the EEG Rider is in
effect on that date. See CHARGES, FEES AND DEDUCTIONS.
9
If
you buy the CoreIncome Advantage 5 Rider, the annual charge is
equal to the current charge percentage (divided by 4) multiplied
by the Protected Payment Base, deducted on a quarterly basis.
The initial Protected Payment Base is equal to the initial
Purchase Payment if purchased at Contract issue or is equal to
the Contract Value if the Rider is purchased on a Contract
Anniversary. For a complete explanation of the Protected Payment
Base, see OTHER OPTIONAL RIDERS – CoreIncome
Advantage 5 Rider. The charge is deducted from your Contract
Value on a quarterly basis. The quarterly amount deducted may
increase or decrease due to changes in your Protected Payment
Base. Your Protected Payment Base may increase due to additional
Purchase Payments, decrease due to withdrawals or also change
due to Resets. We deduct the charge proportionately from your
Investment Options (excluding the DCA Plus Fixed Option) every
quarter following the Rider Effective Date, during the term of
the Rider and while the Rider is in effect, and when the Rider
is terminated. We will waive the annual charge if the Rider
terminates as a result of the death of an Owner or sole
surviving Annuitant, upon full annuitization of your Contract,
or if your Contract Value is zero. The annual charge is only
waived for the quarter that we are notified of death or
annuitization. See CHARGES, FEES, AND DEDUCTIONS –
Optional Rider Charges.
10
If
you buy the CoreProtect Advantage Rider, the annual charge is
equal to the current charge percentage (divided by 4) multiplied
by the Protected Payment Base, deducted on a quarterly basis.
The Protected Payment Base is the amount used to determine the
allowable annual withdrawal amount under the Rider. The initial
Protected Payment Base is equal to the initial Purchase Payment
if purchased at Contract issue or is equal to the Contract Value
if the Rider is purchased on a Contract Anniversary. For a
complete explanation of the Protected Payment Base, see OTHER
OPTIONAL RIDERS – CoreProtect Advantage Rider. The
charge is deducted from your Contract Value on a quarterly
basis. The quarterly amount deducted may increase or decrease
due to changes in your Protected Payment Base. Your Protected
Payment Base may increase due to additional Purchase Payments,
increases to the Annual Credit Value or Highest Anniversary
Value, decrease due to withdrawals or also change due to Resets.
We deduct this charge proportionately from your Investment
Options (excluding the DCA Plus Fixed Option) every quarter
following the Rider Effective Date, during the term of the Rider
and while the Rider is in effect, and when the Rider is
terminated. We will waive the annual charge if the Rider
terminates as a result of the death of an Owner or sole
surviving Annuitant, upon full annuitization of your Contract or
if your Contract Value is zero. The annual charge is only waived
for the quarter that we are notified of death or annuitization.
See CHARGES, FEES, AND DEDUCTIONS – Optional Rider
Charges.
11
If
you buy the CoreIncome Advantage Rider, the annual charge is
equal to the current charge percentage (divided by 4) multiplied
by the Protected Payment Base, deducted on a quarterly basis.
The initial Protected Payment Base is equal to the initial
Purchase Payment if purchased at Contract issue or is equal to
the Contract Value if the Rider is purchased on a Contract
Anniversary. For a complete explanation of the Protected Payment
Base, see OTHER OPTIONAL RIDERS – CoreIncome
Advantage Rider. The charge is deducted from your Contract
Value on a quarterly basis. The quarterly amount deducted may
increase or decrease due to changes in your Protected Payment
Base. Your Protected Payment Base may increase due to additional
Purchase Payments, decrease due to withdrawals or also change
due to Resets. We deduct the charge proportionately from your
Investment Options (excluding the DCA Plus Fixed Option) every
quarter following the Rider Effective Date, during the term of
the Rider and while the Rider is in effect, and when the Rider
is terminated. We will waive the annual charge if the Rider
terminates as a result of the death of an Owner or sole
surviving Annuitant, upon full annuitization of your Contract,
or if your Contract Value is zero. The annual charge is only
waived for the quarter that we are notified of death or
annuitization. See CHARGES, FEES, AND DEDUCTIONS –
Optional Rider Charges.
12
If
you purchased the Flexible Lifetime Income Plus Rider (Single or
Joint), the annual charge is equal to the current charge
percentage multiplied by the Protected Payment Base, deducted on
an annual basis. The Protected Payment Base is the amount used
to determine the allowable annual withdrawal amount under the
Rider. The initial Protected Payment Base is equal to the
initial Purchase Payment if purchased at Contract issue or is
equal to the Contract Value if the Rider is purchased on a
Contract Anniversary. For a complete explanation of the
Protected Payment Base, see OTHER OPTIONAL RIDERS –
Flexible Lifetime Income Plus Rider (Single or Joint)
subsection in the SAI and/or in the Rider attached to your
Contract. The charge is deducted from your Contract Value on an
annual basis. The amount deducted may increase or decrease due
to changes in your Protected Payment Base. Your Protected
Payment Base may increase due to additional Purchase Payments
and Annual Credits, decrease due to withdrawals or also change
due to Resets. We deduct this charge proportionately from your
Investment Options on each Contract Anniversary following the
Effective Date of the Rider during the term of the Rider and
while the Rider is in effect, and when the Rider is terminated.
Under the Single version, we will waive the annual charge if the
Rider terminates as a result of the death of an Owner or sole
surviving Annuitant, upon full annuitization of your Contract or
after the Contract Value is zero. Under the Joint version, we
will waive the annual charge if the Rider terminates as a result
of the death of the surviving Designated Life, upon full
annuitization of the Contract or after the Contract Value is
zero. The annual charge is only waived for the Contract Year
that we are notified of the death or annuitization. See
CHARGES, FEES, AND DEDUCTIONS – Optional Rider
Charges. The Flexible Lifetime Income Plus Rider (Single or
Joint) is no longer available for purchase. If you purchased one
of these Riders, you will find more information about the Rider
in the SAI or in the Rider attached to your Contract.
13
If
you purchased the Foundation 10 Rider, the annual charge is
equal to the current charge percentage multiplied by the
Protected Payment Base, deducted on an annual basis. The
Protected Payment Base is the amount used to determine the
allowable annual withdrawal amount under the Rider. The initial
Protected Payment Base is equal to the initial Purchase Payment
if purchased at Contract issue or is equal to the Contract Value
if the Rider is purchased on a Contract Anniversary. For a
complete explanation of the Protected Payment Base, see the
OTHER OPTIONAL RIDERS – Foundation 10
Rider subsection in the SAI
and/or in
the Rider attached to your Contract. The charge is deducted from
your Contract Value on an annual basis. The amount deducted may
increase or decrease due to changes in your Protected Payment
Base. Your Protected Payment Base may increase due to additional
Purchase Payments and Annual Credits, decrease due to
withdrawals or also change due to Resets. We deduct this charge
proportionately from your Investment Options on each Contract
Anniversary following the Effective Date of the Rider during the
term of the Rider and while the Rider is in effect, and when the
Rider is terminated. We will waive the annual charge if the
Rider terminates as a result of the death of an Owner or sole
surviving Annuitant or upon full annuitization of your Contract.
The annual charge is only waived for the Contract Year that we
are notified of the death or annuitization. See CHARGES, FEES
AND DEDUCTIONS – Optional Rider Charges. The
Foundation 10 Rider is no longer available for purchase. If you
purchased this Rider, you will find more information about the
Rider in the SAI or in the Rider attached to your Contract.
14
If
you purchased the Automatic Income Builder Rider, the annual
charge is equal to the current charge percentage multiplied by
the Protected Payment Base, deducted on an annual basis. The
Protected Payment Base is the amount used to determine the
allowable annual withdrawal amount under the Rider. The initial
Protected Payment Base is equal to the initial Purchase Payment
if purchased at Contract issue or is equal to the Contract Value
if the Rider is purchased on a Contract Anniversary. For a
complete explanation of the Protected Payment Base, see OTHER
OPTIONAL RIDERS – Automatic Income Builder Rider.
The charge
9
AN OVERVIEW OF
PACIFIC VOYAGES
is
deducted from your Contract Value on a annual basis. The amount
deducted may increase or decrease due to changes in your
Protected Payment Base. Your Protected Payment Base may increase
due to additional Purchase Payments, decrease due to withdrawals
or also change due to Resets. We deduct this charge
proportionately from your Investment Options on each Contract
Anniversary following the Rider Effective Date, during the term
of the Rider and while the Rider is in effect, and when the
Rider is terminated. We will waive the annual charge if the
Rider terminates as a result of the death of an Owner or sole
surviving Annuitant, upon full annuitization of your Contract or
after the Contract Value is zero. The annual charge is only
waived for the Contract Year that we are notified of the death
or annuitization. See CHARGES, FEES AND
DEDUCTIONS – Optional Rider Charges. The Automatic
Income Builder Rider is no longer available for purchase. If you
purchased this Rider, you will find more information about the
Rider in the SAI or in the Rider attached to your Contract.
15
If
you purchased the Flexible Lifetime Income Rider (Single or
Joint), the annual charge is equal to the current charge
percentage multiplied by the Protected Payment Base, deducted on
an annual basis. The Protected Payment Base is the amount used
to determine the allowable annual withdrawal amount under the
Rider. The initial Protected Payment Base is equal to the
initial Purchase Payment if purchased at Contract issue or is
equal to the Contract Value if the Rider is purchased on a
Contract Anniversary. For a complete explanation of the
Protected Payment Base, see OTHER OPTIONAL RIDERS –
Flexible Lifetime Income Rider (Single or Joint) subsection
in the SAI and/or in the Rider attached to your Contract. The
charge is deducted from your Contract Value on an annual basis.
The amount deducted may increase or decrease due to changes in
your Protected Payment Base. Your Protected Payment Base may
increase due to additional Purchase Payments and Annual Credits,
decrease due to withdrawals or also change due to Resets. We
deduct this charge proportionately from your Investment Options
on each Contract Anniversary following the Effective Date of the
Rider during the term of the Rider and while the Rider is in
effect, and when the Rider is terminated. Under the Single
version, we will waive the annual charge if the Rider terminates
as a result of the death of an Owner or sole surviving Annuitant
or upon full annuitization of your Contract. Under the Joint
version, we will waive the annual charge if the Rider terminates
as a result of the death of the surviving Designated Life or
upon full annuitization of the Contract. The annual charge is
only waived for the Contract Year that we are notified of the
death or annuitization. See CHARGES, FEES AND
DEDUCTIONS – Optional Rider Charges. The Flexible
Lifetime Income Rider (Single or Joint) is no longer available
for purchase. If you purchased one of these Riders, you will
find more information about the Rider in the SAI or in the Rider
attached to your Contract.
16
If
you buy the Income Access Rider, the annual charge is equal to
the current charge percentage multiplied by the Contract Value,
deducted on an annual basis. We deduct this charge
proportionately from your Investment Options on each Contract
Anniversary following the Effective Date of the Rider during the
term of the Rider and while the Rider is in effect, and when the
Rider is terminated. Under the terms and conditions of the
Rider, the annual charge percentage may change to the current
charge percentage if an Automatic Step-Up or Owner-Elected
Step-Up occurs, but will never be more than the maximum charge
percentage. We will waive the annual charge if the Rider
terminates as a result of the death of an Owner or sole
surviving Annuitant or upon full annuitization of your Contract.
The annual charge is only waived for the Contract Year that we
are notified of the death or annuitization. See CHARGES,
FEES, AND DEDUCTIONS – Optional Rider Charges.
17
If
you buy the GPA 3 Rider, the annual charge is equal to the
current charge percentage multiplied by the Guaranteed
Protection Amount, deducted on an annual basis. The initial
Guaranteed Protection Amount is equal to the initial Purchase
Payment if purchased at Contract issue or is equal to Contract
Value if the Rider is purchased on a Contract Anniversary. For a
complete explanation of the Guaranteed Protection Amount, see
OTHER OPTIONAL RIDERS – Guaranteed Protection
Advantage 3 (GPA 3) Rider. We deduct this charge
proportionately from your Investment Options on each Contract
Anniversary following the Effective Date of the Rider during the
term of the Rider and while the Rider is in effect, and when the
Rider is terminated. Under the terms and conditions of the
Rider, the annual charge percentage may change to the current
charge percentage if a Step-Up is elected but will never be more
than the maximum charge percentage. We will waive the annual
charge if the Rider terminates as a result of the death of an
Owner or sole surviving Annuitant or upon full annuitization of
your Contract. The annual charge is only waived for the Contract
Year that we are notified of the death or annuitization. See
CHARGES, FEES, AND DEDUCTIONS – Optional Rider
Charges.
18
If
you buy the GPA 5 Rider, the annual charge is equal to the
current charge percentage multiplied by the Contract Value,
deducted on an annual basis. We deduct this charge
proportionately from your Investment Options on each Contract
Anniversary following the Effective Date of the Rider during the
term of the Rider and while the Rider is in effect, and when the
Rider is terminated. Under the terms and conditions of the
Rider, the annual charge percentage may change to the current
charge percentage if a Step-Up is elected but will never be more
than the maximum charge percentage. We will waive the annual
charge if the Rider terminates as a result of the death of an
Owner or sole surviving Annuitant or upon full annuitization of
your Contract. The annual charge is only waived for the Contract
Year that we are notified of the death or annuitization. See
CHARGES, FEES, AND DEDUCTIONS – Optional Rider
Charges.
19
If
you purchased the GIA Plus Rider, we charge the fee based on the
greater of the Contract Value or the Guaranteed Income Base,
deducted on an annual basis. The initial Guaranteed Income Base
is equal to the initial Purchase Payment if purchased at
Contract issue or is equal to Contract Value if the Rider is
purchased on a Contract Anniversary. The Guaranteed Income Base
is the amount invested to date grown at 5% annually (until the
Contract Anniversary prior to the youngest Annuitant’s
81st
birthday) that may be used for fixed annuity payments starting
on the Annuity Date. For a complete explanation of the
Guaranteed Income Base, see OTHER OPTIONAL RIDERS –
Guaranteed Income Advantage Plus (GIA Plus). We deduct this
charge proportionately from your Investment Options on each
Contract Anniversary and when you make a full withdrawal if the
Rider is in effect on that date, and when the Rider is
terminated. We will waive the annual charge if the Rider
terminates as a result of death of an Owner or sole surviving
Annuitant or upon full annuitization of your Contract. The
annual charge is only waived for the Contract Year that we are
notified of the death or annuitization. See CHARGES, FEES,
AND DEDUCTIONS – Optional Rider Charges.
10
Total Annual Fund
Operating Expenses
You will find more about the underlying Funds starting on
page 13, and in each underlying Fund Prospectus which
accompanies this Prospectus.
This table shows the minimum and maximum total annual operating
expenses paid by the Portfolios that you indirectly pay during
the time you own the Contract. This table shows the range
(minimum and maximum) of fees and expenses (including management
fees, shareholder servicing and/or distribution (12b-1) fees,
and other expenses) charged by any of the Portfolios, expressed
as an annual percentage of average daily net assets. The amounts
are based on expenses paid in the year ended December 31,2009, adjusted to reflect anticipated changes in fees and
expenses, or, for new Portfolios, are based on estimates for the
current fiscal year.
Each Variable Account of the Separate Account purchases shares
of the corresponding Fund Portfolio at net asset value. The net
asset value reflects the investment advisory fees and other
expenses that are deducted from the assets of the Portfolio. The
advisory fees and other expenses are not fixed or specified
under the terms of the Contract, and they may vary from year to
year. These fees and expenses are described in each Fund
Prospectus.
Minimum
Maximum
Range of total annual portfolio operating expenses
before any waivers or expense reimbursements
0.28%
2.62%
Range of total annual portfolio operating expenses
after any waivers or expense reimbursements
0.28%
1.56%
To help limit Fund expenses, Fund advisers have contractually
agreed to reduce investment advisory fees or otherwise reimburse
certain Portfolios of their respective Funds which may reduce
the Portfolio’s expenses. The range of expenses in the
first row above does not include the effect of any waiver
and/or
expense reimbursement arrangement. The range of expenses in the
second row above includes the effect of waiver
and/or
expense reimbursement arrangements that will remain in effect at
least through April 30, 2011. There can be no assurance
that expense waivers or reimbursements will be extended beyond
their current terms, and they may not cover certain expenses
such as extraordinary expenses. See each Fund prospectus for
complete information regarding annual operating expenses of that
Fund.
11
AN OVERVIEW OF
PACIFIC VOYAGES
Examples
The following examples are intended to help you compare the cost
of investing in your Contract with the cost of investing in
other variable annuity contracts. The maximum amounts reflected
below include the maximum periodic Contract expenses, Separate
Account annual expenses and the Portfolio with the highest fees
and expenses for the year ended December 31, 2009. The
maximum amounts also include the combination of optional Riders
whose cumulative maximum charge expenses totaled more than any
other optional Rider combination. The optional Riders included
are the SDBR, EEG, Flexible Lifetime Income Plus (Joint),
GPA 3 and GIA Plus Riders. The minimum amounts
reflected below include the minimum periodic Contract expenses,
Separate Account annual expenses and the Portfolio with the
lowest fees and expenses for the year ended December 31,2009. The minimum amounts do not include any optional Riders.
The examples assume that you invest $10,000 in the Contract for
the time periods indicated. They also assume that your Purchase
Payment has a 5% return each year and assumes the maximum and
minimum fees and expenses of all of the Investment Options
available. Although your actual costs may be higher or lower,
based on these assumptions, your maximum and minimum costs would
be:
•
If you surrendered your Contract:
1 Year
3 Years
5 Years
10 Years
Maximum*
$1,417
$2,913
$4,240
$7,983
Minimum*
$805
$1,082
$1,204
$2,034
•
If you annuitized your Contract:
1 Year
3 Years
5 Years
10 Years
Maximum*
$1,417
$2,373
$3,970
$7,983
Minimum*
$805
$542
$934
$2,034
•
If you did not surrender or annuitize, but left the money in
your Contract:
1 Year
3 Years
5 Years
10 Years
Maximum*
$787
$2,373
$3,970
$7,983
Minimum*
$175
$542
$934
$2,034
*
In calculating the examples above,
we used the maximum and minimum total operating expenses of all
the Portfolios as shown in the Fees And Expenses section
of each Fund Prospectus. For more information on fees and
expenses, see CHARGES, FEES AND DEDUCTIONS in this
Prospectus, and see each Fund Prospectus. See the FINANCIAL
HIGHLIGHTS section in this Prospectus for condensed
financial information about the Subaccounts.
Some broker-dealers may not allow or may limit the amount you
may allocate to certain Investment Options. Work with your
financial professional to help you choose the right Investment
Options for your investment goals and risk tolerance.
You may choose among the different Variable Investment Options
and the DCA Plus Fixed Option.
Each Variable Investment Option invests in a separate Portfolio
of a Fund. For your convenience, the following chart summarizes
some basic data about each Portfolio. This chart is only a
summary. For more complete information on each Portfolio,
including a discussion of the Portfolio’s investment
techniques and the risks associated with its investments, see
the applicable Fund Prospectus. No assurance can be given that a
Portfolio will achieve its investment objective. YOU SHOULD READ
EACH FUND PROSPECTUS CAREFULLY BEFORE INVESTING.
PACIFIC SELECT FUND
INVESTMENT GOAL
THE PORTFOLIO’S
MAIN INVESTMENTS
MANAGER
International Value
Seeks long-term capital appreciation primarily through
investment in equity securities of corporations domiciled in
countries with developed economies and markets other than the
U.S. Current income from dividends and interest will not be an
important consideration.
Invests primarily in a diversified portfolio of equity
securities of relatively large non-U.S. companies that the
manager believes to be undervalued.
AllianceBernstein L.P.
Long/Short Large-Cap
Seeks above-average total returns.
Invests at least 80% of its assets in securities of companies
with large market capitalizations.
Analytic Investors, LLC &
J.P. Morgan Investment Management, Inc.
International Small-Cap
Seeks long-term growth of capital.
Invests at least 80% of its assets in securities of companies
with small market capitalizations.
Batterymarch Financial Management, Inc.
Mid-Cap Value
Seeks long-term growth of capital.
Invests at least 80% of its assets in equity securities of
mid-capitalization companies.
BlackRock Capital Management, Inc.
Equity Index
Seeks to provide investment results that correspond to the total
return of common stocks that are publicly traded in the U.S.
Invests at least 80% of its assets in equity securities of
companies included in the portfolio’s applicable benchmark
index, including instruments representative of that index (such
as derivatives).
BlackRock Investment Management, LLC
Small-Cap Index
Seeks investment results that correspond to the total return of
an index of small capitalization companies.
Invests at least 80% of its assets in securities of companies
with small market capitalizations included in the
portfolio’s applicable benchmark index, including
instruments representative of that index (such as derivatives).
BlackRock Investment Management, LLC
Small-Cap Equity
Seeks long-term growth of capital.
Invests at least 80% of its assets in securities of companies
with small market capitalizations, including instruments with
characteristics of small-capitalization equity securities (such
as derivatives).
BlackRock Investment Management, LLC &
Franklin Advisory Services, LLC
Equity
Seeks capital appreciation; current income is of secondary
importance.
Invests at least 80% of its assets in equity securities.
Capital Guardian Trust Company
American Funds Asset Allocation
Seeks high total returns (including income and capital gains)
consistent with preservation of capital over the long-term.
Invests all of its assets in Class 1 shares of the Asset
Allocation Fund, a series of American Funds Insurance
Series®,
a registered open-end investment company (Master Asset
Allocation Fund).
Capital Research and Management Company
(adviser to the Master Asset
Allocation Fund)
American Funds
Growth-Income
Seeks long-term growth of capital and income.
Invests all of its assets in Class 1 shares of the Growth-Income
Fund, a series of the American Funds Insurance
Series®,
a registered open-end investment company (Master Growth-Income
Fund).
Capital Research and Management Company
(adviser to the Master Growth-
Income Fund)
American Funds
Growth
Seeks long-term growth of capital.
Invests all of its assets in Class 1 shares of the Growth Fund,
a series of American Funds Insurance
Series®,
a registered open-end investment company (Master Growth Fund).
Capital Research and Management Company
(adviser to the Master Growth
Fund)
Large-Cap Value
Seeks long-term growth of capital; current income is of
secondary importance.
Invests at least 80% of its assets in common stocks of large
companies.
ClearBridge Advisors, LLC
Technology
Seeks long-term growth of capital.
Invests at least 80% of its assets in equity securities of
technology companies that may benefit from technological
improvements, advancements or developments.
Columbia Management
Floating Rate Loan
Seeks to provide high level of current income.
Invests at least 80% of its assets in floating rate loans.
Eaton Vance Management
Small-Cap Growth
Seeks capital appreciation; no consideration is given to income.
Invests at least 80% of its assets in small-capitalization
equity securities.
Fred Alger Management, Inc.
Short Duration Bond
Seeks current income; capital appreciation is of secondary
importance.
Invests at least 80% of its assets in fixed income securities
(including derivatives on such securities).
Goldman Sachs Asset Management, L.P.
Comstock
Seeks long-term growth of capital.
Invests its assets in equity securities.
Invesco Advisers, Inc.
Invesco Ltd. has entered in to a definitive agreement to acquire
certain portfolios of the retail asset management business of
Morgan Stanley Investment Management Inc. (MSIM) (“the
Transaction”). The Transaction includes a sale of the asset
management business that sub-advises the Comstock Portfolio and
is subject to certain approvals and other conditions prior to
its expected closing in
mid-2010.
MSIM is the current subadviser to the Comstock Portfolio and
upon closing of the Transaction, Invesco Advisers, Inc. will
become the subadviser.
13
PACIFIC SELECT FUND
INVESTMENT GOAL
THE PORTFOLIO’S
MAIN INVESTMENTS
MANAGER
Growth LT
Seeks long-term growth of capital.
Invests in companies of any size. The portfolio principally
invests in equity securities but may also invest in debt
securities. The portfolio may invest up to 25% of its assets in
foreign securities (equity and debt), including emerging market
countries, denominated in a foreign currency and not publicly
traded in the U.S.
Janus Capital Management LLC
Focused 30
Seeks long term growth of capital.
Invests primarily in domestic and foreign equity securities
(including common stock and warrants) selected for their growth
potential.
Janus Capital Management LLC
Health Sciences
Seeks long-term growth of capital.
Invests at least 80% of its assets in equity securities and
derivatives of companies in the health sciences sector.
Jennison Associates LLC
Mid-Cap Equity
Seeks capital appreciation.
Invests at least 80% of its assets in equity securities of
companies with medium market capitalizations.
Lazard Asset Management LLC
International Large-Cap
Seeks long-term growth of capital.
Invests at least 80% of its assets in securities of companies
with large market capitalizations.
MFS Investment Management
Mid-Cap Growth
Seeks long-term growth of capital.
Invests at least 80% of its assets in securities of companies
with medium market capitalizations.
Morgan Stanley Investment Management Inc.
Real Estate
Seeks current income and long-term capital appreciation.
Invests at least 80% of its assets in securities of companies
operating in the real estate and related industries.
Morgan Stanley Investment Management Inc.
Small-Cap Value
Seeks long-term growth of capital.
Invests at least 80% of its assets in small-capitalization
equity securities.
NFJ Investment Group LLC
Multi-Strategy
Seeks to provide a high total return from a portfolio of equity
and fixed income securities.
Invests in a mix of equity and fixed income securities, although
there is no requirement to weight the portfolio holdings in any
fixed proportion.
OppenheimerFunds, Inc.
Main Street Core
Seeks long-term growth of capital and income.
Invests in common stocks of companies of different
capitalization ranges, with a focus on U.S. companies with large
market capitalizations.
OppenheimerFunds, Inc.
Emerging Markets
Seeks long-term growth of capital.
Invests at least 80% of its assets in securities (including
American Depositary Receipts (ADRs)) of companies whose
principal activities are conducted in countries that are
generally regarded as emerging market countries.
OppenheimerFunds, Inc.
Cash Management (formerly called Money Market)
Seeks current income consistent with preservation of capital.
Invests in money market instruments that the portfolio manager
believes have minimal credit risk.
Pacific Asset Management
High Yield Bond
Seeks a high level of current income.
Invests at least 80% of its assets in non-investment grade (high
yield/high risk, sometimes called “junk” bonds) debt
instruments or in instruments with characteristics of
non-investment grade debt instruments.
Pacific Asset Management
Managed Bond
Seeks to maximize total return consistent with prudent
investment management.
Invests at least 80% of its assets in debt instruments,
including instruments with characteristics of debt instruments
(such as derivatives).
Pacific Investment Management Company LLC
Inflation Managed
Seeks to maximize total return consistent with prudent
investment management.
Invests its assets in fixed income securities.
Pacific Investment Management Company LLC
Pacific Dynamix –
Conservative Growth
Seeks current income and moderate growth of capital.
Targets an equity/debt blend of 40/60 through investment in
certain underlying portfolios of Pacific Select Fund.
Pacific Life Fund Advisors LLC
Pacific Dynamix –
Moderate Growth
Seeks long-term growth of capital and low to moderate income.
Targets an equity/debt blend of 60/40 through investment in
certain underlying portfolios of Pacific Select Fund.
Pacific Life Fund Advisors LLC
Pacific Dynamix –
Growth
Seeks moderately high, long-term growth of capital with low,
current income.
Targets an equity/debt blend of 80/20 through investment in
certain underlying portfolios of Pacific Select Fund.
Pacific Life Fund Advisors LLC
Dividend Growth (formerly called Diversified Research)
Seeks long-term growth of capital.
Invests at least 65% of its assets in equity securities of
dividend paying companies that the manager expects to increase
their dividends over time and also provide long-term
appreciation.
T. Rowe Price Associates, Inc.
Large-Cap Growth
Seeks long-term growth of capital; current income is of
secondary importance.
Invests at least 80% of its assets in equity securities of
large-capitalization companies.
UBS Global Asset Management (Americas) Inc.
Diversified Bond
Seeks to maximize total return consistent with prudent
investment management.
Invests at least 80% of its assets in fixed income securities.
Invesco V.I. Global
Multi-Asset
Fund Series II (formerly called AIM V.I. PowerShares ETF Allocation Fund
Series II)
Provide total return consistent with a moderate level of risk
relative to the broad stock market.
The fund invests in underlying funds that invest in U.S. and
international fixed-income, equity and commodities markets. The
fund may invest in affiliated and unaffiliated exchange-traded
funds (ETFs) and mutual funds, and in other securities. The fund
will invest at least 30% of its assets in underlying funds that
invest in fixed-income securities and cash.
Invesco Advisers, Inc.
ALLIANCEBERNSTEIN
VARIABLE PRODUCTS
SERIES FUND, INC.
INVESTMENT GOAL
THE PORTFOLIO’S
MAIN INVESTMENTS
MANAGER
AllianceBernstein VPS
Balanced Wealth
Strategy Portfolio
Class B
Maximize total return.
Invests in equity and debt securities. Targets a weighting of
60% equity securities and 40% debt securities with a goal of
providing moderate upside potential without excessive volatility.
AllianceBernstein L.P.
BLACKROCK VARIABLE
SERIES FUNDS, INC.
INVESTMENT GOAL
THE PORTFOLIO’S
MAIN INVESTMENTS
MANAGER
BlackRock Global
Allocation V.I. Fund
Class III
Seeks high total investment return.
A mix of U.S. and foreign equity, debt and money market
securities.
BlackRock Advisors, LLC
FRANKLIN TEMPLETON
VARIABLE INSURANCE
PRODUCTS TRUST
INVESTMENT GOAL
THE PORTFOLIO’S
MAIN INVESTMENTS
MANAGER
Franklin Templeton VIP
Founding Funds
Allocation Fund
Class 4
Seeks capital appreciation, with income as a secondary goal.
Normally invests equal portions in Class 1 shares of
Franklin Income Securities Fund, Mutual Shares Securities Fund
and Templeton Growth Securities Fund. The underlying funds
invest in both U.S. and foreign equity securities and debt
securities.
Franklin Templeton Services, LLC serves as the Fund’s
administrator.
GE INVESTMENTS
FUNDS, INC.
INVESTMENT GOAL
THE PORTFOLIO’S
MAIN INVESTMENTS
MANAGER
GE Investments Total Return Fund
Class 3
Highest total return, composed of current income and capital
appreciation, as is consistent with prudent investment risk.
Invests primarily in a combination of U.S. and foreign equity
and debt securities and cash.
GE Asset Management Incorporated
PIMCO VARIABLE
INSURANCE TRUST
INVESTMENT GOAL
THE PORTFOLIO’S
MAIN INVESTMENTS
MANAGER
PIMCO Global
Multi-Asset Portfolio – Advisor Class
Seeks total return which exceeds that of a blend of 60% MSCI
World Index, 40% Barclays Capital U.S. Aggregate Index.
Normally invests in other mutual funds (combination of
affiliated and unaffiliated funds), securities and other
instruments.
Pacific Investment Management Company, LLC
VAN KAMPEN LIFE
INVESTMENT TRUST
INVESTMENT GOAL
THE PORTFOLIO’S
MAIN INVESTMENTS
MANAGER
Van Kampen LIT
Global Tactical Asset
Allocation Portfolio
Class II
Seek capital appreciation over time.
Invests primarily in a diversified mix of equity securities and
fixed income securities of U.S. and
non-U.S.
issuers.
Van Kampen Asset Management
On
or about June 1, 2010, the Fund name will change to
“AIM Variable Insurance Funds (Invesco Variable Insurance
Funds)” and the Portfolio will change its name to the
“Invesco Van Kampen V.I. Global Tactical Asset
Allocation Fund Series II”. In addition, the manager
will change to Invesco Advisers, Inc. As a result, all
references in this prospectus to the “Van Kampen Life
Investment Trust” will be changed to the “AIM Variable
Insurance Funds (Invesco Variable Insurance Funds)” and the
“Van Kampen LIT Global Tactical Asset Allocation”
Portfolio will be changed to the “Invesco Van Kampen V.I.
Global Tactical Asset Allocation” Fund once the changes are
completed.
15
The
Investment Advisers
Pacific Life Fund Advisors LLC (PLFA), a subsidiary of Pacific
Life Insurance Company, is the investment adviser for the
Pacific Select Fund. PLFA and the Pacific Select Fund’s
Board of Trustees oversee the management of all the Pacific
Select Fund’s Portfolios, and PLFA also manages certain
portfolios directly. PLFA also does business under the name
“Pacific Asset Management” and manages the Pacific
Select Fund’s Cash Management and High Yield Bond
Portfolios under that name.
Invesco Advisers, Inc. is the investment adviser for the AIM
Variable Insurance Funds (Invesco Variable Insurance Funds).
AllianceBernstein L.P. is the investment adviser for the
AllianceBernstein Variable Products Series Fund, Inc.
BlackRock Advisors, LLC is the investment adviser for the
BlackRock Variable Series Funds, Inc. and has retained various
sub-advisors for its portfolios.
Franklin Templeton Services, LLC is the fund administrator for
the Franklin Templeton VIP Founding Funds Allocation Fund of the
Franklin Templeton Variable Insurance Products Trust.
GE Asset Management Incorporated is the investment adviser for
the GE Investments Funds, Inc.
Pacific Investment Management Company LLC is the investment
adviser for the PIMCO Variable Insurance Trust.
Van Kampen Asset Management is the investment adviser for the
Van Kampen Life Investment Trust. On or about June 1, 2010,
Invesco Advisers, Inc. will be the investment adviser, Invesco
Asset Management Deutschland GmbH will be the sub-adviser, and
the Fund name will change from the Van Kampen Life Investment
Trust to the AIM Variable Insurance Funds (Invesco Variable
Insurance Funds).
The fixed option offers you a guaranteed minimum interest rate
on amounts that you allocate to this option. Amounts you
allocate to this option, and your earnings credited are held in
our General Account. For more detailed information about this
option, see THE GENERAL ACCOUNT.
To purchase a Contract, you must work with your financial
professional to fill out an application and submit it along with
your initial Purchase Payment to Pacific Life Insurance Company
at P.O. Box 2290, Omaha, Nebraska
68103-2290.
In those instances when we receive electronic transmission of
the information on the application from your financial
professional’s broker-dealer firm and our administrative
procedures with your broker-dealer so provide, we consider the
application to be received on the Business Day we receive the
transmission. If your application and Purchase Payment are
complete when received, or once they have become complete, we
will issue your Contract within 2 Business Days. If some
information is missing from your application, we may delay
issuing your Contract while we obtain the missing information.
However, we will not hold your initial Purchase Payment for more
than 5 Business Days without your permission. In any case,
we will not hold your initial Purchase Payment after
20 Business Days.
You may also purchase a Contract by exchanging your existing
annuity. You must submit all contracts to be exchanged when
you submit your application. Call your financial
professional or call us at
1-800-722-4448.
Financial professionals may call us at
1-800-722-2333.
We reserve the right to reject any application or Purchase
Payment for any reason, subject to any applicable
nondiscrimination laws and to our own standards and guidelines.
On your application, you must provide us with a valid U.S. tax
identification number for federal and state tax reporting
purposes.
The maximum age of a Contract Owner/Annuitant, including Joint
and Contingent Owners/Annuitants, for which a Contract will be
issued is 85. The Contract Owner’s age is calculated as of
his or her last birthday. If any Contract Owner or any sole
Annuitant named in the application for a Contract dies and we
are notified of the death before we issue the Contract, then we
will return the amount we received. If we are not notified of
the death and we issue the Contract, then the application for
the Contract and/or any Contract issued will be deemed cancelled
and a refund will be issued. Depending on the state where your
application was signed, the amount of the refund may be more or
less than the initial Purchase Payment received, or any other
Purchase Payment we received in connection with an exchange or
transfer. In most states, the refund will be the Contract Value
based upon the next determined Accumulated Unit Value (AUV)
after we receive proof of death, in proper form, of the Contract
Owner or Annuitant, plus a refund of any amount used to pay
premium taxes and/or any other taxes. Any refund may subject the
refunded assets to probate.
Your initial Purchase Payment must be at least $5,000 if you are
buying a Non-Qualified Contract, and at least $2,000 if you are
buying a Qualified Contract. Currently, we are not enforcing the
minimum initial Purchase Payment on Qualified Contracts but we
reserve the right to enforce the minimum initial Purchase
Payment on Qualified Contracts in the future. For Non-Qualified
Contracts, if the entire minimum initial Purchase Payment is not
included when you submit your application, you must submit a
portion of the required Contract minimum and/or establish a
pre-authorized checking plan (PAC). A PAC allows you to pay the
remainder of the required initial Purchase Payment in equal
installments over the first year. Further requirements for PAC
are discussed in the PAC form.
You must obtain our consent before making an initial or
additional Purchase Payment that will bring your aggregate
Purchase Payments over $1,000,000.
Making
Additional Purchase Payments
If your Contract is Non-Qualified, you may choose to invest
additional amounts in your Contract at any time. If your
Contract is Qualified, the method of contribution and
contribution limits may be restricted by the Qualified Plan or
the Internal Revenue Code (“the Code”). Each
additional Purchase Payment must be at least $250 for
Non-Qualified Contracts and $50 for Qualified Contracts.
Currently, we are not enforcing the minimum additional Purchase
Payment amounts but we reserve the right to enforce the minimum
additional Purchase Payment amounts in the future. Additional
Purchase Payments will be allocated according to the
instructions we have on file unless we receive specific
allocation instructions. Contracts issued in certain states may
limit additional Purchase Payments.
Forms of
Purchase Payment
Your initial and additional Purchase Payments may be sent by
personal or bank check or by wire transfer. Purchase Payments
must be made in a form acceptable to us before we can process
it. Acceptable forms of Purchase Payments are:
•
personal checks or cashier’s checks drawn on a
U.S. bank,
•
money orders and traveler’s checks in single denominations
of more than $10,000 if they originate in a U.S. bank,
•
third party payments when there is a clear connection of the
third party to the underlying transaction, and
•
wire transfers that originate in U.S. banks.
We will not accept Purchase Payments in the following forms:
•
cash,
•
credit cards or checks drawn against a credit card account,
•
money orders or traveler’s checks in single denominations
of $10,000 or less,
•
starter checks,
•
cashier’s checks, money orders, traveler’s checks or
personal checks drawn on non-U.S. banks, even if the
payment may be effected through a U.S. bank,
•
third party payments if there is not a clear connection of the
third party to the underlying transaction, and
•
wire transfers that originate from foreign bank accounts.
All unacceptable forms of Purchase Payments will be returned to
the payor along with a letter of explanation. We reserve the
right to reject or accept any form of payment. If you make
Purchase Payments by check other than a cashier’s check,
your payment of any withdrawal proceeds and any refund during
the “Right to Cancel” period may be delayed until we
receive confirmation in our Annuities administrative office that
your check has cleared.
You may allocate your Purchase Payments among any of the
available Investment Options. Allocations of your initial
Purchase Payment to the Investment Options you selected will be
effective on your Contract Date. Each additional Purchase
Payment will be allocated to the Investment Options according to
your allocation instructions in your application, or most recent
instructions, if any, subject to the terms described in
WITHDRAWALS – Right to Cancel (“Free
Look”). We reserve the right to require that your
allocation to any particular Investment Option must be at least
$500. We also reserve the right to transfer any remaining
Account Value that is not at least $500 to your other Investment
Options on a pro rata basis relative to your most recent
allocation instructions.
17
If your Contract is issued in exchange for another annuity
contract or a life insurance policy, our administrative
procedures may vary depending on the state in which your
Contract is delivered.
The Service. Portfolio Optimization is an asset
allocation service that is offered at no additional charge for
use within this variable annuity. Asset allocation refers to the
manner that investments are distributed among asset classes to
help attain an investment goal. For your variable annuity,
Portfolio Optimization can help with decisions about how you
should allocate your Contract Value among available Investment
Options. The theory behind Portfolio Optimization is that
diversification among asset classes can help reduce volatility
over the long term.
As part of the Portfolio Optimization service, several asset
allocation models have been developed (“Portfolio
Optimization Models” or “Models”), each based on
different profiles of an investor’s willingness to accept
investment risk. If you decide to subscribe to the Portfolio
Optimization service and select one of the Portfolio
Optimization Models, your initial Purchase Payment (in the case
of a new application) or Contract Value, as applicable, will be
allocated to the Investment Options according to the Model you
select. Subsequent Purchase Payments, if allowed under your
Contract, will also be allocated accordingly, unless you
instruct us otherwise. If you choose, you can rebalance your
Contract Value quarterly, semi-annually, or annually, to the
current allocations of your Portfolio Optimization Model, since
changes in the net asset values of the underlying Portfolios
within each Model will alter your asset allocation over time. If
you also allocate part of your Purchase Payment or Contract
Value to Investment Options that are not currently included in
your Model and you elect periodic rebalancing, such amounts will
not be considered when rebalancing. If you subscribe to
Portfolio Optimization and elect periodic rebalancing, only the
Investment Options within your Model will be rebalanced.
If you subscribe to Portfolio Optimization, Pacific Life Fund
Advisors LLC (Adviser), a subsidiary of Pacific Life, will serve
as your investment adviser for the service solely for purposes
of development of the Portfolio Optimization Models and periodic
updates of the Models.
On a periodic basis (typically annually), the Portfolio
Optimization Models are evaluated and the Models are updated, as
discussed below. If you subscribe to Portfolio Optimization,
your Contract Value or subsequent Purchase Payments, as
applicable, will automatically be reallocated in accordance with
the Model you select, as it is updated from time to time, based
on discretionary authority that you grant to the Adviser, unless
you instruct otherwise. For more information on the role of the
investment adviser for the Portfolio Optimization service,
please see the brochure from the Adviser’s Form ADV,
the SEC investment adviser registration form, which will be
delivered to Contract Owners at the time they apply for a
Contract. Please contact us if you would like to receive a copy
of this brochure. In developing and periodically updating the
Portfolio Optimization Models, the Adviser currently relies on
the recommendations of an independent third-party analytical
firm. The Adviser may change the firm that it uses from time to
time, or, to the extent permissible under applicable law, use no
independent firm at all.
The Portfolio Optimization Models. Five asset allocation
models are offered, each comprised of a carefully selected
combination of Investment Options (from among the underlying
Portfolios of Pacific Select Fund). Development of the Portfolio
Optimization models involves a multi-step process. First, an
optimization analysis is performed to determine the breakdown of
asset classes. Optimization analysis requires forecasting
returns, standard deviations and correlation coefficients of
asset classes over the desired investing horizon and an analysis
using a state-of-the art program and a statistical analytical
technique known as “mean-variance optimization”. Next,
after the asset class exposures are known, a determination is
made of how available Investment Options (underlying Portfolios)
can be used to implement the asset class level allocations. The
Investment Options are selected by evaluating the asset classes
represented by the underlying Portfolios and combining
Investment Options to arrive at the desired asset class
exposures. The Portfolio-specific analysis uses historical
returns-based style analysis and asset performance and
regression and attribution analyses. It may also include
portfolio manager interviews. Based on this analysis, Investment
Options are selected in a way intended to optimize potential
returns for each Model, given a particular level of risk
tolerance. This process could, in some cases, result in the
inclusion of an Investment Option in a Model based on its
specific asset class exposure or other specific optimization
factors, even where another Investment Option may have better
historical performance.
Periodic Updates of the Portfolio Optimization Model and
Notices of Updates. Each of the Portfolio Optimization
Models are evaluated periodically (generally, annually) to
assess whether the combination of Investment Options within each
Model should be changed to better seek to optimize the potential
return for the level of risk tolerance intended for the Model.
As a result of the periodic analysis, each Model may change.
Investment Options may be added to a Model (including Investment
Options not currently available), Investment Options may be
deleted from a Model, and the target allocation percentages for
the Investment Options may be changed.
When your Portfolio Optimization Model is updated, your Contract
Value (and subsequent Purchase Payments, if applicable) will
automatically be reallocated in accordance with the changes to
the Model you have selected. This means the allocation of your
Contract Value, and potentially the Investment Options in which
you are invested, will automatically change and your Contract
Value (and subsequent Purchase Payments, if applicable) will
automatically be reallocated among the Investment Options in
your updated Model (independently of any automatic rebalancing
you may have selected). The Adviser requires that you grant it
discretionary investment authority to periodically reallocate
your Contract Value (and subsequent Purchase Payments, if
applicable) in accordance with the updated version of the
Portfolio Optimization Model you have selected, if you wish to
participate in Portfolio Optimization.
18
When the Adviser updates the Portfolio Optimizations Models, a
written notice of the updated Models will be sent to
participants at least 30 days in advance of the date the
Adviser intends the updated version of the Model to be
effective. You should carefully review these notices. If you
wish to accept the changes in your selected Model, you will not
need to take any action, as your Contract Value (or subsequent
Purchase Payments, if applicable) will automatically be
reallocated in accordance with the updated Model. If you do not
wish to accept the changes to your selected Model, you can
change to a different Model that is offered at the time or
withdraw from the Portfolio Optimization service. Some of the
optional riders available under your Contract have investment
allocation requirements. If you purchased any of these riders,
such riders may terminate if you do not allocate your Contract
Value consistent with the investment allocation requirements or
if you withdraw from the service. See OTHER OPTIONAL
RIDERS — General Information —
Investment Allocation Requirements.
Selecting a Portfolio Optimization Model. If you choose
to subscribe to the Portfolio Optimization service, you need to
determine which Portfolio Optimization Model is best for you.
Neither the Adviser nor its affiliates will make this decision.
You should consult with your financial professional on this
decision. Your financial professional can help you determine
which Model is best suited to your financial needs, investment
time horizon, and willingness to accept investment risk. You
should periodically review these factors with your financial
professional to determine if you should change Models to keep up
with changes in your personal circumstances. Your financial
professional can assist you in completing the proper forms to
subscribe to the Portfolio Optimization service or to change to
a different Model. You may, in consultation with your financial
professional, utilize analytical tools made available by the
Adviser, including an investor profile questionnaire, which asks
questions intended to help you or your financial professional
assess your financial needs, investment time horizon, and
willingness to accept investment risk. While the information may
assist you, it is your decision, in consultation with your
financial professional, to select a Model or to change to a
different Model, and the Adviser and its affiliates bear no
responsibility for this decision. You may change to a
different available Model at any time, subject to transfer and
market timing restrictions, with a proper written request or by
telephone or electronic instructions provided a valid
telephone/electronic authorization is on file with us.
Periodic Reports. Participants in the Portfolio
Optimization service will periodically be sent performance
information regarding the Investment Options within a selected
Model. This information may also be accessed online. Information
concerning the current Models is described below.
Risks. Although the Models are designed to optimize
returns given the various levels of risk, there is no assurance
that a Model portfolio will not lose money or that investment
results will not experience volatility. Investment performance
of your Contract Value could be better or worse by participating
in a Portfolio Optimization Model than if you had not
participated. A Model may perform better or worse than any
single Investment Option or asset class or other combinations of
Investment Options or asset classes. Model performance is
dependent upon the performance of the component Investment
Options (the selected underlying Portfolios). The timing of your
investment and the frequency of automatic rebalancing may affect
performance. Your Contract Value will fluctuate, and when
redeemed, may be worth more or less than the original cost.
A Portfolio Optimization Model may not perform as intended.
Although the Models are intended to optimize returns given
various levels of risk tolerance, portfolio, market and asset
class performance, as well as the correlation of risks and
returns among different asset classes, may differ in the future
from the historical performance and assumptions upon which the
Models are based, which could cause the Models to be ineffective
or less effective in reducing volatility.
Periodic updating of the Portfolio Optimization Models can cause
the underlying Portfolios to incur transactional expenses to
raise cash for money flowing out of the Portfolios or to buy
securities with money flowing into the Portfolios. These
expenses can adversely affect performance of the pertinent
Portfolios and the Models.
The Adviser may be subject to competing interests that have the
potential to influence its decision making with regard to
Portfolio Optimization. For example, one Portfolio may provide a
higher advisory fee to the Adviser than another Portfolio, and
provide the Adviser with incentive to use the Portfolio with the
higher fee as part of a Portfolio Optimization Model. In
addition, the Adviser may believe that certain Portfolios may
benefit from additional assets or could be harmed by
redemptions. As adviser to Pacific Select Fund, the Advisor has
duties to the Pacific Select Fund and its shareholders,
including those shareholders who do not subscribe to Portfolio
Optimization, and at times there may be some conflicts between
the interests of the different shareholders. The Adviser
monitors the Portfolios, and may, from time to time, recommend
to the Pacific Select Fund’s Board of Trustees a change in
portfolio management firm or strategy or the closure or merger
of a Portfolio, all of which could impact a Model. All Pacific
Select Fund Portfolios available as Investment Options, except
those expected to be liquidated or merged or that are asset
allocation oriented by structure (i.e. the American Funds Asset
Allocation Portfolio and the Pacific Dynamix Portfolios), are
analyzed by the independent third party analytical firm. The
third party analytical firm determines the number of Portfolios
in a Model, the percent that any Portfolio represents in a
Model, and which Portfolios may be selected. The Adviser will
work with the analytical firm to resolve any investment related
matters derived from the analytical firm’s recommendations.
The Adviser believes that its reliance on the recommendations of
an independent third-party analytical firm to develop and update
the Models (as described above) reduces or eliminates the
potential for the Adviser to be influenced by these competing
interests, but there can be no assurance of this.
The Advisor may, when it is not inconsistent with the interests
of participants, consider certain business factors of its
affiliates, Pacific Life Insurance Company and Pacific Life
& Annuity Company (together the “Insurers”). For
example, in certain of the Variable Products the
19
Insurers offer optional guaranteed lifetime income benefits or
death benefits under which the Insurers assume investment and
other risks, and their exposure and required reserves may be
affected by gains or losses incurred in the Variable Products.
The Advisor’s investment decisions in allocating monies to
the available Investment Options may be influenced by these
factors. For example, in volatile markets, the Insurers may
benefit from Models that are designed in a more conservative
fashion, such as by increasing allocations to fixed-income
securities, so as to help reduce potential losses.
Alternatively, in flat markets, the Insurers may benefit from
Models that are designed in a more aggressive fashion, such as
by increasing allocations to equity securities of various
categories, seeking to generate gains. While the investment
process is intended to produce allocation decisions that are in
the best interests of participants, participants should be aware
that the Advisor’s investment decisions may be influenced
by this and other potential conflicts of interests.
In addition to the Portfolio Optimization service, the Adviser
provides asset allocation advisory services to various mutual
funds. The asset allocation models may differ amongst these
groups, e.g., one group of funds may not have the same target
asset class allocations as the other group of funds or as the
Portfolio Optimization service.
The Adviser and its affiliates are under no contractual
obligation to continue this service and have the right to
terminate or change the Portfolio Optimization service at any
time. The Advisor may, in its discretion, cease offering one or
more of the Models at any time, reduce or expand the number of
available Models, or combine two or more Models into a single
Model. The Advisor may, in its discretion, add funds in addition
to or in lieu of Pacific Select Fund as a source of Investment
Options for the Models. The Advisor may, in its discretion,
manage the service through investment in single mutual fund
portfolios, including, but not limited to, portfolios that use
multiple strategies and/or invest in multiple asset classes, so
that a Model would be effected through investment in a single
portfolio, which could be a “fund-of-funds”, which may
charge fees and bear expenses in addition to fees and expenses
of the underlying funds. Once invested in single mutual fund
portfolios, the Advisor may discontinue active management of the
Models and allow asset allocation to be effected through the
single portfolios.
20
The Models. Information concerning the Portfolio
Optimization Models is described below. You should review this
information carefully with your financial professional before
selecting or changing a Model.
Model A
Model B
Model C
Model D
Model E
Conservative
Moderate-Conservative
Moderate
Moderate-Aggressive
Aggressive
Investor Profile
You are looking for a relatively stable investment and do not tolerate short-term market swings.
Your focus is on keeping pace with inflation and you can tolerate a moderate level of risk.
You want the opportunity for long-term moderate growth.
You want an investment that is geared for growth and are willing to accept above average risk.
You are an aggressive investor and can tolerate short-term market swings.
Shorter Investment Time
Horizon◄———►Longer
Investment Time Horizon
Investor Objective
Primarily preservation of capital
Moderate growth
Steady growth in asset values
Moderately high growth in asset values
High growth in asset values
Risk Characteristics
There may be some losses in the values of the investment as asset values fluctuate.
There may be some losses in the values of the investment from year to year.
There will probably be some losses in the values of the underlying investments from year to year.
Fluctuations in value should be less than those of the overall stock markets.
Some of these might be large, but the overall fluctuations in asset values should be less than those of the U.S. stock market.
Lower
Risk◄———►Higher
Risk
Asset Class Target Exposure
Model A
Model B
Model C
Model D
Model E
Cash Equivalents
7
%
5
%
2
%
—
—
Fixed Income
73
57
42
25
%
8
%
Domestic Equity
15
29
41
54
66
International Equity
5
9
15
21
26
Portfolio Optimization Model
Target Allocations
Model A
Model B
Model C
Model D
Model E
Small-Cap Growth
—
—
1
%
2
%
2
%
International Value
2
%
2
%
3
4
4
Long/Short Large-Cap
2
3
4
4
5
International Small-Cap
—
1
2
3
3
Equity Index
2
3
4
5
6
Small-Cap Index
—
—
—
—
2
Mid-Cap Value
—
2
3
3
4
Dividend Growth (formerly called Diversified Research)
The Custom Model program allows you, with the help of your
financial professional, to create your own asset allocation
model that will comply with the Investment Allocation
Requirements for certain optional living benefit Riders. (See
OTHER OPTIONAL RIDERS – General
Information – Investment Allocation
Requirements.) You will create your own model using the
parameters listed below.
Parameters. To create your model, you may select
Investment Options from the 4 Categories
(Categories A, B, C and D) listed below. You must
allocate at least 25% into each of Categories A, B, and C.
You may not allocate more than 15% into any one Investment
Option within Category A, B, or C. Category D is
optional and you are not required to allocate any part of your
Purchase Payment or Contract Value to this Category. If you
choose to allocate your Purchase Payment or Contract Value to
Category D, you are allowed to allocate up to 25% into any one
Investment Option within Category D. Allocation percentages
among the Categories must total 100%. The model you create will
be automatically rebalanced on a quarterly basis.
Example: Assume a $100,000 Purchase Payment.
Following the parameters and using the Investment Options listed
from the Categories below, you may allocate your Purchase
Payment as follows:
•
Category A – 15% to Diversified Bond, 10% to Managed
Bond and 5% to Cash Management,
•
Category B – 15% to Focused 30, 10% to Small-Cap
Index, 10% to Mid-Cap Growth, 5% to Large-Cap Growth and 5% to
Large-Cap Value, and
•
Category C – 10% to International Value, 10% to
International Large-Cap and 5% to Emerging Markets.
The total allocated is 100%: Category A = 30%,
Category B = 45% and
Category C = 25%. If you want to include all
4 Categories when creating your model, you could adjust
your allocation percentages in Categories A, B and C and
allocate up to 25% to any combination of the Investment Options
in Category D. Keep in mind that you may select any
Investment Option within a Category and the allocation
percentages among the Categories must total 100%.
Category A – Fixed Income Investment
Options
Short Duration Bond
Cash Management
Managed Bond
Floating Rate Loan
High Yield Bond
Inflation Managed
Diversified Bond
Category B – Domestic Equity Investment
Options
Small-Cap Growth
Dividend Growth
Long/Short Large-Cap
Equity
Equity Index
American Funds
Growth-Income
Small-Cap Index
American Funds Growth
Large-Cap Value
Large-Cap Growth
Comstock
Growth LT
Small-Cap Value
Mid-Cap Growth
Focused 30
Multi-Strategy
Small-Cap Equity
Mid-Cap Equity
Main Street Core
Mid-Cap Value
Category C – International Equity and
Sector Investment Options
Franklin Templeton
VIP Founding Funds
Allocation Fund
GE Investments Total Return Fund
Pacific Dynamix – Conservative Growth
Pacific Dynamix – Moderate Growth
Pacific Dynamix – Growth
Van Kampen LIT Global
Tactical Asset
Allocation Portfolio
PIMCO Global Multi-Asset
Portfolio
You may make transfers between Investment Options within a
particular Group or from one Group to another Group as long as
you follow the Custom Model parameters. Transfers made will be
subject to any transfer and market timing restrictions (see
HOW YOUR PURCHASE PAYMENTS ARE ALLOCATED –
Transfers and Market-timing Restrictions). Subsequent
Purchase Payments will be allocated according to your current
model allocation instructions. Any withdrawals must be made on a
pro rata basis from each of the Investment Options you selected
for your model.
22
You may terminate your participation in the Custom Model program
at any time. However, if you own an optional living benefit
rider and do not allocate your entire Contract Value to another
asset allocation model or Investment Options we make available
for the Riders, your Rider will terminate. If you allocate any
subsequent Purchase Payment or Contract Value inconsistent with
the Custom Model parameters, make transfers between Investment
Options outside the Custom Model parameters, or do not make a
withdrawal on a pro rata basis, you will no longer be
participating in the Custom Model program and your Rider will
terminate. Work with your financial professional and consider
your options before making any Investment Option transfers. Any
changes in the allocation percentages due to market performance
will not be a violation of the program, since the model you
created will automatically be rebalanced on a quarterly basis.
We are under no contractual obligation to continue this program
and have the right to terminate or change the Custom Model
program at any time.
Each time you allocate your Purchase Payment to a Variable
Investment Option, your Contract is credited with a number of
“Subaccount Units” in that Subaccount. The number of
Subaccount Units credited is equal to the amount you have
allocated to that Subaccount, divided by the “Unit
Value” of one Unit of that Subaccount.
Example: You allocate $600 to the Inflation Managed
Subaccount. At the end of the Business Day on which your
allocation is effective, the value of one Unit in the Inflation
Managed Subaccount is $15. As a result, 40 Subaccount Units
are credited to your Contract for your $600 ($600/$15 = 40).
Your
Variable Account Value Will Change
After we credit your Contract with Subaccount Units, the value
of those Units will usually fluctuate. This means that, from
time to time, your Purchase Payment allocated to the Variable
Investment Options may be worth more or less than the original
Purchase Payments to which those amounts can be attributed.
Fluctuations in Subaccount Unit Value will not change the number
of Units credited to your Contract.
Subaccount Unit Values will vary in accordance with the
investment performance of the corresponding Portfolio. For
example, the value of Units in the Equity Index Subaccount will
change to reflect the performance of the Equity Index Portfolio
(including that Portfolio’s investment income, its capital
gains and losses, and its expenses). Subaccount Unit Values are
also adjusted to reflect the Administrative Fee and applicable
Risk Charge imposed on the Separate Account.
We calculate the value of all Subaccount Units on each Business
Day.
Calculating
Subaccount Unit Values
We calculate the Unit Value of the Subaccount Units in each
Variable Investment Option at the close of the New York Stock
Exchange which usually closes at 4:00 p.m. Eastern Time on
each Business Day. At the end of each Business Day, the Unit
Value for a Subaccount is equal to:
Y × Z
where
(Y)
=
the Unit Value for that Subaccount as of the end of the
preceding Business Day; and
(Z)
=
the Net Investment Factor for that Subaccount for the period (a
“valuation period”) between that Business Day and the
immediately preceding Business Day.
The “Net Investment Factor” for a Subaccount for any
valuation period is equal to:
(A
¸
B) – C
where
(A)
=
the “per share value of the assets” of that Subaccount
as of the end of that valuation period, which is equal to: a+b+c
where
(a)
=
the net asset value per share of the corresponding Portfolio
shares held by that Subaccount as of the end of that valuation
period;
(b)
=
the per share amount of any dividend or capital gain
distributions made by each Fund for that Portfolio during that
valuation period; and
(c)
=
any per share charge (a negative number) or credit (a positive
number) for any income taxes and/or any other taxes or other
amounts set aside during that valuation period as a reserve for
any income and/or any other taxes which we determine to have
resulted from the operations of the Subaccount or Contract,
and/or any taxes attributable, directly or indirectly, to
Investments;
23
(B)
=
the net asset value per share of the corresponding Portfolio
shares held by the Subaccount as of the end of the preceding
valuation period; and
(C)
=
a factor that assesses against the Subaccount net assets for
each calendar day in the valuation period the basic Risk Charge
plus any applicable increase in the Risk Charge and the
Administrative Fee (see CHARGES, FEES AND DEDUCTIONS).
The Subaccount Unit Value may increase or decrease from one
valuation period to another.
Your initial Purchase Payment is effective on the day we issue
your Contract. Any additional Purchase Payment is effective on
the day we receive it in proper form. See ADDITIONAL
INFORMATION – Inquiries and Submitting Forms and
Requests.
The day your Purchase Payment is effective determines the Unit
Value at which Subaccount Units are attributed to your Contract.
In the case of transfers or withdrawals, the effective day
determines the Unit Value at which affected Subaccount Units are
debited and/or credited under your Contract. That Unit Value is
the value of the Subaccount Units next calculated after your
transaction is effective. Your Variable Account Value begins to
reflect the investment performance results of your new
allocations on the day after your transaction is effective.
Transfers are allowed 30 days after the Contract Date.
Currently, we are not enforcing this restriction but we reserve
the right to enforce it in the future. Once your Purchase
Payments are allocated to the Investment Options you selected,
you may transfer your Account Value less Loan Account Value
from any Investment Option to any other Investment Option,
except the DCA Plus Fixed Option. Transfers are limited to
25 for each calendar year. Only 2 transfers in any
calendar month may involve any of the following Investment
Options: Invesco V.I. Global Multi-Asset Fund, BlackRock
Global Allocation V.I. Fund, GE Investments Total Return Fund,
International Value, International Small-Cap, International
Large-Cap, Emerging Markets, PIMCO Global Multi-Asset, or Van
Kampen LIT Global Tactical Asset Allocation. In addition, only
2 transfers into or out of the American Funds Asset
Allocation, American Funds Growth or American Funds
Growth-Income Investment Options may occur in any calendar month.
Transfers to or from a Variable Investment Option cannot be made
before the seventh calendar day following the last transfer to
or from the same Variable Investment Option. If the seventh
calendar day is not a Business Day, then a transfer may not
occur until the next Business Day. The day of the last transfer
is not considered a calendar day for purposes of meeting this
requirement. For example, if you make a transfer into the Equity
Index Variable Investment Option on Monday, you may not make any
transfers to or from that Variable Investment Option before the
following Monday. Transfers to or from the Cash Management
Variable Investment Option are excluded from this limitation.
For the purpose of applying the limitations, multiple transfers
that occur on the same day are considered 1 transfer. A
transfer of Account Value from the Loan Account back into
your Investment Options following a loan repayment is not
considered a transfer under these limitations. Transfers that
occur as a result of the DCA Plus program, the dollar cost
averaging program, the portfolio rebalancing program, the
earnings sweep program, approved corporate owned life insurance
policy rebalancing programs or an approved asset allocation
service are excluded from these limitations. Also, allocations
of Purchase Payments are not subject to these limitations.
If you have used all 25 transfers available to you in a
calendar year, you may no longer make transfers between the
Investment Options until the start of the next calendar year.
However, you may make 1 transfer of all or a portion of the
Account Value remaining in the Variable Investment Options into
the Cash Management Investment Option prior to the start of the
next calendar year.
There are no exceptions to the above transfer limitations in the
absence of an error by us, a substitution of Investment Options,
or reorganization of underlying Portfolios, or other
extraordinary circumstances.
If we deny a transfer request, we will notify your financial
professional via telephone. If you (or your financial
professional) request a transfer via telephone that exceeds the
above limitations, we will notify you (or your financial
professional) immediately.
Certain restrictions apply to any available fixed option. See
THE GENERAL ACCOUNT. Transfer requests are generally
effective on the Business Day we receive them in proper form,
unless you request a date in the future or a systematic transfer
program.
We have the right, at our option (unless otherwise required by
law), to require certain minimums in the future in connection
with transfers. These may include a minimum transfer amount and
a minimum Account Value, if any, for the Investment Option from
which the transfer is made or to which the transfer is made. If
your transfer request results in your having a remaining Account
Value in an Investment Option that is less than $500 immediately
after such transfer, we may transfer that Account Value to your
other Investment Options on a pro rata basis, relative to your
most recent allocation instructions.
We reserve the right (unless otherwise required by law) to limit
the size of transfers, to restrict transfers, to require that
you submit any transfer requests in writing, to suspend
transfers, and to impose further limits on the number and
frequency of transfers you can make.
24
We also reserve the right to reject any transfer request. Any
policy we may establish with regard to the exercise of any of
these rights will be applied uniformly to all Contract Owners.
Market-timing
Restrictions
The Contract is not designed to serve as a vehicle for frequent
trading in response to short-term fluctuations in the market.
Accordingly, organizations or individuals that use market-timing
investment strategies and make frequent transfers should not
purchase the Contract. Such frequent trading can disrupt
management of the underlying Portfolios and raise expenses. The
transfer limitations set forth above are intended to reduce
frequent trading. In addition, we monitor certain large
transaction activity in an attempt to detect trading that may be
disruptive to the Portfolios. In the event transfer activity is
found to be disruptive, certain future transactions by such
Contract Owners, or by a financial professional or other party
acting on behalf of one or more Contract Owners, will require
preclearance. Frequent trading and large transactions that are
disruptive to portfolio management can have an adverse effect on
Portfolio performance and therefore your Contract’s
performance. Such trading may also cause dilution in the value
of the Investment Options held by long-term Contract Owners.
While these issues can occur in connection with any of the
underlying Portfolios, Portfolios holding securities that are
subject to market pricing inefficiencies are more susceptible to
abuse. For example, Portfolios holding international securities
may be more susceptible to time-zone arbitrage which seeks to
take advantage of pricing discrepancies occurring between the
time of the closing of the market on which the security is
traded and the time of pricing of the Portfolios.
Our policies and procedures which limit the number and frequency
of transfers and which may impose preclearance requirements on
certain large transactions are applied uniformly to all Contract
Owners. However, there is a risk that these policies and
procedures will not detect all potentially disruptive activity
or will otherwise prove ineffective in whole or in part.
Further, we and our affiliates make available to our variable
annuity and variable life insurance Contract Owners underlying
funds not affiliated with us. We are unable to monitor or
restrict the trading activity with respect to shares of such
funds not sold in connection with our Contracts. In the event
the Board of Trustees/Directors of any underlying fund imposes a
redemption fee or trading (transfer) limitations, we will pass
them on to you.
We reserve the right to restrict, in our sole discretion and
without prior notice, transfers initiated by a market timing
organization or individual or other party authorized to give
transfer instructions on behalf of multiple Contract Owners.
Such restrictions could include:
•
not accepting transfer instructions from a financial
professional acting on behalf of more than one Contract
Owner, and
•
not accepting preauthorized transfer forms from market timers or
other entities acting on behalf of more than one Contract Owner
at a time.
We further reserve the right to impose, without prior notice,
restrictions on transfers that we determine, in our sole
discretion, will disadvantage or potentially hurt the rights or
interests of other Contract Owners; or to comply with any
applicable federal and state laws, rules and regulations.
Exchanges
of Annuity Units
Exchanges of Annuity Units in any Subaccount(s) to any other
Subaccount(s) after the Annuity Date are limited to 4 in any
12-month
period. See THE GENERAL ACCOUNT section in this
Prospectus and THE CONTRACTS AND THE SEPARATE ACCOUNT
section in the SAI.
We offer 4 systematic transfer options: dollar cost averaging,
DCA Plus, portfolio rebalancing, and earnings sweep. There is no
charge for these options and transfers under these options are
not counted towards your total transfers in a calendar year.
However, they are subject to the same requirements and
restrictions as non-systematic transfers. You can have only one
DCA Plus, dollar cost averaging, or earnings sweep program in
effect at one time. Only portfolio rebalancing is available
after you annuitize.
Dollar
Cost Averaging
Dollar cost averaging is a method in which you buy securities in
a series of regular purchases instead of in a single purchase.
This allows you to average the securities’ prices over
time, and may permit a “smoothing” of abrupt peaks and
drops in price. Prior to your Annuity Date, you may use dollar
cost averaging to transfer amounts, over time, from any
Investment Option with an Account Value of at least $5,000 to
one or more Variable Investment Options. Each transfer must be
for at least $250. Currently, we are not enforcing the minimum
Account Value and/or transfer amounts but we reserve the right
to enforce such minimum amounts in the future. Detailed
information appears in the SAI.
DCA
Plus
DCA Plus provides a way to transfer amounts monthly from the DCA
Plus Fixed Option to one or more Variable Investment Option(s)
over a period of up to one year. The initial minimum amount that
you may allocate to the DCA Plus Fixed Option is $5,000. The
25
minimum amount for subsequent Purchase Payments is $250.
Currently, we are not enforcing the initial or subsequent
Purchase Payment minimum amounts but we reserve the right to
enforce such minimum amounts in the future. Amounts allocated to
the DCA Plus Fixed Option are held in our General Account and
receive interest at rates declared periodically by us, but not
less than an annual rate of 3% (the “Guaranteed Interest
Rate”). The DCA Plus program can also be used with
allowable Asset Allocation Models or allowable Investment
Options to qualify for certain optional benefit riders offered
under your Contract. See THE GENERAL ACCOUNT.
Portfolio
Rebalancing
You may instruct us to maintain a specific balance of Variable
Investment Options under your Contract (e.g., 30% in
the Equity Index Subaccount, 40% in the Managed Bond Subaccount,
and 30% in the Growth LT Subaccount) prior to your Annuity
Date. Periodically, we will “rebalance” your values in
the elected Subaccounts to the percentages you have specified.
Rebalancing may result in transferring amounts from a Subaccount
earning a relatively higher return to one earning a relatively
lower return. You may choose to have rebalances made quarterly,
semi-annually or annually until your Annuity Date. Only Variable
Investment Options are available for rebalancing. Detailed
information appears in the SAI.
Earnings
Sweep
You may instruct us to make automatic periodic transfers of your
earnings from the Cash Management Subaccount to one or more
Variable Investment Options (other than the Cash Management
Subaccount). Detailed information appears in the SAI.
No sales charge is imposed on any Purchase Payment which means
the entire amount of your Purchase Payment is allocated to the
Investment Options you selected. Your Purchase Payments may,
however, be subject to a withdrawal charge. This charge may
apply to amounts you withdraw under your Contract prior to the
Annuity Date, depending on the length of time each Purchase
Payment has been invested and on the amount you withdraw. This
amount is deducted proportionately among all Investment Options
from which the withdrawal occurs. See the Choosing Your
Annuity Option – Annuity Options section
for withdrawal charges that may apply to redemptions after the
Annuity Date. No withdrawal charge is imposed on:
•
the free withdrawal amount (see WITHDRAWALS –
Withdrawals Free of a Withdrawal Charge),
•
death benefit proceeds, except as provided under the DEATH
BENEFITS AND OPTIONAL DEATH BENEFIT RIDERS –
Non-Natural Owner section for certain Non-Natural
Owners,
•
amounts converted after the first Contract Anniversary to a life
contingent Annuity Option or an Annuity Option with a period
certain of at least 5 years that is offered under the
Contract, unless guaranteed variable annuity payments under
Annuity Option 2 or 4 are subsequently redeemed (see
ANNUITIZATION – Choosing Your Annuity Option),
•
withdrawals by Owners to meet the minimum distribution rules for
Qualified Contracts as they apply to amounts held under the
Contract, or
•
withdrawals after the first Contract Anniversary, if the Owner
or Annuitant has been diagnosed with a medically determinable
condition that results in a life expectancy of 12 months or
less and we are provided with medical evidence satisfactory to
us.
If you annuitize your Contract by electing the GIA Plus Annuity
Option, the waiver of withdrawal charges described above will
not apply.
Transfers of all or part of your Account Value from one
Investment Option to another are not considered a withdrawal of
an amount from your Contract, so no withdrawal charge is imposed
at the time of transfer. See HOW YOUR INVESTMENTS ARE
ALLOCATED – Transfers and Market-timing
Restrictions and THE GENERAL ACCOUNT.
How the
Withdrawal Charge is Determined
The amount of the withdrawal charge depends on how long each
Purchase Payment was held under your Contract. Each Purchase
Payment you make is considered to have a certain
“age,” depending on the length of time since that
Purchase Payment was effective. A Purchase Payment is “one
year old” or has an “age of one” from the day it
is effective until the beginning of the day preceding your next
Contract Anniversary. Beginning on the day preceding that
Contract Anniversary, your Purchase Payment will have an
“age of two” and
26
increases in age on the day preceding each Contract Anniversary.
When you withdraw an amount subject to the withdrawal charge,
the “age” of the Purchase Payment you withdraw
determines the level of withdrawal charge as follows:
Withdrawal
Charge as a
percentage
of the
“Age” of Payment
Purchase Payment
in Years
withdrawn
1
7
%
2
7
%
3
6
%
4
5
%
5
3
%
6
1
%
7 or more
0
%
We calculate your withdrawal charge by assuming that your
Earnings are withdrawn first, followed by amounts attributed to
Purchase Payments with the “oldest” Purchase Payment
withdrawn first and before any deduction for other charges due
or taxes are made. The withdrawal charge will be deducted
proportionately among all Investment Options from which your
withdrawal occurs. Unless you specify otherwise, a partial
withdrawal amount requested will be processed as a
“gross” amount, which means that applicable charges
and taxes will be deducted from the requested amount. If a
partial withdrawal amount is requested to be a “net”
amount, applicable charges and taxes will be added to the
requested amount and the withdrawal charges and taxes will be
calculated on the grossed up amount. See THE GENERAL
ACCOUNT.
Example: You make an initial Purchase Payment of
$10,000 in Contract Year 1 and make an additional Purchase
Payment of $7,000 in Contract Year 2. With Earnings, your
Contract Value in Contract Year 3 is $19,000. In Contract
Year 3 you make a withdrawal of $9,000. At this point,
total Purchase Payments equal $17,000, Earnings equal $2,000,
and the “age” of the applicable Purchase Payments
withdrawn is 3 Years. Earnings ($2,000) and 10% of all
remaining Purchase Payments made ($1,700) may be withdrawn free
of a withdrawal charge per Contract year. The amount of the
withdrawal charge applied would be $318
($9,000–$2,000–$1,700=$5,300; $5,300*6%=$318).
The withdrawal charge is designed to reimburse us for sales
commissions and other expenses associated with the promotion and
solicitation of offers for the Contracts, although our actual
expenses may be greater or less than the amount of the
withdrawal charge. See ADDITIONAL INFORMATION –
Distribution Arrangements for information regarding
commissions and other amounts paid to broker-dealers in
connection with distribution of the Contracts.
We assess a charge against the assets of each Subaccount to
compensate for certain mortality and expense risks that we
assume under the Contract (the “Risk Charge”). The
risk that an Annuitant will live longer (and therefore receive
more annuity payments) than we predict through our actuarial
calculations at the time the Contract is issued is
“mortality risk.” We also bear mortality risk in
connection with death benefit payable under the Contract. The
risk that the expense charges and fees under the Contract and
Separate Account are less than our actual administrative and
operating expenses is called “expense risk.”
This Risk Charge is assessed daily at an annual rate equal to
1.00% of each Subaccount’s assets. This charge may not be
increased for the duration of your Contract.
The Risk Charge will stop at the Annuity Date if you select
fixed annuity payments. The base Risk Charge will continue after
the Annuity Date if you choose variable annuity payments, even
though we do not bear mortality risk if your Annuity Option is
Period Certain Only.
We will realize a gain if the Risk Charge exceeds our actual
cost of expenses and benefits, and will suffer a loss if such
actual costs exceed the Risk Charge. Any gain will become part
of our General Account. We may use it for any reason, including
covering sales expenses on the Contracts.
Increase
in Risk Charge if an Optional Death Benefit Rider is
Purchased
We increase your Risk Charge by an annual rate equal to 0.20% of
each Subaccount’s assets if you purchase the Stepped-Up
Death Benefit Rider (SDBR). The total Risk Charge annual rate
will be 1.20% if the SDBR is purchased. Any increase in your
Risk Charge will not continue after the Annuity Date. See
DEATH BENEFITS AND OPTIONAL DEATH BENEFIT RIDERS –
Death Benefits.
We charge an Administrative Fee as compensation for costs we
incur in operating the Separate Account, issuing and
administering the Contracts, including processing applications
and payments, and issuing reports to you and to regulatory
authorities.
27
The Administrative Fee is assessed daily at an annual rate equal
to 0.15% of the assets of each Subaccount. This rate is
guaranteed not to increase for the life of your Contract. A
correlation will not necessarily exist between the actual
administrative expenses attributable to a particular Contract
and the Administrative Fee paid in respect of that particular
Contract. The Administrative Fee will continue after the Annuity
Date if you choose any variable payout option. We do not intend
to realize a profit from this fee.
We will charge you an Annual Fee of $40 on each Contract
Anniversary prior to the Annuity Date, and at the time you
withdraw your entire Net Contract Value (on a pro rated basis
for that Contract Year) if your Net Contract Value is less than
$50,000 on that date. The fee is not imposed on amounts you
annuitize or on payment of death benefit proceeds. The fee
reimburses certain costs in administering the Contracts and the
Separate Account. We do not intend to realize a profit from this
fee. This fee is guaranteed not to increase for the life of your
Contract.
Your Annual Fee will be charged proportionately against your
Investment Options. Assessments against your Variable Investment
Options are made by debiting some of the Subaccount Units
previously credited to your Contract. That is, assessment of the
Annual Fee does not change the Unit Value for those Subaccounts.
Any portion of the Annual Fee we deduct from any of our fixed
options (if available under the Contract) will not be greater
than the annual interest credited in excess of that fixed
option’s minimum guaranteed interest rate.
If you purchase an optional Rider listed in the table below, we
will deduct an annual charge from your Investment Options
(excluding the DCA Plus Fixed Option if you own the CoreIncome
Advantage Rider, CoreProtect Advantage Rider or CoreIncome
Advantage 5 Rider) on a proportionate basis.
Depending on which Rider you own, the charge is deducted each
Contract Anniversary or every 3 months following the Rider
Effective Date (“Quarterly Rider Anniversary”). The
Rider charge will be deducted while the Rider remains in effect
and when the Rider terminates. The charge is deducted in arrears
each Contract Anniversary or Quarterly Rider Anniversary.
If your Rider charge is deducted each Contract Anniversary
and your Rider terminates on a Contract Anniversary, the
entire charge for the prior year will be deducted on that
anniversary. If the Rider terminates prior to a Contract
Anniversary, a prorated charge will be deducted on the earlier
of the day your Contract terminates or the Contract Anniversary
immediately following the day your Rider terminates. The charge
will be determined as of the day your Rider terminates.
If your Rider charge is deducted each Quarterly Rider
Anniversary and your Rider terminates on a Quarterly Rider
Anniversary, the entire charge for the prior quarter will be
deducted on that anniversary. If the Rider terminates prior to a
Quarterly Rider Anniversary, a prorated charge will be deducted
on the earlier of the day the Contract terminates or on the
Quarterly Rider Anniversary immediately following the day your
Rider terminates. The charge will be determined as of the day
your Rider terminates.
Any portion of the Rider’s charge we deduct from any fixed
option will not be greater than the annual interest credited in
excess of 3%. If you make a full withdrawal of the amount
available for withdrawal during a Contract Year, we will deduct
the charge from the final payment made to you.
An optional Rider annual charge percentage may change if a
Step-Up/Reset occurs under the Rider provisions. However, the
annual charge percentage will not exceed the maximum annual
charge percentage (indicated in the table below) for the
applicable Rider. You may elect to opt-out of a Reset and your
annual charge percentage will remain the same as it was before
the Reset. If an Automatic Reset or Owner-Elected Reset never
occurs, the annual charge percentage established on the Rider
Effective Date is guaranteed not to change.
Greater of Contract Value or
Guaranteed Income Base
Contract Anniversary
1
If you purchased the CoreIncome
Advantage Rider before June 1, 2010, the charge percentage
is equal to 0.40%. A Reset must occur on or after June 1, 2010
to receive the reduced charge percentage of 0.30%.
2
If you purchased the Flexible
Lifetime Income Plus (Single) Rider and the Effective Date of
the Rider is before January 1, 2009, the charge percentage
is equal to 0.85% unless a Reset occurs. If you purchased the
Flexible Lifetime Income Plus (Single) Rider and the Effective
Date of the Rider is on or after January 1, 2009 and before
May 1, 2009, the charge percentage is equal to 0.95% unless
a Reset occurs. If you purchased the Flexible Lifetime Income
Plus (Single) Rider and the Effective Date of the Rider is on or
after May 1, 2009 and before October 1, 2009, the
charge percentage is equal to 1.25% unless a Reset occurs.
3
If you purchased the Flexible
Lifetime Income Plus (Joint) Rider and the Effective Date of the
Rider is before January 1, 2009, the charge percentage is
equal to 1.00% unless a Reset occurs. If you purchased the
Flexible Lifetime Income Plus (Joint) Rider and the Effective
Date of the Rider is on or after January 1, 2009 and before
May 1, 2009, the charge percentage is equal to 1.10% unless
a Reset occurs. If you purchased the Flexible Lifetime Income
Plus (Joint) Rider and the Effective Date of the Rider is on or
after May 1, 2009 and before October 1, 2009, the
charge percentage is equal to 1.40% unless a Reset occurs.
4
If you purchased the
Foundation 10 Rider and the Effective Date of the Rider is
before January 1, 2009, the charge percentage is equal to
0.85% unless a Reset occurs. If you purchased the Foundation 10
Rider and the Effective Date of the Rider is on or after
January 1, 2009 and before October 1, 2009, the charge
percentage is equal to 1.35% unless a Reset occurs.
5
If you purchased the Automatic
Income Builder Rider and the Effective Date of the Rider is
before January 1, 2009, the charge percentage is equal to
0.85% unless a Reset occurs.
6
If you purchased the Income Access
Rider and the Effective Date of the Rider is before May 1,2009, the charge percentage is equal to 0.40% unless a Step-Up
occurs. If you purchased the Income Access Rider and the
Effective Date of the Rider is on or after May 1, 2009 and
before October 1, 2009, the charge percentage is equal to
0.65% unless a Step-Up occurs.
7
If you purchased the GPA 3
Rider and the Effective Date of the Rider is before
January 1, 2009, the charge percentage is equal to 0.45%
unless a
Step-Up
occurs. If you purchased the GPA 3 Rider and the Effective
Date of the Rider is on or after January 1, 2009 and before
May 1, 2009, the charge percentage is equal to 0.55% unless
a Step-Up occurs. If you purchased the GPA 3 Rider and the
Effective Date of the Rider is on or after May 1, 2009 and
before October 1, 2009, the charge percentage is equal to
0.75% unless a Step-Up occurs.
8
If you purchased the GPA 5
Rider and the Effective Date of the Rider is before May 1,2008, the charge percentage is equal to 0.25% unless a
Step-Up
occurs. If you purchased the GPA 5 Rider and the Effective
Date of the Rider is on or after May 1, 2008 and before
January 1, 2009, the charge percentage is equal to 0.40%
unless a Step-Up occurs.
9
If you purchased the GIA Plus Rider
and the Effective Date of the Rider is before May 1, 2009,
the charge percentage is equal to 0.50%.
See Mortality and Expense Risk Charge for the Stepped-Up
Death Benefit Rider charge information.
Depending on your state of residence (among other factors), a
tax may be imposed on your Purchase Payments (“premium
tax”) at the time your Investment is made, at the time of a
partial or full withdrawal, at the time any death benefit
proceeds are paid, at annuitization or at such other time as
taxes may be imposed. Tax rates ranging from 0% to 3.5% are
currently in effect, but may change in the future. Some local
jurisdictions also impose a tax.
29
If we pay any premium taxes attributable to Purchase Payments,
we will impose a similar charge against your Contract Value.
Premium tax is subject to state requirements. We normally will
charge you when you annuitize some or all of your Contract
Value. We reserve the right to impose this charge for applicable
premium taxes and/or other taxes when you make a full or partial
withdrawal, at the time any death benefit proceeds are paid, or
when those taxes are incurred. For these purposes, “premium
taxes” include any state or local premium or retaliatory
taxes and any federal, state or local income, excise, business
or any other type of tax (or component thereof) measured by or
based upon, directly or indirectly, the amount of Purchase
Payments we have received. We currently base this charge on your
Contract Value, but we reserve the right to base this charge on
the amount of the transaction, the aggregate amount of Purchase
Payments we receive under your Contract, or any other amount,
that in our sole discretion we deem appropriately reimburses us
for premium taxes paid on this Contract.
We may also charge the Separate Account or your Contract Value
for taxes attributable to the Separate Account or the Contract,
including income taxes attributable to the Separate Account or
to our operations with respect to the Contract, or taxes
attributable, directly or indirectly, to Purchase Payments.
Currently, we do not impose any such charges.
We may agree to waive or reduce charges under our Contracts, in
situations where selling and/or maintenance costs associated
with the Contracts are reduced, such as the sale of several
Contracts to the same Contract Owner(s), sales of large
Contracts, sales of Contracts in connection with a group or
sponsored arrangement or mass transactions over multiple
Contracts.
We will only waive or reduce such charges on any Contract where
expenses associated with the sale or distribution of the
Contract and/or costs associated with administering and
maintaining the Contract are reduced. We reserve the right to
terminate waiver and reduced charge programs at any time,
including for issued Contracts.
Your Variable Account Value reflects advisory fees and other
expenses incurred by the various Portfolios of the Funds, net of
any applicable reductions and/or reimbursements. These fees and
expenses may vary. Each Fund is governed by its own Board of
Trustees, and your Contract does not fix or specify the level of
expenses of any Portfolio. A Fund’s fees and expenses are
described in detail in the applicable Fund Prospectus and SAI.
Some Investment Options available to you are “fund of
funds”. A fund of funds portfolio is a fund that invests in
other funds in addition to other investments that the portfolio
may make. Expenses of fund of funds Investment Options may be
higher than non fund of funds Investment Options due to the two
tiered level of expenses. See the Fund prospectuses for detailed
portfolio expenses and other information before investing.
When you submit the application for your Contract, you must
choose a sole Annuitant or Joint Annuitants. If you are buying a
Qualified Contract, you must be the sole Annuitant. If you are
buying a Non-Qualified Contract you may choose yourself and/or
another person as Annuitant. Whether you have a sole or Joint
Annuitants, you may choose a Contingent Annuitant. The
Contingent Annuitant will not have any Contract benefits,
including death benefit proceeds, until becoming the sole
surviving Annuitant. You will not be able to add or change a
sole or Joint Annuitant after your Contract is issued. However,
if you are buying a Qualified Contract, you may add a Joint
Annuitant on the Annuity Date. You will be able to add or change
a Contingent Annuitant until your Annuity Date or the death of
your sole Annuitant or both Joint Annuitants, whichever occurs
first. However, once your Contingent Annuitant has become the
Annuitant under your Contract, no additional Contingent
Annuitant may be named. No Annuitant (Primary, Joint or
Contingent) may be named upon or after reaching his or her
86th
birthday. We reserve the right to require proof of age or
survival of the Annuitant(s).
Annuitization occurs on the Annuity Date when you convert your
Contract from the accumulation phase to the annuitization
(income) phase. You may choose both your Annuity Date and your
Annuity Option. At the Annuity Date, you may elect to annuitize
some or all of your Net Contract Value, less any applicable
charge for premium taxes and/or other taxes, (the
“Conversion Amount”), as long as such Conversion
Amount annuitized is at least $10,000. We will send the annuity
payments to the payee that you designate.
If you annuitize only a portion of this available Contract
Value, you may have the remainder distributed, less any Contract
Debt, any applicable charge for premium taxes and/or other
taxes, any applicable withdrawal charge, any Annual Fee, and any
applicable optional Rider charge. This option of distribution
may or may not be available, or may be available only for
certain types of contracts. Currently, we only allow this option
on Qualified Contracts but we reserve the right to make it
available on other contract types in the future. Any such
distribution will be made to you in a single sum if the
remaining Conversion Amount is less than $10,000 on your Annuity
Date. Distributions under your Contract may have tax
consequences. You should consult a qualified tax adviser for
information on full or partial annuitization.
30
If you annuitize only a portion of your Net Contract Value on
your Annuity Date, you may, at that time, have the option to
elect not to have the remainder of your Contract Value
distributed, but instead to continue your Contract with that
remaining Contract Value (a “continuing Contract”). If
this option is available, you would then choose a second Annuity
Date for your continuing Contract, and all references in this
Prospectus to your “Annuity Date” would, in connection
with your continuing Contract, be deemed to refer to that second
Annuity Date. The second Annuity Date may not be later than the
date specified in the Choosing Your Annuity Date section
of this Prospectus. This option may not be available, or may be
available only for certain types of Contracts. You should be
aware that some or all of the payments received before the
second Annuity Date may be fully taxable. We recommend that you
contact a qualified tax adviser for more information if you are
interested in this option.
You should choose your Annuity Date when you submit your
application or we will apply a default Annuity Date to your
Contract. You may change your Annuity Date by notifying us, in
proper form, at least ten Business Days prior to the earlier of
your current Annuity Date or your new Annuity Date. Your Annuity
Date cannot be earlier than your first Contract Anniversary.
Adverse federal tax consequences may result if you choose an
Annuity Date that is prior to an Annuitant’s attained
age 591/2.
See FEDERAL TAX ISSUES.
If you have a sole Annuitant, your Annuity Date cannot be later
than his or her
95th birthday.
If you have Joint Annuitants, your Annuity Date cannot be later
than your younger Joint Annuitant’s
95th birthday.
Different requirements may apply as required by any applicable
state law or the Code. We may, at our sole discretion, allow
you to extend your Annuity Date. We reserve the right, at any
time, to not offer any extension to your Annuity Date regardless
of whether we may have granted any extensions to you or to any
others in the past. Some Broker/Dealers may not allow their
clients to extend the Annuity Date beyond age 95.
If your Contract is a Qualified Contract, you may also be
subject to additional restrictions. In order to meet the Code
minimum distribution rules, your Required Minimum Distributions
(RMDs) may begin earlier than your Annuity Date. For instance,
under Section 401 of the Code (for Qualified Plans) and
Section 408 of the Code (for IRAs), the entire interest
under the Contract must be distributed to the Owner/Annuitant
not later than the Owner/Annuitant’s Required Beginning
Date (“RBD”), or distributions over the life of the
Owner/Annuitant (or the Owner/Annuitant and his or her
Beneficiary) must begin no later than the RBD. For more
information see FEDERAL TAX ISSUES.
If you have a Non-Qualified Contract and you do not choose an
Annuity Date when you submit your application, your Annuity Date
will be your Annuitant’s
95th
birthday or your younger Joint Annuitant’s
95th
birthday, whichever applies. However some states’ laws may
require a different Annuity Date. Certain Qualified Contracts
may require distributions to occur at an earlier age.
If you have not specified an Annuity Option or do not instruct
us otherwise, at your Annuity Date your Net Contract Value, less
any charges for premium taxes and/or other taxes, will be
annuitized (if this net amount is at least $10,000) as follows:
•
the net amount from a fixed option will be converted into fixed
annuity payments and
•
the net amount from your Variable Account Value will be
converted into variable annuity payments directed to the
Subaccounts proportionate to your Account Value in each.
If the net amount is less than $10,000, the entire amount will
be distributed. If you have a Non-Qualified Contract, or if you
have a Qualified Contract and are not married, your default
Annuity Option will be Life with a ten year Period
Certain. If you have a Qualified Contract and you are
married, your default Annuity Option will be Joint and
Survivor Life with survivor payments of 50%; your spouse
will automatically be named your Joint Annuitant.
You should carefully review the Annuity Options with a qualified
tax adviser, and, for Qualified Contracts, reference should be
made to the terms of the particular plan and the requirements of
the Code for pertinent limitations regarding annuity payments,
Required Minimum Distributions (“RMDs”), and other
matters.
You may make three basic decisions about your annuity payments.
First, you may choose whether you want those payments to be a
fixed-dollar amount and/or a variable-dollar amount. Second, you
may choose the form of annuity payments (see Annuity
Options below). Third, you may decide how often you want
annuity payments to be made (the “frequency” of the
payments). You may not change these selections after the Annuity
Date.
Fixed and
Variable Payment Options
You may choose fixed annuity payments based on a fixed rate and
the 1983a Annuity Mortality Table with the ages set back
10 years, variable annuity payments that vary with the
investment results of the Subaccounts you select, or you may
choose both, converting one portion of the net amount you
annuitize into fixed annuity payments and another portion into
variable annuity payments.
31
If you select fixed annuity payments, each periodic annuity
payment received will be equal to the initial annuity payment,
unless you select a Joint and Survivor Life annuity with reduced
survivor payments when the Primary Annuitant dies. Any net
amount you convert to fixed annuity payments will be held in our
General Account (but not under any fixed option).
If you select variable annuity payments, you may choose as many
Variable Investment Options as you wish. The amount of the
periodic annuity payments will vary with the investment results
of the Variable Investment Options selected and may be more or
less than a fixed payment option. After the Annuity Date,
Annuity Units may be exchanged among available Variable
Investment Options up to four times in any twelve-month period.
How your Contract converts into variable annuity payments is
explained in more detail in THE CONTRACTS AND THE SEPARATE
ACCOUNT section in the SAI.
Annuity
Options
Four Annuity Options are currently available under the Contract,
although additional options may become available in the future.
For other Annuity Options see OTHER OPTIONAL RIDERS.
1.
Life Only. Periodic payments are made to the
designated payee during the Annuitant’s lifetime. Payments
stop when the Annuitant dies.
2.
Life with Period Certain. Periodic payments
are made to the designated payee during the Annuitant’s
lifetime, with payments guaranteed for a specified period. You
may choose to have payments guaranteed from 5 through
30 years (in full years only). The guaranteed period may be
limited on Qualified Contracts based on your life expectancy.
3.
Joint and Survivor Life. Periodic payments are
made to the designated payee during the lifetime of the Primary
Annuitant. After the death of the Primary Annuitant, periodic
payments will continue to be made during the lifetime of the
secondary Annuitant named in the election. You may choose to
have the payments to the surviving secondary Annuitant equal
50%,
662/3%
or 100% of the original amount payable made during the lifetime
of the Primary Annuitant (you must make this election when you
choose your Annuity Option). If you elect a reduced payment
based on the life of the secondary Annuitant, fixed annuity
payments will be equal to 50% or
662/3%
of the original fixed payment payable during the lifetime of the
Primary Annuitant; variable annuity payments will be determined
using 50% or
662/3%,
as applicable, of the number of Annuity Units for each
Subaccount credited to the Contract as of the date of death of
the Primary Annuitant. Payments stop when both Annuitants have
died.
4.
Period Certain Only. Periodic payments are
made to the designated payee, guaranteed for a specified period.
You may choose to have payments guaranteed from 5 through
30 years (in full years only). The guaranteed period may be
limited on Qualified Contracts based on your life expectancy.
Periodic payment amounts will differ based on the Annuity Option
selected. Generally, the longer the possible payment period, the
lower the payment amount.
Additionally, if variable payments are elected under Annuity
Options 2 and 4, you may redeem all remaining guaranteed
variable payments after the Annuity Date. Also, under
Option 4, partial redemptions of remaining guaranteed
variable payments after the Annuity Date are available. If
you elect to redeem all remaining guaranteed variable payments
in a single sum, we will not make any additional variable
annuity payments during the Annuitant’s lifetime or the
remaining guaranteed period after the redemption. The amount
available upon full redemption would be the present value of any
remaining guaranteed variable payments at the assumed investment
return. Any applicable withdrawal charge will be deducted from
the present value as if you made a full withdrawal, or if
applicable, a partial withdrawal. For purposes of calculating
the withdrawal charge and Free Withdrawal amount, it will be
assumed that the Contract was never converted to provide annuity
payments and any prior variable annuity payments in that
Contract Year will be treated as if they were partial
withdrawals from the Contract (see CHARGES, FEES AND
DEDUCTIONS – Withdrawal Charge).
For example, assume that a Contract was issued with a single
investment of $10,000 and in Contract Year 4 the Owner
elects to receive variable annuity payments under Annuity
Option 4. In Contract Year 5, the Owner elects to make
a partial redemption of $5,000. The withdrawal charge as a
percentage of the Purchase Payments with an age of 5 years
is 3%. Assuming the Free Withdrawal amount immediately prior to
the partial redemption is $300, the withdrawal charge for the
partial redemption will be $141
(($5,000 – $300) * 3%). No withdrawal
charge will be imposed on a redemption if:
•
the Annuity Option is elected as the form of payments of death
benefit proceeds, or
•
the Annuitant dies before the period certain has ended and the
Beneficiary requests a redemption of the variable annuity
payments.
Full or partial redemptions of remaining guaranteed variable
payments are explained in more detail in the SAI under THE
CONTRACTS AND THE SEPARATE ACCOUNT.
32
If the Annuitant dies before the guaranteed payments under
Annuity Options 2 and 4 are completed, we will pay the
remainder of the guaranteed payments to the first person among
the following who is (1) living; or (2) an entity or
corporation entitled to receive the remainder of the guaranteed
payments:
•
the Owner;
•
the Joint Owner;
•
the Contingent Owner;
•
the Beneficiary; or
•
the Contingent Beneficiary.
If none are living (or if there is no entity or corporation
entitled to receive the remainder of the guaranteed payments),
we will pay the remainder of the guaranteed payments to the
Owner’s estate.
If the Owner dies on or after the Annuity Date, but payments
have not yet been completed, then distributions of the remaining
amounts payable under the Contract must be made at least as
rapidly as the method of distribution that was being used at the
date of the Owner’s death. All of the Owner’s rights
granted by the Contract will be assumed by the first among the
following who is (1) living; or (2) an entity or
corporation entitled to assume the Owner’s rights granted
by the Contract:
•
the Joint Owner;
•
the Contingent Owner;
•
the Beneficiary; or
•
the Contingent Beneficiary.
If none are living (or if there is no entity or corporation
entitled to assume the Owner’s rights granted by the
Contract), all of the Owner’s rights granted by the
Contract will be assumed by the Owner’s estate.
For Qualified Contracts, please refer to the Choosing Your
Annuity Date section in this Prospectus. If your Contract
was issued in connection with a Qualified Plan subject to
Title I of the Employee Retirement Income Security Act of
1974 (“ERISA”), your spouse’s consent may be
required when you seek any distribution under your Contract,
unless your Annuity Option is Joint and Survivor Life with
survivor payments of at least 50%, and your spouse is your Joint
Annuitant.
You may choose to have annuity payments made monthly, quarterly,
semi-annually, or annually. The amount of a variable payment
will be determined in each period on the date corresponding to
your Annuity Date, and payment will be made on the next
succeeding day.
Your initial annuity payment must be at least $250. Depending on
the net amount you annuitize, this requirement may limit your
options regarding the period and/or frequency of annuity
payments.
Amount of
the First Payment
Your Contract contains tables that we use to determine the
amount of the first annuity payment under your Contract, taking
into consideration the annuitized portion of your Net Contract
Value at the Annuity Date. This amount will vary, depending on
the annuity period and payment frequency you select. This amount
will be larger in the case of shorter Period Certain annuities
and smaller for longer Period Certain annuities. Similarly, this
amount will be greater for a Life Only annuity than for a Joint
and Survivor Life annuity, because we will expect to make
payments for a shorter period of time on a Life Only annuity. If
you do not choose the Period Certain Only annuity, this amount
will also vary depending on the age of the Annuitant(s) on the
Annuity Date and, for some Contracts in some states, the sex of
the Annuitant(s).
For fixed annuity payments, the guaranteed income factors in our
tables are based on an annual interest rate of 3% and the 1983a
Annuity Mortality Table with the ages set back 10 years. If
you elect a fixed annuity, fixed annuity payments will be based
on the periodic income factors in effect for your Contract on
the Annuity Date which are at least the guaranteed income
factors under the Contract.
For variable annuity payments, the tables are based on an
assumed annual investment return of 5% and the 1983a Annuity
Mortality Table with the ages set back 10 years. If you
elect a variable annuity, your initial variable annuity payment
will be based on the applicable variable annuity income factors
in effect for your Contract on the Annuity Date which are at
least the variable annuity income factors under the Contract.
You may choose any other annuity option we may offer on the
option’s effective date. A higher assumed investment return
would mean a larger first variable annuity payment, but
subsequent payments would increase only when actual net
investment performance exceeds the higher assumed rate and would
fall when actual net investment performance is less than the
higher assumed rate. A lower assumed rate would mean a smaller
first payment and a more favorable threshold for increases and
decreases. If the actual net
33
investment performance is a constant 5% annually, annuity
payments will be level. The assumed investment return is
explained in more detail in the SAI under THE CONTRACTS AND
THE SEPARATE ACCOUNT.
Death benefit proceeds may be payable before the Annuity Date on
proof of death of the sole surviving Annuitant or of any
Contract Owner while the Contract is in force. Any death benefit
payable will be calculated on the “Notice Date”, which
is the day on which we receive, in proper form, proof of death
and instructions regarding payment of death benefit proceeds. If
a Contract has multiple recipients, death benefit proceeds will
be calculated when we first receive proof of death and
instructions, in proper form, from any recipient. The death
benefit proceeds still remaining to be paid to other recipients
will fluctuate with the performance of the underlying Investment
Options.
Death
Benefit Proceeds
Death benefit proceeds will be payable on the Notice Date. Such
proceeds will be reduced by any charge for premium taxes and/or
other taxes and any Contract Debt. The death benefit proceeds
may be payable in a single sum, as an Annuity Option available
under the Contract, towards the purchase of any other Annuity
Option we then offer, or in any other manner permitted by the
IRS and approved by us. The Owner’s spouse may continue the
Contract (see Death Benefits – Spousal
Continuation). In addition, there may be legal requirements
that limit the recipient’s Annuity Options and the timing
of any payments. A recipient should consult a qualified tax
adviser before making a death benefit election.
The death benefit proceeds will be paid to the first among the
following who is (1) living; or (2) an entity or
corporation entitled to receive the death benefit proceeds, in
the following order:
•
Owner,
•
Joint Owner,
•
Contingent Owner,
•
Beneficiary, or
•
Contingent Beneficiary.
If none are living (or if there is no entity or corporation
entitled to receive the death benefit proceeds), the proceeds
will be payable to the Owner’s Estate.
Death
Benefit Amount
The Death Benefit Amount as of any Business Day before the
Annuity Date is equal to the greater of:
•
your Contract Value as of that day, or
•
your aggregate Purchase Payments reduced by an amount for each
withdrawal, which is calculated by multiplying the aggregate
Purchase Payments received before each withdrawal by the ratio
of the amount of the withdrawal, including any withdrawal
charge, to the Contract Value immediately prior to each
withdrawal. The reduction made, when the Contract Value is less
than aggregate Purchase Payments made into the Contract, may be
greater than the actual amount withdrawn.
We calculate the Death Benefit Amount as of the Notice Date and
the death benefit will be paid in accordance with the Death
Benefit Proceeds section above.
See APPENDIX G: DEATH BENEFIT AMOUNT AND STEPPED-UP
DEATH BENEFIT RIDER (SDBR) SAMPLE CALCULATIONS.
Spousal
Continuation
Generally, a sole designated recipient who is the Owner’s
spouse may elect to become the Owner (and sole Annuitant if the
deceased Owner had been the Annuitant) and continue the Contract
until the earliest of the spouse’s death, the death of the
Annuitant, or the Annuity Date, except in the case of a
Qualified Contract issued under section 403 of the Code. On
the Notice Date, if the surviving spouse is deemed to have
continued the Contract, we will set the Contract Value equal to
the death benefit proceeds that would have been payable to the
spouse as the deemed Beneficiary/designated recipient of the
death benefit proceeds. This “Add-In Amount” is the
difference between the Contract Value and the death benefit
proceeds that would have been payable. The Add-In Amount will be
added to the Contract Value on the Notice Date. There will not
be an adjustment to the Contract Value if the Contract Value is
equal to or greater than the death benefit proceeds as of the
Notice Date. The Add-In Amount will be allocated among
Investment Options in accordance with the current allocation
instructions for the Contract and may be, under certain
circumstances, considered earnings. The
34
Add-In Amount is not treated as a new Purchase Payment. A Joint
or Contingent Owner who is the designated recipient, but not the
Owner’s spouse, may not continue the Contract.
Example: On the Notice Date, the Owner’s
surviving spouse elects to continue the Contract. On that date,
the death benefit proceeds were $100,000 and the Contract Value
was $85,000. Since the surviving spouse elected to continue the
Contract in lieu of receiving the death benefit proceeds, we
will increase the Contract Value by an Add-In Amount of $15,000
($100,000–$85,000=$15,000). If the Contract Value on the
Notice Date was $100,000 or higher, then nothing would be added
to the Contract Value.
Death of
Annuitant
If a sole surviving Annuitant dies before the Annuity Date, the
amount of the death benefit will be equal to the Death
Benefit Amount as of the Notice Date and will be paid in
accordance with the Death Benefit Proceeds section.
If there is more than one Annuitant and an Annuitant who is not
an Owner dies, no death benefit proceeds will be payable. The
designated sole Annuitant will then be the first living person
in the following order:
•
a surviving Joint Annuitant, or
•
a surviving Contingent Annuitant.
Death of
Owner
The amount of the death benefit will be the Death Benefit
Amount as of the Notice Date and will be paid in accordance
with the Death Benefit Proceeds section if:
•
a Contract Owner who is an Annuitant dies before the Annuity
Date, or
•
a Contract Owner, who is not an Annuitant, and the Annuitant die
simultaneously.
If a Contract Owner who is not an Annuitant dies before the
Annuity Date, the death benefit proceeds will be equal to your
Contract Value as of the Notice Date and will be paid in
accordance with the Death Benefit Proceeds section.
Non-Natural
Owner
If you are a Non-Natural Owner of a Contract other than a
Contract issued under a Qualified Plan as defined in
Section 401 or 403 of the Code, the Primary Annuitant will
be treated as the Owner of the Contract for purposes of the
Non-Qualified Contract Distribution Rules. If there are
Joint or Contingent Annuitants, the death benefit proceeds will
be payable on proof of death of the first annuitant. If there is
a change in the Primary Annuitant prior to the Annuity Date,
such change will be treated as the death of the Owner. The Death
Benefit Amount will be: (a) the Contract Value, if the
Non-Natural Owner elects to maintain the Contract and reinvest
the Contract Value into the contract in the same amount as
immediately prior to the distribution; or (b) the Contract
Value, less any annual fee, withdrawal charge and charges for
premium taxes and/or other taxes, if the Non-Natural Owner
elects a cash distribution and will be paid in accordance with
the Death Benefits Proceeds section.
Non-Qualified
Contract Distribution Rules
The Contract is intended to comply with all applicable
provisions of Code Section 72(s) and any successor
provision, as deemed necessary by us to qualify the Contract as
an annuity contract for federal income tax purposes. If an Owner
of a Non-Qualified Contract dies before the Annuity Date,
distribution of the death benefit proceeds must begin within
1 year after the Owner’s death or complete
distribution within 5 years after the Owner’s death.
In order to satisfy this requirement, the designated recipient
must receive a final lump sum payment by the fifth anniversary
of the death of the Contract Owner, or elect to receive an
annuity for life or over a period that does not exceed the life
expectancy of the designated recipient with annuity payments
that start within 1 year after the Owner’s death or,
if permitted by the IRS, elect to receive a systematic
distribution over a period not exceeding the beneficiary’s
life expectancy using a method that would be acceptable for
purposes of calculating the minimum distribution required under
section 401(a)(9) of the Code. If an election to receive an
annuity is not made within 60 days of our receipt of proof,
in proper form, of the Owner’s death or, if earlier,
60 days (or shorter period as we permit) prior to the first
anniversary of the Owner’s death, the lump sum option will
be deemed elected, unless otherwise required by law. If the lump
sum option is deemed elected, we will consider that deemed
election as receipt of instructions regarding payment of the
death benefit proceeds. If a Non-Qualified Contract has Joint
Owners, this requirement applies to the first Contract Owner to
die.
The Owner may designate that the Beneficiary will receive death
benefit proceeds through annuity payments for life or life with
Period Certain. The Owner must designate the payment method in
writing in a form acceptable to us. The Owner may revoke the
designation only in writing and only in a form acceptable to us.
Once the Owner dies, the Beneficiary cannot revoke or modify the
Owner’s designation.
35
Qualified
Contract Distribution Rules
Under Internal Revenue Service regulations and our
administrative procedures, if the Contract is owned under a
Qualified Plan as defined in Sections 401, 403, 457(b) or
Sections 408, or 408A of the Code and the Annuitant dies
before the Required Beginning Date, the payment of any death
benefit proceeds must be made to the designated recipient in
accordance with one of two rules. One rule generally requires
the death benefit proceeds to commence distribution by
December 31 of the calendar year following the calendar
year of the Annuitant’s death and continue over the life of
his or her Beneficiary (the “life expectancy method”).
The second rule requires distribution of the entire death
benefit proceeds no later than December 31 of the calendar
year in which the fifth anniversary of the Annuitant’s
death falls (the “five-year rule”).
However, the life expectancy method and the five-year rule are
modified if the sole primary Beneficiary is a surviving spouse.
If the surviving spouse elects not to do an eligible rollover to
an IRA or another existing eligible plan in his or her name,
then he or she will be subject to the five-year rule. However,
the surviving spouse may waive the five-year requirement and
elect to take distributions over his or her life expectancy. If
the surviving spouse elects to defer the commencement of
required distributions beyond the first anniversary of the
Annuitant’s death, the surviving spouse may defer required
distributions until the later of:
•
December 31 of the year following the year the Annuitant
died, or
•
December 31 of the year in which the deceased Annuitant
would have turned
701/2.
Further, under our administrative procedures, if the required
distributions election is not received by us in good order by
December 31 of the year following the Annuitant’s
death or by December 31 of the year in which the Annuitant
would have attained age
701/2,
the lump sum option will be deemed by us to have been elected,
unless otherwise required by law. If the lump sum option is
deemed elected, we will treat that deemed election as receipt of
instructions regarding payment of death benefit proceeds.
If the Annuitant dies after the commencement of RMDs (except in
the case of a Roth IRA when RMDs do not apply) but before the
Annuitant’s entire interest in the Contract (other than a
Roth IRA) has been distributed, the remaining interest in
the Contract must be distributed to the designated recipient at
least as rapidly as under the distribution method in effect at
the time of the Annuitant’s death.
This optional Rider offers you the ability to lock in market
gains for your beneficiaries with a
stepped-up
death benefit, which is the highest Contract Value on any
previous Contract Anniversary (prior to the Annuitant’s
81st birthday)
increased by the amount of additional Purchase Payments and
decreased by withdrawals that you make.
Purchasing
the Rider
You may purchase this optional Rider at the time your
application is completed. You may not purchase the SDBR after
the Contract Date. The SDBR may only be purchased if the age of
each Annuitant is 75 or younger on the Contract Date.
How the
Rider Works
If you purchase the SDBR at the time your application is
completed, upon the death of the sole surviving Annuitant, or
the first Owner who is also an Annuitant, prior to the Annuity
Date, the death benefit proceeds will be equal to the greater of
(a) or (b) below:
(a)
the Death Benefit Amount as of the Notice Date.
The Death Benefit Amount as of any day before the Annuity Date
is equal to the greater of:
•
your Contract Value as of that day, or
•
your aggregate Purchase Payments reduced by an amount for each
withdrawal, which is calculated by multiplying the aggregate
Purchase Payments received before each withdrawal by the ratio
of the amount of the withdrawal, including any withdrawal
charge, to the Contract Value immediately prior to each
withdrawal. The reduction made, when the Contract Value is less
than aggregate Purchase Payments made into the Contract, may be
greater than the actual amount withdrawn.
(b)
the Guaranteed Minimum Death Benefit Amount as of the Notice
Date.
The actual Guaranteed Minimum Death Benefit Amount is calculated
only when death benefit proceeds become payable as a result of
the death of the sole surviving Annuitant, or the first death of
an Owner who is also an Annuitant, prior to the Annuity Date and
is determined as follows:
First we calculate what the Death Benefit Amount would have been
as of your first Contract Anniversary and each subsequent
Contract Anniversary that occurs while the Annuitant is living
and before the Annuitant reaches his or her
81st birthday
(each of these Contract Anniversaries is a “Milestone
Date”).
We then adjust the Death Benefit Amount for each Milestone Date
by:
•
adding the aggregate amount of any Purchase Payments received by
us since the Milestone Date, and
36
•
subtracting an amount for each withdrawal that has occurred
since that Milestone Date, which is calculated by multiplying
the Death Benefit Amount before the withdrawal by the ratio of
the amount of each withdrawal that has occurred since that
Milestone Date, including any withdrawal charge, to the Contract
Value immediately prior to the withdrawal. The reduction made,
when the Contract Value is less than aggregate Purchase Payments
made into the Contract, may be greater than the actual amount
withdrawn.
The highest of these adjusted Death Benefit Amounts for each
Milestone Date, as of the Notice Date, is your Guaranteed
Minimum Death Benefit Amount if you purchase the SDBR.
Calculation of any actual Guaranteed Minimum Death Benefit
Amount is only made once death benefit proceeds become payable
under your Contract.
Any death benefit paid under this Rider will be paid in
accordance with the Death Benefit Proceeds section above.
See APPENDIX G: DEATH BENEFIT AMOUNT AND STEPPED-UP
DEATH BENEFIT RIDER (SDBR) SAMPLE CALCULATIONS.
Termination
The Rider will remain in effect until the earlier of:
•
the date a full withdrawal of the amount available for
withdrawal is made under the Contract,
•
the date death benefit proceeds become payable under the
Contract,
•
the date the Contract is terminated in accordance with the
provisions of the Contract, or
You may purchase the EEG Rider on the Contract Date or on the
first Contract Anniversary. If you buy the EEG Rider within
60 days after the Contract Date or within 60 days
after the first Contract Anniversary, we will make the Effective
Date of the EEG Rider coincide with that Contract Date or
Contract Anniversary. The EEG Rider is also called the
Guaranteed Earnings Enhancement (GEE) Rider and the EEG Amount
is called the GEE Amount in the Rider attached to your
Contract.
You may purchase the EEG Rider only if the age of each Annuitant
is 75 years or younger on the date of purchase. The date of
purchase is the Rider Effective Date as shown in your Contract.
How the
Rider Works
If you purchase the EEG Rider, an Earnings Enhancement Guarantee
amount (EEG Amount) is added to the death benefit proceeds when
such proceeds become payable as a result of the sole surviving
Annuitant’s death or the first death of an Owner who is
also an Annuitant.
The EEG amount is calculated as follows:
If the age of the oldest Annuitant was age 69 or younger on the
Effective Date of the Rider, the EEG amount is equal to the
lesser of:
•
40% of Earnings, or
•
40% of Remaining Purchase Payments, excluding any Purchase
Payments made in the 12 months prior to the date of death,
adjusted for withdrawals.
If the age of the oldest Annuitant was age 70 to 75 on the
Effective Date of the Rider, the EEG Amount is equal to the
lesser of:
•
25% of Earnings, or
•
25% of Remaining Purchase Payments, excluding any Purchase
Payments made in the 12 months prior to the date of death,
adjusted for withdrawals.
For purposes of calculating the EEG Amount, Earnings are equal
to the Contract Value as of the date of death minus Remaining
Purchase Payments. Remaining Purchase Payments is defined as (a)
or (b) below:
(a)
If the Rider is effective on the Contract Date, Remaining
Purchase Payments are equal to:
•
the Initial Purchase Payments, plus
•
any additional Purchase Payments added, minus
•
the amount that each withdrawal exceeds the amount of Earnings
in the Contract immediately prior to such withdrawal.
Withdrawals are assumed to be taken from Earnings first, then
from Purchase Payments in the order they were received.
37
(b)
If the Rider is effective after the Contract Date, Remaining
Purchase Payments are equal to:
•
the Contract Value on the Effective Date, plus
•
any additional Purchase Payments added since the Effective Date
of the Rider, minus
•
the amount that each withdrawal taken after the Effective Date
of the Rider exceeds the amount of Earnings in the Contract
accumulated since that date. Withdrawals are assumed to be taken
first from Earnings accumulated since the Effective Date of the
Rider, then from Purchase Payments in the order that they were
received.
See APPENDIX H: EARNINGS ENHANCEMENT GUARANTEE (EEG)
RIDER SAMPLE CALCULATIONS.
If the Surviving Spouse of the deceased Owner continues the
Contract in accordance with its terms and conditions, then all
provisions of the Rider for the Surviving Spouse will be based
on the age of the Surviving Spouse on the date of death of the
deceased Owner. If the Surviving Spouse is over age 75 on
the date of death, the Rider will not be continued for such
Surviving Spouse and the benefits and charges provided by the
Rider will no longer be applied.
Termination
Once purchased, the Rider will remain in effect until the
earlier of:
•
the date a full withdrawal of the amount available for
withdrawal is made under the Contract,
•
the date death benefit proceeds become payable under the
Contract,
•
the date the Contract is terminated in accordance with the
provisions of the Contract, or
You may, on or prior to your Annuity Date, withdraw all or a
portion of the amount available under your Contract while the
Annuitants are living and your Contract is in force. You may
surrender your Contract and make a full withdrawal at any time.
If you surrender your Contract it will be terminated as of the
Effective Date of the withdrawal. Beginning 30 days after
your Contract Date, you also may make partial withdrawals from
your Investment Options at any time. Currently, we are not
requiring the
30-day
waiting period on partial withdrawals, but we reserve the right
to require a
30-day
waiting period on partial withdrawals in the future. You may
request to withdraw a specific dollar amount or a specific
percentage of an Account Value or your Net Contract Value. You
may choose to make your withdrawal from specified Investment
Options. If you do not specify Investment Options, your
withdrawal will be made from all of your Investment Options
proportionately. Each partial withdrawal must be for $500 or
more. Pre-authorized partial withdrawals must be at least $250,
except for pre-authorized withdrawals distributed by Electronic
Funds Transfer (EFT), which must be at least $100. If your
partial withdrawal from an Investment Option would leave a
remaining Account Value in that Investment Option of less than
$500, we also reserve the right, at our option, to transfer that
remaining amount to your other Investment Options on a
proportionate basis relative to your most recent allocation
instructions. If your partial withdrawal leaves you with a Net
Contract Value of less than $1,000, or if your partial
withdrawal request is for an amount exceeding the amount
available for withdrawal, as described in the Amount
Available for Withdrawal section below, we have the right,
at our option, to terminate your Contract and send you the
withdrawal proceeds. However, we will not terminate your
Contract if you own an optional rider and a partial withdrawal
reduces the Net Contract Value to an amount less than $1,000.
Partial withdrawals from any fixed option in any Contract Year
may be subject to restrictions.
See THE GENERAL ACCOUNT.
Amount
Available for Withdrawal
The amount available for withdrawal is your Net Contract Value
(Contract Value less Contract Debt) at the end of the Business
Day on which your withdrawal request is effective, less any
applicable Annual Fee, optional Rider Charges, withdrawal
charge, and any charge for premium taxes and/or other taxes. The
amount we send to you (your “withdrawal proceeds”)
will also reflect any required or requested federal and state
income tax withholding. See FEDERAL TAX ISSUES and THE
GENERAL ACCOUNT. If you own optional Riders, taking a
withdrawal before a certain age or a withdrawal that is greater
than the allowed annual withdrawal amount under a Rider, may
result in adverse consequences such as a reduction in Rider
benefits or the failure to receive lifetime withdrawals under
the Rider.
You assume investment risk on Purchase Payments in the
Subaccounts. As a result, the amount available to you for
withdrawal from any Subaccount may be more or less than the
total Purchase Payments you have allocated to that Subaccount.
38
Withdrawals
Free of a Withdrawal Charge
Subject to the amount available for withdrawal provisions
described above, during a Contract Year you may withdraw your
Earnings plus your “eligible Purchase Payments”
without incurring a withdrawal charge. Eligible Purchase
Payments include 10% of all remaining Purchase Payments at the
beginning of a Contract Year that have an “age” of
less than 7 years, plus 10% of any Purchase Payments received
during the Contract Year plus 100% of any remaining purchase
payments that have an age of 7 years or more. Our calculations
of the withdrawal charge deduct this “free 10%” from
your “oldest” Purchase Payment that is still subject
to the withdrawal charge. For purposes of determining the free
withdrawal amounts, withdrawal of mandatory required minimums
from certain Qualified Plans are included within the
calculations.
Example: You make an initial Purchase Payment of $10,000 in
Contract Year 1, and make additional Purchase Payments of
$1,000 and $6,000 in Contract Year 2. With Earnings, your
Contract Value in Contract Year 3 is $19,000. In Contract
Year 3, you may withdraw $3,700 free of the withdrawal
charge (your total Purchase Payments were $17,000, so 10% of
that total equals $1,700, plus you had $2,000 of Earnings).
After this withdrawal, your Contract Value is $15,300 (all
attributable to Purchase Payments). In Contract Year 4,
your Contract Value falls to $12,500; you may withdraw $1,530
(10% of $15,300) free of any withdrawal charges.
See Choosing Your Annuity Option – Annuity
Options for Free Withdrawal amounts that apply to
redemptions after the Annuity Date.
Qualified Contracts have special restrictions on withdrawals.
For purposes of determining the free withdrawal amounts,
withdrawal of mandatory required minimums from certain Qualified
Contracts are included within the calculations. For additional
information, see Special Restrictions Under Qualified
Plans below. For those Contracts issued to a Charitable
Remainder Trust (CRT), the amount available for withdrawal free
of withdrawal charges during a Contract Year includes all
eligible Purchase Payments plus all earnings even if all
Purchase Payments have not been deemed withdrawn.
Pre-Authorized
Withdrawals
If your Contract Value is at least $5,000, you may select the
pre-authorized withdrawal option, and you may choose monthly,
quarterly, semi-annual or annual withdrawals. Currently, we are
not enforcing the minimum Contract Value amount but we reserve
the right to enforce the minimum amount in the future. Each
withdrawal must be for at least $250, except for withdrawals
distributed by Electronic Funds Transfer (EFT), which must be at
least $100. Each pre-authorized withdrawal is subject to federal
income tax on its taxable portion and may be subject to a tax
penalty of 10% if you have not reached age
591/2.
Pre-authorized withdrawals cannot be used to continue the
Contract beyond the Annuity Date. See FEDERAL TAX ISSUES
and THE GENERAL ACCOUNT. Additional information and
options are set forth in the SAI.
Special
Requirements for Full Withdrawals and Payments to Third Party
Payees
Instructions for a full withdrawal and surrender of your
Contract in proper form includes, among other things, a return
of the original Contract or a lost contract affidavit. For your
convenience, our Withdrawal Request form includes a lost
contract affidavit for your use in providing us with your full
withdrawal and surrender instructions. If you wish to have a
full or partial withdrawal check made payable to a third-party
payee, you must provide complete instructions and an original
signature is required on the Withdrawal Request form or your
withdrawal request instructions. If you wish to withdraw the
entire amount available under your Contract, you must either
return your Contract to us or sign and submit a Withdrawal
Request form or a Lost Contract Affidavit if no Withdrawal
Request form is completed.
Special
Restrictions Under Qualified Plans
Qualified Plans may have additional rules regarding withdrawals
from a Contract purchased under such a Plan. In general, if your
Contract was issued under certain Qualified Plans, you may
not withdraw amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in
Section 402(g)(3)(A) of the Code) or to transfers from a
custodial account (as defined in Section 403(b)(7) of the
Code) except in cases of your:
•
severance from employment,
•
death,
•
disability as defined in Section 72(m)(7) of the Code,
•
reaching age
591/2,
or
•
hardship as defined for purposes of Section 401 of the Code.
These limitations do not affect certain rollovers or exchanges
between Qualified Plans, and do not apply to rollovers from
these Qualified Plans to an individual retirement account or
individual retirement annuity. In the case of a 403(b) plan,
these limitations do not apply to certain salary reduction
contributions made, and investment results earned, prior to
dates specified in the Code.
39
Hardship withdrawals under the exception provided above are
restricted to amounts attributable to salary reduction
contributions, and do not include investment results. This
additional restriction does not apply to salary reduction
contributions made, or investment results earned, prior to dates
specified in the Code.
Certain distributions, including rollovers, may be subject to
mandatory withholding of 20% for federal income tax and to a tax
penalty of 10% if the distribution is not transferred directly
to the trustee of another Qualified Plan, or to the custodian of
an individual retirement account or issuer of an individual
retirement annuity. See FEDERAL TAX ISSUES. Distributions
may also trigger withholding for state income taxes. The tax and
ERISA rules relating to withdrawals from Contracts issued to
Qualified Plans are complex. We are not the administrator of any
Qualified Plan. You should consult your qualified tax adviser
and/or your Plan Administrator before you withdraw any portion
of your Contract Value.
Effective
Date of Withdrawal Requests
Withdrawal requests are normally effective on the Business Day
we receive them in proper form. If you make Purchase Payments by
check and submit a withdrawal request immediately afterwards,
payment of your withdrawal proceeds may be delayed until we
receive confirmation in our Annuities administrative office that
your check has cleared.
All withdrawals, including pre-authorized withdrawals, will
generally have federal income tax consequences, which could
include tax penalties. You should consult with a qualified
tax adviser before making any withdrawal or selecting the
pre-authorized withdrawal option. See FEDERAL TAX
ISSUES.
You may return your Contract for cancellation and a refund
during your Free Look period. Your Free Look period is usually
the 10-day period beginning on the day you receive your
Contract, but may vary if required by state law. The amount of
your refund may be more or less than the Purchase Payments you
have made. If you return your Contract and it is post-marked
during the Free Look period, it will be cancelled as of the date
we receive your Contract. In most states, you will then receive
a refund of your Contract Value, based upon the next determined
Accumulated Unit Value (AUV) after we receive your Contract for
cancellation, plus a refund of any amount that may have been
deducted as Contract fees and charges.
In some states we are required to refund your Purchase Payments.
If your Contract was issued in such a state and you cancel your
Contract during the Free Look period, we will return the greater
of your Purchase Payments or the Contract Value. In addition, if
your Contract was issued as an IRA and you return your Contract
within 7 days after you receive it, we will return the
greater of your Purchase Payments (less any withdrawals made) or
the Contract Value.
Your Purchase Payments are allocated to the Investment Options
you indicated on your application, unless otherwise required by
state law. If state law requires that your Purchase Payments
must be allocated to Investment Options different than you
requested, we will comply with state requirements. At the end of
the Free Look period, we will allocate your Purchase Payments
based on your allocation instructions.
See ADDITIONAL INFORMATION – State
Considerations.
For replacement business and in some states, the Free Look
period may be extended and the amount returned may be different
than as otherwise described above. Please consult with your
financial professional if you have any questions regarding your
state’s Free Look period and the amount of any refund.
You will find a complete description of the Free Look period and
amount to be refunded that applies to your Contract on the
Contract’s cover page, or on a notice that accompanies your
Contract.
If your Contract is issued in exchange for another annuity
contract or a life insurance policy, our administrative
procedures may vary, depending on the state in which your
Contract is issued.
Optional Riders are subject to availability (including state
availability). Before purchasing any optional Rider, make sure
you understand all of the terms and conditions and consult with
your financial professional for advice on whether an optional
Rider is appropriate for you. We reserve the right to restrict
the purchase of an optional living benefit Rider to only
Contract issue in the future.
You may purchase an optional Rider on the Contract Date or on
any Contract Anniversary (if available). In addition, if you
purchase a Rider within 60 days after the Contract Date or,
if available, within 60 days after any Contract
Anniversary, the Rider Effective Date will be that Contract Date
or Contract Anniversary.
40
Taking a withdrawal before a certain age or a withdrawal that is
greater than the allowed annual withdrawal amount under a
particular Rider, may result in adverse consequences such as a
reduction in Rider benefits or the failure to receive lifetime
withdrawals under a Rider.
Some optional riders allow for owner elected
Resets/Step-Ups.
If you elect to
Reset/Step-Up,
your election must be received, in a form satisfactory to us, at
our Service Center within 60 days after the Contract Anniversary
(“60 day period”) on which the
Reset/Step-Up
is effective. We may, at our sole discretion, allow
Resets/Step-Ups
after the 60 day period. We reserve the right to refuse a
Reset/Step-Up
request after the 60 day period regardless of whether we
may have allowed you or others to
Reset/Step-Up
in the past. Each Contract Anniversary starts a new 60 day
period in which a
Reset/Step-Up
may be elected.
Some broker/dealers may limit their clients from purchasing some
optional benefits based upon the client’s age or other
factors. You should work with your financial professional to
decide whether an optional benefit is appropriate for you.
There may be adverse consequences to taking a loan while an
optional Rider is in effect. If you have an existing loan on
your Contract, you should carefully consider whether an optional
Rider is appropriate for you.
Investment
Allocation Requirements
At initial purchase and during the entire time that you own an
optional living benefit Rider, you must allocate your entire
Contract Value to an asset allocation program or Investment
Options we make available for these Riders. You may allocate
your Contract Value according to the following requirements:
•
100% to one allowable Asset Allocation Model, OR
•
100% among allowable Investment Options.
You may also use the DCA Plus program to transfer amounts to an
Asset Allocation Model or among the Investment Options listed
below. Currently, the allowable Asset Allocation Models and
Investment Options are as follows:
Franklin Templeton VIP Founding Funds Allocation Fund
Custom Model
GE Investments Total Return Fund
Pacific Dynamix – Conservative Growth
Pacific Dynamix – Moderate Growth
Pacific Dynamix – Growth
PIMCO Global Multi-Asset Portfolio
Van Kampen LIT Global Tactical Asset Allocation Portfolio
1
Portfolio Optimization Model E will
no longer be an allowable Asset Allocation Model for any
optional living benefit rider with a Rider Effective Date on or
after January 1, 2009.
You may transfer your entire Contract Value between an allowable
Asset Allocation Model and allowable Investment Options, between
allowable Asset Allocation Models or between allowable
Investment Options, subject to certain transfer limitations. See
HOW YOUR PURCHASE PAYMENTS ARE ALLOCATED –
Transfers and Market-timing Restrictions. Keep in mind that
you must allocate your entire Contract Value to either
one allowable Asset Allocation Model or among the
allowable Investment Options. If you do not allocate your
entire Purchase Payment or Contract Value according to
the requirements above, your Rider will terminate.
Allowable Asset Allocation Models – Portfolio
Optimization. You may transfer your entire
Contract Value to a different Portfolio Optimization Model
without affecting your Rider. However, if you change the
allocation percentages within the Portfolio Optimization Model
you have selected, including allocating any subsequent Purchase
Payments inconsistent with your Model’s target allocations,
you will no longer be participating in the Portfolio
Optimization program and your Rider will terminate. See HOW
YOUR PURCHASE PAYMENTS ARE ALLOCATED – Portfolio
Optimization for information about the program.
Allowable Asset Allocation Models – Custom
Model. You may also make transfers between the
Investment Options available under the Custom Model program as
long as you follow the Custom Model parameters. However, if you
make transfers, subsequent Purchase Payments or change the
allocation percentages within your Custom Model and they do not
comply with the Custom Model parameters, you will no longer be
participating in the Custom Model program and your Rider will
terminate. See HOW YOUR PURCHASE PAYMENTS ARE
ALLOCATED – Custom Model for information about the
program.
41
Allowable Investment Options. You may allocate
your entire Contract Value among any of the allowable Investment
Options listed in the table above.
By adding an optional living benefit Rider to your Contract, you
agree to the above referenced investment allocation requirements
for the entire period that you own a Rider. These requirements
may limit the number of Investment Options that are otherwise
available to you under your Contract. We reserve the right to
add, remove or change allowable asset allocation programs or
allowable Investment Options at any time. We may make such a
change due to a fund reorganization, fund substitution, or when
we believe a change is necessary to protect our ability to
provide the guarantees under these riders. If such a change is
required, we will provide you with reasonable notice (generally
90 calendar days unless we are required to give less notice)
prior to the effective date of such change to allow you to
reallocate your Contract Value to maintain your rider benefits.
If you do not reallocate your Contract Value your rider will
terminate.
We will send you written notice in the event any transaction
made by you will involuntarily cause the Rider to terminate for
failure to invest according to the investment allocation
requirements. However, you will have 10 Business Days after the
date of our written notice (“10 day period”), to
instruct us to take appropriate corrective action to continue
participation in an allowable asset allocation program or
allowable Investment Options to continue the Rider.
Multiple
Rider Ownership
Only one CoreIncome Advantage 5, CoreProtect Advantage,
CoreIncome Advantage, Flexible Lifetime Income Plus (Single),
Flexible Lifetime Income Plus (Joint), Foundation 10,
Automatic Income Builder, Flexible Lifetime Income (Single),
Flexible Lifetime Income (Joint), or Income Access Rider may be
owned or in effect at the same time. Only one GPA 3 or
GPA 5 Rider may be owned or in effect at the same time.
42
Withdrawal
Benefit Rider Exchanges
Subject to availability, you may elect to exchange among the
following withdrawal benefit Riders:
On any Contract Anniversary beginning with the
5th Contract
Anniversary measured from the Contract issue date.
When you elect an exchange, you are terminating your existing
Rider and purchasing a new Rider. The Initial Protected Payment
Base and Remaining Protected Balance under the new Rider will be
equal to the Contract Value on that Contract Anniversary.
Generally, if your Contract Value is lower than the Protected
Payment Base under your existing Rider, your election to
exchange from one rider to another may result in a reduction in
the Protected Payment Base, Remaining Protected Balance,
Protected Payment Amount and any Annual Credit that may be
applied. In other words, your existing protected balances will
not carryover to the new Rider. If you elect an exchange, you
will be subject to the charge for the new Rider in effect at the
time of the exchange. Only one exchange may be elected each
Contract Year. In addition, there are withdrawal percentages,
annual credit percentages, and lifetime income age requirements
that differ between the Riders listed above. Work with your
financial professional prior to electing an exchange.
43
Accumulation
Benefit Rider Exchanges
Subject to availability, you may elect to exchange among the
following accumulation benefit Riders:
FROM
TO
WHEN
Guaranteed Protection Advantage 5 (GPA 5)
Guaranteed Protection Advantage 3 (GPA 3)
On any Contract Anniversary.
When you elect an exchange, you are terminating your existing
Rider and purchasing a new Rider. The initial Guaranteed
Protection Amount under the new Rider will be equal to the
Contract Value on that Contract Anniversary. Generally, if
your Contract Value is lower than the Guaranteed Protection
Amount under your existing Rider, your election to exchange from
one rider to another may result in a reduction in the Guaranteed
Protection Amount. In other words, your existing Guaranteed
Protection Amount will not carryover to the new Rider. If you
elect an exchange, you will be subject to the charge for the new
Rider in effect at the time of the exchange. Only one exchange
may be elected each Contract Year. In addition, there are
Step-Up eligibility requirements that differ between the Riders
listed above. Work with your financial professional prior to
electing an exchange.
Optional
Riders Not Available for Purchase
The Flexible Lifetime Income Plus (Single), Flexible Lifetime
Income Plus (Joint), Automatic Income Builder, Flexible Lifetime
Income (Single), Flexible Lifetime Income (Joint) and Foundation
10 Riders are no longer available for purchase. If you purchased
one of these Riders, you will find more information about the
Rider in the SAI or in the Rider attached to your Contract.
This Rider is available for purchase starting June 1, 2010
(subject to availability). You may purchase this optional Rider
on the Contract Date or on any Contract Anniversary (if
available) if the age of each Annuitant is 85 years or younger
on the date of purchase, the Contract is not issued as an
Inherited IRA or Inherited TSA, and you allocate your entire
Contract Value according to the Investment Allocation
Requirements.
Rider
Terms
Annual RMD Amount – The amount required to
be distributed each Calendar Year for purposes of satisfying the
minimum distribution requirements of Code Section 401(a)(9)
(“Section 401(a)(9)”) and related Code provisions
in effect as of the Rider Effective Date.
Protected Payment Amount – The maximum amount
that can be withdrawn under this Rider without reducing the
Protected Payment Base.
If the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner) is age 65 or older when the first
withdrawal was taken or the most recent reset, whichever is
later, the Protected Payment Amount on any day after the Rider
Effective Date is equal to 5% multiplied by the Protected
Payment Base as of that day, less cumulative withdrawals during
that Contract Year.
If the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner) is younger than age 65 when the first
withdrawal was taken or the most recent reset, whichever is
later, the Protected Payment Amount on any day after the Rider
Effective Date is equal to the lesser of:
•
5% of the Protected Payment Base as of that day, less cumulative
withdrawals during that Contract Year, or
•
the Remaining Protected Balance as of that day.
The initial Protected Payment Amount on the Rider Effective Date
is equal to 5% of the initial Protected Payment Base.
Protected Payment Base – An amount used to
determine the Protected Payment Amount. The Protected Payment
Base will remain unchanged except as otherwise described under
the provisions of this Rider. The initial Protected Payment Base
is equal to the initial Purchase Payment, if the Rider Effective
Date is on the Contract Date, or the Contract Value, if the
Rider Effective Date is on a Contract Anniversary.
Remaining Protected Balance – The amount
available for future withdrawals made under this Rider, unless
withdrawals are guaranteed until the death of an Owner or sole
surviving Annuitant (first Annuitant in the case of a
Non-Natural Owner). The initial Remaining Protected Balance is
equal to the initial Purchase Payment, if the Rider Effective
Date is on the Contract Date, or the Contract Value, if the
Rider Effective Date is on a Contract Anniversary.
Reset Date – Any Contract Anniversary
after the Rider Effective Date on which an Automatic Reset or an
Owner-Elected Reset occurs.
44
Rider Effective Date – The date the
guarantees and charges for the Rider become effective. If the
Rider is purchased within 60 days of the Contract Date, the
Rider Effective Date is the Contract Date. If the Rider is
purchased within 60 days of a Contract Anniversary, the
Rider Effective Date is the date of that Contract Anniversary.
How the
Rider Works
On any day, this Rider guarantees you can withdraw up to the
Protected Payment Amount, regardless of market performance,
until the Rider terminates. Lifetime withdrawals up to the
Protected Payment Amount may continue after the Remaining
Protected Balance is reduced to zero (0) if the oldest Owner (or
youngest Annuitant, in the case of a Non-Natural Owner) was age
65 or older when the first withdrawal was taken after the Rider
Effective Date or the most recent Reset Date, whichever is
later. If a withdrawal was taken before age 65 and there
was no subsequent Reset, the Rider will terminate once the
Remaining Protected Balance is reduced to zero (0).
Once the Rider is purchased, you cannot request a termination of
the Rider (see the Termination subsection of this Rider
for more information).
In addition, beginning with the first
(1st)
anniversary of the Rider Effective Date or most recent Reset
Date, whichever is later, the Rider provides for Automatic
Annual Resets or Owner-Elected Resets of the Protected Payment
Base and Remaining Protected Balance to an amount equal to 100%
of the Contract Value.
The Protected Payment Base and Remaining Protected Balance may
change over time. An Automatic Reset or Owner-Elected Reset will
increase or decrease the Protected Payment Base and Remaining
Protected Balance depending on the Contract Value on the Reset
Date. A withdrawal that is less than or equal to the Protected
Payment Amount will reduce the Remaining Protected Balance by
the amount of the withdrawal and will not change the Protected
Payment Base. If a withdrawal is greater than the Protected
Payment Amount and the Contract Value is less than the Protected
Payment Base, both the Protected Payment Base and Remaining
Protected Balance will be reduced by an amount that is greater
than the excess amount withdrawn. For withdrawals that are
greater than the Protected Payment Amount, see the Withdrawal
of Protected Payment Amount subsection.
For purposes of this Rider, the term “withdrawal”
includes any applicable withdrawal charges. Amounts withdrawn
under this Rider will reduce the Contract Value by the amount
withdrawn and will be subject to the same conditions,
limitations, restrictions and all other fees, charges and
deductions, if applicable, as withdrawals otherwise made under
the provisions of the Contract. Withdrawals under this Rider are
not annuity payouts. Annuity payouts generally receive a more
favorable tax treatment than other withdrawals.
If your Contract is a Qualified Contract, including a TSA/403(b)
Contract, you are subject to restrictions on withdrawals you may
take prior to a triggering event (e.g. reaching
age 591/2,
separation from service, disability) and you should consult your
tax or legal advisor prior to purchasing this optional
guarantee, the primary benefit of which is guaranteeing
withdrawals. For additional information regarding withdrawals
and triggering events, see FEDERAL TAX ISSUES –
IRAs and Qualified Plans.
Withdrawal
of Protected Payment Amount
While this Rider is in effect, you may withdraw up to the
Protected Payment Amount each Contract Year, regardless of
market performance, until the Rider terminates. Any portion of
the Protected Payment Amount not withdrawn during a Contract
Year may not be carried over to the next Contract Year. If a
withdrawal does not exceed the Protected Payment Amount
immediately prior to that withdrawal, the Protected Payment Base
will remain unchanged. The Remaining Protected Balance will
decrease by the withdrawal amount immediately following the
withdrawal.
Withdrawals Exceeding the Protected Payment Amount. If a
withdrawal (except an RMD withdrawal) exceeds the Protected
Payment Amount immediately prior to that withdrawal, we will
(immediately following the excess withdrawal) reduce the
Protected Payment Base on a proportionate basis for the amount
in excess of the Protected Payment Amount. We will reduce the
Remaining Protected Balance either on a proportionate basis or
by the total withdrawal amount, whichever results in the lower
Remaining Protected Balance amount. (See example 4 in
APPENDIX A: COREINCOME ADVANTAGE 5 RIDER SAMPLE CALCULATIONS
for a numerical example of the adjustments to the Protected
Payment Base and Remaining Protected Balance as a result of an
excess withdrawal.) If a withdrawal is greater than the
Protected Payment Amount and the Contract Value is less than the
Protected Payment Base, both the Protected Payment Base and
Remaining Protected Balance will be reduced by an amount that is
greater than the excess amount withdrawn.
The amount available for withdrawal under the Contract must be
sufficient to support any withdrawal that would otherwise exceed
the Protected Payment Amount.
For information regarding taxation of withdrawals, see
FEDERAL TAX ISSUES.
Required
Minimum Distributions
No adjustment will be made to the Protected Payment Base as a
result of a withdrawal that exceeds the Protected Payment Amount
immediately prior to the withdrawal, provided:
•
such withdrawal (an “RMD Withdrawal”) is for purposes
of satisfying the minimum distribution requirements of
Section 401(a)(9) and related Code provisions in effect at
that time,
45
•
you have authorized us to calculate and make periodic
distribution of the Annual RMD Amount for the Calendar Year
required based on the payment frequency you have chosen,
•
the Annual RMD Amount is based on this Contract only, and
•
only RMD withdrawals are made from the Contract during the
Contract Year.
Immediately following an RMD Withdrawal, the Remaining Protected
Balance will decrease by the RMD Withdrawal amount.
See FEDERAL TAX ISSUES – Qualified
Contracts – Required Minimum Distributions.
Depletion
of Contract Value
If a withdrawal (including an RMD withdrawal) does not exceed
the Protected Payment Amount and reduces the Contract Value to
zero, the following will apply:
•
if the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner):
•
was younger than age 65 when the first withdrawal was taken
under the Rider, after the Rider Effective Date or the most
recent Reset Date, whichever is later, the Protected Payment
Amount will be paid each year until the Remaining Protected
Balance is reduced to zero, or
•
was age 65 or older when the first withdrawal was taken
under the Rider after the Rider Effective Date or the most
recent Reset Date, whichever is later, the Protected Payment
Amount will be paid each year until the day of the first death
of an Owner or the date of death of the sole surviving Annuitant
(first Annuitant in the case of a Non-Natural Owner).
•
the Protected Payment Amount will be paid under a series of
pre-authorized withdrawals under a payment frequency as elected
by the Owner, but no less frequently than annually,
•
no additional Purchase Payments will be accepted under the
Contract,
•
any Remaining Protected Balance will not be available for
payment in a lump sum and will not be applied to provide
payments under an Annuity Option, and
•
the Contract will cease to provide any death benefit.
Depletion
of Remaining Protected Balance
If a withdrawal (including an RMD Withdrawal) reduced the
Remaining Protected Balance to zero and Contract Value remains,
the following will apply:
If the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner):
•
was younger than age 65 when the first withdrawal was taken
under the Rider after the Rider Effective Date or the most
recent Reset Date, whichever is later, this Rider will
terminate, or
•
was age 65 or older when the first withdrawal was taken
under the Rider after the Rider Effective Date or the most
recent Reset Date, whichever is later, you may elect to withdraw
up to the Protected Payment Amount each year until the day of
the first death of an Owner or the date of death of the sole
surviving Annuitant (first Annuitant in the case of a
Non-Natural Owner). If an Automatic or Owner-Elected Reset
occurs, the Remaining Protected Balance will be reinstated to an
amount equal to the Contract Value as of that Contract
Anniversary.
Before your Remaining Protected Balance is zero, if you took
your first withdrawal before 65 and you would like to be
eligible for lifetime payments under the Rider, an Automatic or
Owner-Elected Reset must occur and your first withdrawal after
that Reset must be taken on or after age 65. See the
Reset of Protected Payment Base and Remaining Protected
Balance subsection of this Rider. If you are younger than 65
when the Remaining Protected Balance is zero and Contract Value
remains, the Rider will terminate and there is no opportunity
for a Reset.
If a withdrawal (except an RMD withdrawal) made from the
Contract exceeds the Protected Payment Amount, the withdrawal
will be treated as an excess withdrawal and the Protected
Payment Base will be reduced according to the Withdrawals
Exceeding the Protected Payment Amount subsection.
Any death benefit proceeds to be paid to the Beneficiary from
remaining Contract Value will be paid according to the Death
Benefit provisions of the Contract.
Reset of
Protected Payment Base and Remaining Protected Balance
Regardless of which reset option is used, on and after each
Reset Date, the provisions of this Rider shall apply in the same
manner as they applied when the Rider was originally issued. The
limitations and restrictions on Purchase Payments and
withdrawals, the deduction of
46
Rider charges and any future reset options available on and
after the Reset Date, will again apply and will be measured from
that Reset Date. A reset occurs when the Protected Payment Base
and Remaining Protected Balance are changed to an amount equal
to the Contract Value as of the Reset Date.
Automatic Reset. On each Contract Anniversary
while this Rider is in effect and before the Annuity Date, we
will automatically reset the Protected Payment Base and
Remaining Protected Balance to an amount equal to 100% of the
Contract Value, if the Protected Payment Base is less than the
Contract Value on that Contract Anniversary. The annual charge
percentage may change as a result of any Automatic Reset (see
CHARGES, FEES AND DEDUCTIONS – Optional Rider
Charges).
Automatic Reset – Opt-Out
Election. Within 60 days after a Contract
Anniversary on which an Automatic Reset is effective, you have
the option to reinstate the Protected Payment Base, Remaining
Protected Balance, Protected Payment Amount and annual charge
percentage to their respective amounts immediately before the
Automatic Reset. Any future Automatic Resets will continue in
accordance with the Automatic Reset paragraph above.
If you elect this option, your opt-out election must be
received, in a form satisfactory to us, at our Service Center
within the same 60 day period after the Contract
Anniversary on which the reset is effective.
Automatic Reset – Future
Participation. You may elect not to participate
in future Automatic Resets at any time. Your election must be
received, in a form satisfactory to us, at our Service Center,
while this Rider is in effect and before the Annuity Date. Such
election will be effective for future Contract Anniversaries.
If you previously elected not to participate in Automatic
Resets, you may re-elect to participate in future Automatic
Resets at any time. Your election to resume participation must
be received, in a form satisfactory to us, at our Service Center
while this Rider is in effect and before the Annuity Date. Such
election will be effective for future Contract Anniversaries as
described in the Automatic Reset paragraph above.
Owner-Elected Resets (Non-Automatic). You may,
on any Contract Anniversary, elect to reset the Remaining
Protected Balance and Protected Payment Base to an amount equal
to 100% of the Contract Value. An Owner-Elected Reset may be
elected while Automatic Resets are in effect. The annual charge
percentage may change as a result of this Reset.
If you elect this option, your election must be received, in a
form satisfactory to us, at our Service Center within
60 days after the Contract Anniversary on which the reset
is effective. The reset will be based on the Contract Value as
of that Contract Anniversary. Your election of this option
may result in a reduction in the Protected Payment Base,
Remaining Protected Balance and Protected Payment Amount.
Generally, the reduction will occur when your Contract Value is
less than the Protected Payment Base as of the Contract
Anniversary you elected the reset. You are strongly advised
to work with your financial professional prior to electing an
Owner-Elected Reset. We will provide you with written
confirmation of your election.
Subsequent
Purchase Payments
If we receive additional Purchase Payments after the Rider
Effective Date, we will increase the Protected Payment Base and
Remaining Protected Balance by the amount of the Purchase
Payments. However, for purposes of this Rider, we reserve the
right to restrict additional Purchase Payments that result in a
total of all Purchase Payments received on or after the later of
the first
(1st)
Contract Anniversary or most recent Reset Date to exceed
$100,000 without our prior approval. This provision only applies
if the Contract to which this Rider is attached, permits
Purchase Payments after the first
(1st)
Contract Anniversary, measured from the Contract Date.
Annuitization
If you annuitize the Contract at the maximum Annuity Date
specified in your Contract and this Rider is still in effect at
the time of your election and a Life Only fixed annuity option
is chosen, the annuity payments will be equal to the greater of:
•
the Life Only fixed annual payment amount based on the terms of
your Contract, or
•
the Protected Payment Amount in effect at the maximum Annuity
Date.
If you annuitize the Contract at any time prior to the maximum
Annuity Date specified in your Contract, your annuity payments
will be determined in accordance with the terms of your
Contract. The Protected Payment Base, Remaining Protected
Balance and Protected Payment Amount under this Rider will not
be used in determining any annuity payments. Work with your
financial professional to determine if you should annuitize your
Contract before the maximum Annuity Date or stay in the
accumulation phase and continue to take withdrawals under the
Rider.
The annuity payments described in this subsection are available
to you even if your first withdrawal was taken prior to
age 65 and no Resets have occurred.
47
Continuation
of Rider if Surviving Spouse Continues Contract
If the Contract Value or Remaining Protected Balance is zero
when the Owner dies, this Rider will terminate. If the Owner
dies while this Rider is in effect and if the surviving spouse
of the deceased Owner elects to continue the Contract in
accordance with its terms, the surviving spouse may continue to
take withdrawals of the Protected Payment Amount under this
Rider, until the Remaining Protected Balance is reduced to zero.
The surviving spouse may elect any of the reset options
available under this Rider for subsequent Contract
Anniversaries. If a reset takes place then the provisions of
this Rider will continue in full force and in effect for the
surviving spouse. If the surviving spouse is 65 when a reset
occurs, the surviving spouse may take withdrawals of the
Protected Payment Amount (based on the new Protected Payment
Base) for life.
The surviving spouse may elect to receive any death benefit
proceeds instead of continuing the Contract and Rider (see
DEATH BENEFITS AND OPTIONAL DEATH BENEFIT
RIDERS – Death Benefits).
Termination
You cannot request a termination of the Rider. Except as
otherwise provided below, the Rider will automatically terminate
on the earliest of:
•
the day any portion of the Contract Value is no longer allocated
according to the Investment Allocation Requirements,
•
the day the Remaining Protected Balance is reduced to zero if
the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner), was younger than 65 when the first
withdrawal was taken under the Rider after the Rider Effective
Date or the most recent Reset Date, whichever is later,
•
the date of the first death of an Owner or the date of death of
the sole surviving Annuitant (except as provided under the
Continuation of Rider if Surviving Spouse Continues Contract
subsection),
•
for Contracts with a Non-Natural Owner, the date of the first
death of an Annuitant, including Primary, Joint and Contingent
Annuitants,
•
the day the Contract is terminated in accordance with the
provisions of the Contract,
•
the day we are notified of a change in ownership of the Contract
to a non-spouse Owner if the Contract is Non-Qualified
(excluding changes in ownership to or from certain trusts),
•
the day you exchange this Rider for another withdrawal benefit
Rider,
•
the Annuity Date (see the Annuitization subsection for
additional information), or
•
the day the Contract Value is reduced to zero as a result of a
withdrawal (except an RMD withdrawal) that exceeds the Protected
Payment Amount.
The Rider will not terminate the day the Remaining Protected
Balance is reduced to zero if the oldest Owner (or youngest
Annuitant, in the case of a Non-Natural Owner) was age 65
or older when the first withdrawal was taken under the Rider
after the Rider Effective Date or the most recent Reset Date,
whichever is later. In this case, the Rider will terminate the
date of the first death of an Owner or the date of death of the
sole surviving Annuitant.
The Rider and the Contract will not terminate the day the
Contract Value is zero and you begin taking pre-authorized
withdrawals of the Protected Payment Amount. In this case, the
Rider and the Contract will terminate:
•
the day the Remaining Protected Balance is reduced to zero if
the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner), was younger than 65 when the first
withdrawal was taken under the Rider after the Rider Effective
Date or the most recent Reset Date, whichever is later, or
•
the date of the first death of an Owner or the date of death of
the sole surviving Annuitant if the oldest Owner (or youngest
Annuitant, in the case of a Non-Natural Owner) was age 65
or older when the first withdrawal was taken under the Rider
after the Rider Effective Date or the most recent Reset Date,
whichever is later.
Sample
Calculations
Hypothetical sample calculations are in the attached APPENDIX
A: COREINCOME ADVANTAGE 5 RIDER SAMPLE CALCULATIONS. The
examples are based on certain hypothetical assumptions and are
for example purposes only. These examples are not intended to
serve as projections of future investment returns.
You may purchase this optional Rider on the Contract Date or on
any Contract Anniversary (if available) if the age of each Owner
and Annuitant is at least 55 and no greater than 85 years of age
on the date of purchase, the Contract is not issued as an
Inherited IRA or Inherited TSA, and you allocate your entire
Contract Value according to the Investment Allocation
Requirements.
Rider
Terms
Annual Credit – An amount added to the Annual
Credit Value.
Annual Credit Value – One of two values (the
other value is the Highest Anniversary Value) that determine the
Protected Payment Base prior to the earlier of:
•
the first withdrawal since the Rider Effective Date, or
•
10 Contract Anniversaries from the Rider Effective Date.
The Annual Credit Value is increased each year by any Annual
Credits, plus any subsequent Purchase Payments received from the
most recent Contract Anniversary, during the periods described
above.
The initial Annual Credit Value is equal to the initial Purchase
Payment, if the Rider Effective Date is on the Contract Date, or
the Contract Value, if the Rider Effective Date is on a Contract
Anniversary.
Annual RMD Amount – The amount required to be
distributed each Calendar Year for purposes of satisfying the
minimum distribution requirements of Code Section 401(a)(9)
(“Section 401(a)(9)”) and related Code provisions
in effect as of the Rider Effective Date.
Highest Anniversary Value – One of two values
(the other value is the Annual Credit Value) that determine the
Protected Payment Base prior to the earlier of:
•
the first withdrawal since the Rider Effective Date, or
•
10 Contract Anniversaries from the Rider Effective Date.
On any day after the Rider Effective Date and during the periods
described above, the Highest Anniversary Value is equal to:
•
the Highest Anniversary Value as of the prior day, plus
•
Purchase Payments received by us on that day.
On any Contract Anniversary after the Rider Effective Date, the
Highest Anniversary Value is equal to the greater of:
•
the Contract Value as of that Contract Anniversary, or
•
the Highest Anniversary Value immediately prior to that Contract
Anniversary.
The initial Highest Anniversary Value is equal to the initial
Purchase Payment, if the Rider Effective Date is on the Contract
Date, or the Contract Value, if the Rider Effective Date is on a
Contract Anniversary.
Protected Payment Amount – The maximum amount
that can be withdrawn under this Rider without reducing the
Protected Payment Base.
If the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner) is age 65 or older when the first
withdrawal was taken or the most recent reset, whichever is
later, the Protected Payment Amount on any day after the Rider
Effective Date is equal to 5% multiplied by the Protected
Payment Base as of that day, less cumulative withdrawals during
the Contract Year.
If the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner) is age 64 or younger when the first
withdrawal was taken or the most recent reset, whichever is
later, the Protected Payment Amount on any day after the Rider
Effective Date is equal to the lesser of:
•
5% multiplied by the Protected Payment Base as of that day, less
cumulative withdrawals during that Contract Year, or
•
the Remaining Protected Balance as of that day.
The Protected Payment Amount will never be less than zero. The
initial Protected Payment Amount on the Rider Effective Date is
equal to 5% of the initial Protected Payment Base.
Protected Payment Base – An amount used to
determine the Protected Payment Amount. The Protected Payment
Base will never be less than zero and will remain unchanged
except as otherwise described under the provisions of this
Rider. The initial Protected Payment Base is equal to the
initial Purchase Payment, if the Rider Effective Date is on the
Contract Date, or the Contract Value, if the Rider Effective
Date is on a Contract Anniversary.
49
Remaining Protected Balance – The amount
available for future withdrawals made under this Rider, unless
withdrawals are guaranteed until the death of an Owner or sole
surviving Annuitant (first Annuitant in the case of a
Non-Natural Owner). The Remaining Protected Balance will never
be less than zero. The initial Remaining Protected Balance is
equal to the initial Purchase Payment, if the Rider Effective
Date is on the Contract Date, or the Contract Value, if the
Rider Effective Date is on a Contract Anniversary.
Reset Date – Any Contract Anniversary after the
Rider Effective Date on which an Automatic Reset or an
Owner-Elected Reset occurs.
Rider Effective Date – The date the guarantees
and charges for the Rider become effective. If the Rider is
purchased within 60 days of the Contract Date, the Rider
Effective Date is the Contract Date. If the Rider is purchased
within 60 days of a Contract Anniversary, the Rider Effective
Date is the date of that Contract Anniversary.
Adjustment
to Protected Payment Base and Remaining Protected Balance Using
the Annual Credit Value or Highest Anniversary Value
On each Contract Anniversary, while this Rider is in effect,
before the Annuity Date, and before the earlier of:
•
the first withdrawal since the Rider Effective Date, or
•
10 Contract Anniversaries from the Rider Effective Date,
the Protected Payment Base and Remaining Protected Balance will
be equal to the greater of the Annual Credit Value or the
Highest Anniversary Value. An increase to the Annual Credit
Value or Highest Anniversary Value is not considered an
Automatic Reset or an Owner-Elected Reset and will not result in
a change to the annual charge percentage. In addition, once
resets become available (after the first withdrawal or 10
Contract Anniversaries as described above), eligibility for the
Annual Credit Value or Highest Anniversary Value adjustment
cannot be reinstated by any Automatic Reset or Owner-Elected
Reset.
Subsequent
Purchase Payments
Purchase Payments received after the Rider Effective Date and
prior to the earlier of:
•
the first withdrawal since the Rider Effective Date, or
•
10 Contract Anniversaries from the Rider Effective Date,
will result in an increase in the Annual Credit Value, Highest
Anniversary Value, Protected Payment Base, and Remaining
Protected Balance equal to the Purchase Payment Amount.
Purchase Payments received after the Rider Effective Date and
after the earlier of:
•
the first withdrawal since the Rider Effective Date, or
•
10 Contract Anniversaries from the Rider Effective Date,
will result in an increase in the Protected Payment Base and
Remaining Protected Balance equal to the Purchase Payment Amount.
In addition, for purposes of this Rider, we reserve the right to
restrict additional Purchase Payments that result in a total of
all Purchase Payments received on or after the later of the
first
(1st)
Contract Anniversary or most recent Reset Date to exceed
$100,000 without our prior approval. This provision only applies
if the Contract to which this Rider is attached, permits
Purchase Payments after the first
(1st)
Contract Anniversary, measured from the Contract Date.
How the
Rider Works
On any day, this Rider guarantees you can withdraw up to the
Protected Payment Amount each contract year, regardless of
market performance, until the Rider terminates. Lifetime
withdrawals up to the Protected Payment Amount may continue
after the Remaining Protected Balance is reduced to
zero (0) if the oldest Owner (or youngest Annuitant, in the
case of a Non-Natural Owner) was age 65 or older when the
first withdrawal was taken after the Rider Effective Date or the
most recent Reset Date, whichever is later. If a withdrawal
was taken at age 64 or younger and there was no subsequent
Reset, the Rider will terminate once the Remaining Protected
Balance is reduced to zero (0). This Rider also provides for
a Highest Anniversary Value feature and for an amount (an
“Annual Credit”) to be added to the Annual Credit
Value. Once the Rider is purchased, you cannot request a
termination of the Rider (see the Termination subsection
of this Rider for more information).
The Protected Payment Base and Remaining Protected Balance may
change over time. The Annual Credit Value or the Highest
Anniversary Value (whichever is greater) will increase the
Protected Payment Base and the Remaining Protected Balance prior
to the earlier of the first withdrawal since the Rider Effective
Date or 10 Contract Anniversaries from the Rider Effective Date.
An Automatic Reset or Owner-Elected Reset will increase or
decrease the Protected Payment Base and Remaining Protected
Balance depending on the Contract Value on the Reset Date. A
withdrawal that is less than or equal to the Protected Payment
Amount will reduce the Remaining Protected Balance by the amount
of the withdrawal and will not change the Protected Payment
Base. If a withdrawal is greater than Protected Payment Amount
and the Contract Value is less than the Protected Payment Base,
both the Protected Payment Base and
50
Remaining Protected Balance will be reduced by an amount that
is greater than the excess amount withdrawn. For withdrawals
that are greater than the Protected Payment Amount, see the
Withdrawal of Protected Payment Amount subsection.
For purposes of this Rider, the term “withdrawal”
includes any applicable withdrawal charges. Amounts withdrawn
under this Rider will reduce the Contract Value by the amount
withdrawn and will be subject to the same conditions,
limitations, restrictions and all other fees, charges and
deductions, if applicable, as withdrawals otherwise made under
the provisions of the Contract. Withdrawals under this Rider are
not annuity payouts. Annuity payouts generally receive a more
favorable tax treatment than other withdrawals.
If your Contract is a Qualified Contract, including a TSA/403(b)
Contract, you are subject to restrictions on withdrawals you may
take prior to a triggering event (e.g. reaching age
591/2,
separation from service, disability) and you should consult your
tax or legal advisor prior to purchasing this optional
guarantee, the primary benefit of which is guaranteeing
withdrawals. For additional information regarding withdrawals
and triggering events, see FEDERAL TAX ISSUES –
IRAs and Qualified Plans.
Withdrawal
of Protected Payment Amount
While this Rider is in effect, you may withdraw up to the
Protected Payment Amount each Contract Year, regardless of
market performance, until the Rider terminates. Any portion of
the Protected Payment Amount not withdrawn during a Contract
Year may not be carried over to the next Contract Year.
If a withdrawal does not exceed the Protected Payment Amount
immediately prior to that withdrawal, the Protected Payment Base
will remain unchanged. The Remaining Protected Balance will
decrease by the withdrawal amount immediately following the
withdrawal.
Withdrawals Exceeding the Protected Payment
Amount. If a withdrawal (except an RMD
withdrawal) exceeds the Protected Payment Amount immediately
prior to that withdrawal, we will (immediately following the
excess withdrawal) reduce the Protected Payment Base on a
proportionate basis for the amount in excess of the Protected
Payment Amount. We will reduce the Remaining Protected Balance
either on a proportionate basis or by the total withdrawal
amount, whichever results in the lower Remaining Protected
Balance amount. (See example 4 in APPENDIX B:
COREPROTECT ADVANTAGE RIDER SAMPLE CALCULATIONS for a
numerical example of the adjustments to the Protected Payment
Base, Remaining Protected Balance and Protected Payment Amount
as a result of an excess withdrawal.) If a withdrawal is greater
than the Protected Payment Amount and the Contract Value is less
than the Protected Payment Base, both the Protected Payment Base
and Remaining Protected Balance will be reduced by an amount
that is greater than the excess amount withdrawn.
The amount available for withdrawal under the Contract must be
sufficient to support any withdrawal that would otherwise exceed
the Protected Payment Amount.
For information regarding taxation of withdrawals, see
FEDERAL TAX ISSUES.
Required
Minimum Distributions
No adjustment will be made to the Protected Payment Base as a
result of a withdrawal that exceeds the Protected Payment Amount
immediately prior to the withdrawal, provided:
•
such withdrawal (an “RMD Withdrawal”) is for purposes
of satisfying the minimum distribution requirements of
Section 401(a)(9) and related Code provisions in effect at
that time,
•
you have authorized us to calculate and make periodic
distribution of the Annual RMD Amount for the Calendar Year
required based on the payment frequency you have chosen,
•
the Annual RMD Amount is based on this Contract only, and
•
only RMD withdrawals are made from the Contract during the
Contract Year.
Immediately following an RMD Withdrawal, the Remaining Protected
Balance will decrease by the RMD Withdrawal amount.
See FEDERAL TAX ISSUES – Qualified
Contracts – General Rules – Required
Minimum Distributions.
Depletion
of Contract Value
If a withdrawal (including an RMD withdrawal) does not exceed
the Protected Payment Amount immediately prior to the withdrawal
and reduces the Contract Value to zero, the following will apply:
•
if the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner):
•
was age 64 or younger when the first withdrawal was taken
under the Rider, after the Rider Effective Date or the most
recent Reset Date, whichever is later, the Protected Payment
Amount will be paid each year until the Remaining Protected
Balance is reduced to zero, or
51
•
was age 65 or older when the first withdrawal was taken
under the Rider after the Rider Effective Date or the most
recent Reset Date, whichever is later, the Protected Payment
Amount will be paid each year until the day of death of an Owner
or sole surviving Annuitant (first Annuitant in the case of a
Non-Natural Owner).
•
the Protected Payment Amount will be paid under a series of
pre-authorized withdrawals under a payment frequency as elected
by the Owner, but no less frequently than annually,
•
no additional Purchase Payments will be accepted under the
Contract,
•
any Remaining Protected Balance will not be available for
payment in a lump sum and will not be applied to provide
payments under an Annuity Option, and
•
the Contract will cease to provide any death benefit.
Depletion
of Remaining Protected Balance
If a withdrawal (including an RMD Withdrawal) reduced the
Remaining Protected Balance to zero and Contract Value remains,
the following will apply:
If the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner):
•
was age 64 or younger when the first withdrawal was taken
under the Rider after the Rider Effective Date or the most
recent Reset Date, whichever is later, this Rider will
terminate, or
•
was age 65 or older when the first withdrawal was taken
under the Rider after the Rider Effective Date or the most
recent Reset Date, whichever is later, you may elect to withdraw
up to the Protected Payment Amount each year until the day of
death of an Owner or the sole surviving Annuitant (first
Annuitant in the case of a Non-Natural Owner). If an Automatic
or Owner-Elected Reset occurs, the Remaining Protected Balance
will be reinstated to an amount equal to the Contract Value as
of that Contract Anniversary.
Before your Remaining Protected Balance is zero, if you took
your first withdrawal at age 64 or younger and you would
like to be eligible for lifetime payments under the Rider, an
Automatic or Owner-Elected Reset must occur and your first
withdrawal after that Reset must be taken on or after
age 65. See the Reset of Protected Payment Base and
Remaining Protected Balance subsection of this Rider. If you
are age 64 or younger when the Remaining Protected Balance
is zero and Contract Value remains, the Rider will terminate and
there is no opportunity for a Reset.
If a withdrawal (except an RMD withdrawal) made from the
Contract exceeds the Protected Payment Amount, the Protected
Payment Base will be reduced according to the Withdrawals
Exceeding the Protected Payment Amount subsection.
Any death benefit proceeds to be paid to the Beneficiary from
remaining Contract Value will be paid according to the Death
Benefit provisions of the Contract.
Annual
Credit
On each Contract Anniversary after the Rider Effective Date, an
Annual Credit will be added to the Annual Credit Value until the
earlier of:
•
the first withdrawal from the Contract since the Rider Effective
Date, or
•
10 Contract Anniversaries measured from the Rider Effective Date.
The Annual Credit is equal to 5% of either:
•
total Purchase Payments if the Rider is purchased on the
Contract Issue Date, or
•
the Contract Anniversary Value at the time the Rider is added to
the Contract plus any subsequent Purchase Payments received
after the Rider Effective Date.
Once a withdrawal (including an RMD Withdrawal) or 10 Contract
Anniversaries has occurred, as measured from the Rider Effective
Date, no Annual Credit will be added to the Annual Credit Value.
In addition, Annual Credit eligibility cannot be reinstated by
any Automatic Reset or Owner-Elected Reset.
The Annual Credit is not added to your Contract Value.
Reset of
Protected Payment Base and Remaining Protected Balance
A reset occurs when the Protected Payment Base and Remaining
Protected Balance are changed to an amount equal to the Contract
Value as of the Reset Date.
52
Automatic Reset. On each Contract Anniversary, while
this Rider is in effect, before the Annuity Date, and after the
earlier of:
•
the first withdrawal since the Rider Effective Date, or
•
10 Contract Anniversaries from the Rider Effective Date,
we will automatically reset the Protected Payment Base and
Remaining Protected Balance to an amount equal to 100% of the
Contract Value, if the Protected Payment Base is less than the
Contract Value on that Contract Anniversary. The annual charge
percentage may change as a result of any Automatic Reset (see
CHARGES, FEES AND DEDUCTIONS – Optional Rider
Charges).
Automatic Reset – Opt-Out Election. Within
60 days after a Contract Anniversary on which an Automatic
Reset is effective, you have the option to reinstate the
Protected Payment Base, Remaining Protected Balance, Protected
Payment Amount and annual charge percentage to their respective
amounts immediately before the Automatic Reset. Any future
Automatic Resets will continue in accordance with the
Automatic Reset paragraph above.
If you elect this option, your opt-out election must be
received, in a form satisfactory to us, at our Service Center
within the same 60 day period after the Contract
Anniversary on which the reset is effective.
Automatic Reset – Future
Participation. You may elect not to participate in
future Automatic Resets at any time. Your election must be
received, in a form satisfactory to us, at our Service Center,
while this Rider is in effect and before the Annuity Date. Such
election will be effective for future Contract Anniversaries.
If you previously elected not to participate in Automatic
Resets, you may re-elect to participate in future Automatic
Resets at any time. Your election to resume participation must
be received, in a form satisfactory to us, at our Service Center
while this Rider is in effect and before the Annuity Date. Such
election will be effective for future Contract Anniversaries as
described in the Automatic Reset paragraph above.
Owner-Elected Resets (Non-Automatic). You may, on
any Contract Anniversary after the earlier of:
•
the first withdrawal since the Rider Effective Date, or
•
10 Contract Anniversaries from the Rider Effective Date,
elect to reset the Protected Payment Base and Remaining
Protected Balance to an amount equal to 100% of the Contract
Value. An Owner-Elected Reset may be elected while Automatic
Resets are in effect. The annual charge percentage may change as
a result of this Reset.
If you elect this option, your election must be received, in a
form satisfactory to us, at our Service Center within
60 days after the Contract Anniversary on which the reset
is effective. The reset will be based on the Contract Value as
of that Contract Anniversary. Your election of this option
may result in a reduction in the Protected Payment Base,
Remaining Protected Balance and Protected Payment Amount.
Generally, the reduction will occur when your Contract Value is
less than the Protected Payment Base as of the Contract
Anniversary you elected the reset. You are strongly advised
to work with your financial professional prior to electing an
Owner-Elected Reset. We will provide you with written
confirmation of your election.
Annuitization
If you annuitize the Contract at the maximum Annuity Date
specified in your Contract and this Rider is still in effect at
the time of your election and a Life Only fixed annuity option
is chosen, the annuity payments will be equal to the greater of:
•
the Life Only fixed annual payment amount based on the terms of
your Contract, or
•
the Protected Payment Amount in effect at the maximum Annuity
Date.
If you annuitize the Contract at any time prior to the maximum
Annuity Date specified in your Contract, your annuity payments
will be determined in accordance with the terms of your
Contract. The Protected Payment Base, Remaining Protected
Balance and Protected Payment Amount under this Rider will not
be used in determining any annuity payments. Work with your
financial professional to determine if you should annuitize your
Contract before the maximum Annuity Date or stay in the
accumulation phase and continue to take withdrawals under the
Rider.
The annuity payments described in this subsection are available
to you even if your first withdrawal was taken prior to
age 65 and no Resets have occurred.
Continuation
of Rider if Surviving Spouse Continues Contract
If the Contract Value or Remaining Protected Balance is zero
when the Owner dies, the Rider will terminate. If the Contract
Value and Remaining Protected Balance are greater than zero and
the Owner dies while this Rider is in effect, the surviving
spouse of the deceased Owner may elect to continue the Contract
in accordance with its terms and the surviving spouse may
continue to take withdrawals of the Protected Payment Amount
under this Rider, until the Remaining Protected Balance is
reduced to zero.
53
The surviving spouse may elect any of the reset options
available under this Rider for subsequent Contract
Anniversaries. If a reset takes place, then the provisions of
this Rider will continue in full force and in effect for the
surviving spouse. If the surviving spouse is 65 when a reset
occurs, the surviving spouse may take withdrawals of the
Protected Payment Amount (based on the new Protected Payment
Base) for life.
The surviving spouse may elect to receive any death benefit
proceeds instead of continuing the Contract and Rider (see
DEATH BENEFITS AND OPTIONAL DEATH BENEFIT
RIDERS – Death Benefits).
Termination
You cannot request a termination of the Rider. Except as
otherwise provided below, the Rider will automatically terminate
on the earliest of:
•
the day any portion of the Contract Value is no longer allocated
according to the Investment Allocation Requirements,
•
the day the Remaining Protected Balance is reduced to zero if
the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner), was age 64 or younger when the first
withdrawal was taken under the Rider after the Rider Effective
Date or the most recent Reset Date, whichever is later,
•
the date of death of an Owner or the sole surviving Annuitant
(except as provided under the Continuation of Rider if
Surviving Spouse Continues Contract subsection),
•
for Contracts with a Non-Natural Owner, the date of death of an
Annuitant, including Primary, Joint and Contingent Annuitants,
•
the day the Contract is terminated in accordance with the
provisions of the Contract,
•
the day we are notified of a change in ownership of the Contract
to a non-spouse Owner if the Contract is Non-Qualified
(excluding changes in ownership to or from certain trusts),
•
the day you exchange this Rider for another withdrawal benefit
Rider,
•
the Annuity Date (see the Annuitization subsection for
additional information), or
•
the day the Contract Value is reduced to zero as a result of a
withdrawal (except an RMD withdrawal) that exceeds the Protected
Payment Amount.
The Rider will not terminate the day the Remaining Protected
Balance is reduced to zero if the oldest Owner (or youngest
Annuitant, in the case of a Non-Natural Owner) was age 65
or older when the first withdrawal was taken under the Rider
after the Rider Effective Date or the most recent Reset Date,
whichever is later.
The Rider and the Contract will not terminate the day the
Contract Value is zero and you begin taking pre-authorized
withdrawals of the Protected Payment Amount. In this case, the
Rider and the Contract will terminate:
•
the day the Remaining Protected Balance is reduced to zero if
the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner), was age 64 or younger when the first
withdrawal was taken under the Rider after the Rider Effective
Date or the most recent Reset Date, whichever is later, or
•
the date of death of an Owner or the sole surviving Annuitant if
the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner) was age 65 or older when the first
withdrawal was taken under the Rider after the Rider Effective
Date or the most recent Reset Date, whichever is later.
Sample
Calculations
Hypothetical sample calculations are in the attached
APPENDIX B: COREPROTECT ADVANTAGE RIDER SAMPLE
CALCULATIONS. The examples are based on certain hypothetical
assumptions and are for example purposes only. These examples
are not intended to serve as projections of future investment
returns.
You may purchase this optional Rider on the Contract Date or on
any Contract Anniversary (if available) if the age of each
Annuitant is 85 years or younger on the date of purchase, the
Contract is not issued as an Inherited IRA or Inherited TSA, and
you allocate your entire Contract Value according to the
Investment Allocation Requirements.
Rider
Terms
Annual RMD Amount – The amount required to
be distributed each Calendar Year for purposes of satisfying the
minimum distribution requirements of Code Section 401(a)(9)
(“Section 401(a)(9)”) and related Code provisions
in effect as of the Rider Effective Date.
54
Protected Payment Amount – The maximum amount
that can be withdrawn under this Rider without reducing the
Protected Payment Base.
If the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner) is age 65 or older when the first
withdrawal was taken or the most recent reset, whichever is
later, the Protected Payment Amount on any day after the Rider
Effective Date is equal to 4% multiplied by the Protected
Payment Base as of that day, less cumulative withdrawals during
that Contract Year.
If the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner) is younger than age 65 when the first
withdrawal was taken or the most recent reset, whichever is
later, the Protected Payment Amount on any day after the Rider
Effective Date is equal to the lesser of:
•
4% of the Protected Payment Base as of that day, less cumulative
withdrawals during that Contract Year, or
•
the Remaining Protected Balance as of that day.
The initial Protected Payment Amount on the Rider Effective Date
is equal to 4% of the initial Protected Payment Base.
Protected Payment Base – An amount used to
determine the Protected Payment Amount. The Protected Payment
Base will remain unchanged except as otherwise described under
the provisions of this Rider. The initial Protected Payment Base
is equal to the initial Purchase Payment, if the Rider Effective
Date is on the Contract Date, or the Contract Value, if the
Rider Effective Date is on a Contract Anniversary.
Remaining Protected Balance – The amount
available for future withdrawals made under this Rider, unless
withdrawals are guaranteed until the death of an Owner or sole
surviving Annuitant (first Annuitant in the case of a
Non-Natural Owner). The initial Remaining Protected Balance is
equal to the initial Purchase Payment, if the Rider Effective
Date is on the Contract Date, or the Contract Value, if the
Rider Effective Date is on a Contract Anniversary.
Reset Date – Any Contract Anniversary
after the Rider Effective Date on which an Automatic Reset or an
Owner-Elected Reset occurs.
Rider Effective Date – The date the
guarantees and charges for the Rider become effective. If the
Rider is purchased within 60 days of the Contract Date, the
Rider Effective Date is the Contract Date. If the Rider is
purchased within 60 days of a Contract Anniversary, the
Rider Effective Date is the date of that Contract Anniversary.
How the
Rider Works
On any day, this Rider guarantees you can withdraw up to the
Protected Payment Amount, regardless of market performance,
until the Rider terminates. Lifetime withdrawals up to the
Protected Payment Amount may continue after the Remaining
Protected Balance is reduced to zero (0) if the oldest Owner (or
youngest Annuitant, in the case of a Non-Natural Owner) was age
65 or older when the first withdrawal was taken after the Rider
Effective Date or the most recent Reset Date, whichever is
later. If a withdrawal was taken before age 65 and there
was no subsequent Reset, the Rider will terminate once the
Remaining Protected Balance is reduced to zero (0).
Once the Rider is purchased, you cannot request a termination of
the Rider (see the Termination subsection of this Rider
for more information).
In addition, beginning with the first
(1st)
anniversary of the Rider Effective Date or most recent Reset
Date, whichever is later, the Rider provides for Automatic
Annual Resets or Owner-Elected Resets of the Protected Payment
Base and Remaining Protected Balance to an amount equal to 100%
of the Contract Value.
The Protected Payment Base and Remaining Protected Balance may
change over time. An Automatic Reset or Owner-Elected Reset will
increase or decrease the Protected Payment Base and Remaining
Protected Balance depending on the Contract Value on the Reset
Date. A withdrawal that is less than or equal to the Protected
Payment Amount will reduce the Remaining Protected Balance by
the amount of the withdrawal and will not change the Protected
Payment Base. If a withdrawal is greater than the Protected
Payment Amount and the Contract Value is less than the Protected
Payment Base, both the Protected Payment Base and Remaining
Protected Balance will be reduced by an amount that is greater
than the excess amount withdrawn. For withdrawals that are
greater than the Protected Payment Amount, see the Withdrawal
of Protected Payment Amount subsection.
For purposes of this Rider, the term “withdrawal”
includes any applicable withdrawal charges. Amounts withdrawn
under this Rider will reduce the Contract Value by the amount
withdrawn and will be subject to the same conditions,
limitations, restrictions and all other fees, charges and
deductions, if applicable, as withdrawals otherwise made under
the provisions of the Contract. Withdrawals under this Rider are
not annuity payouts. Annuity payouts generally receive a more
favorable tax treatment than other withdrawals.
If your Contract is a Qualified Contract, including a TSA/403(b)
Contract, you are subject to restrictions on withdrawals you may
take prior to a triggering event (e.g. reaching
age 591/2,
separation from service, disability) and you should consult your
tax or legal advisor prior to purchasing this optional
guarantee, the primary benefit of which is guaranteeing
withdrawals. For additional information regarding withdrawals
and triggering events, see FEDERAL TAX ISSUES –
IRAs and Qualified Plans.
55
Withdrawal
of Protected Payment Amount
While this Rider is in effect, you may withdraw up to the
Protected Payment Amount each Contract Year, regardless of
market performance, until the Rider terminates. Any portion of
the Protected Payment Amount not withdrawn during a Contract
Year may not be carried over to the next Contract Year. If a
withdrawal does not exceed the Protected Payment Amount
immediately prior to that withdrawal, the Protected Payment Base
will remain unchanged. The Remaining Protected Balance will
decrease by the withdrawal amount immediately following the
withdrawal.
Withdrawals Exceeding the Protected Payment Amount. If a
withdrawal (except an RMD withdrawal) exceeds the Protected
Payment Amount immediately prior to that withdrawal, we will
(immediately following the excess withdrawal) reduce the
Protected Payment Base on a proportionate basis for the amount
in excess of the Protected Payment Amount. We will reduce the
Remaining Protected Balance either on a proportionate basis or
by the total withdrawal amount, whichever results in the lower
Remaining Protected Balance amount. (See example 4 in
APPENDIX C: COREINCOME ADVANTAGE RIDER SAMPLE CALCULATIONS
for a numerical example of the adjustments to the Protected
Payment Base and Remaining Protected Balance as a result of an
excess withdrawal.) If a withdrawal is greater than the
Protected Payment Amount and the Contract Value is less than the
Protected Payment Base, both the Protected Payment Base and
Remaining Protected Balance will be reduced by an amount that is
greater than the excess amount withdrawn.
The amount available for withdrawal under the Contract must be
sufficient to support any withdrawal that would otherwise exceed
the Protected Payment Amount.
For information regarding taxation of withdrawals, see
FEDERAL TAX ISSUES.
Required
Minimum Distributions
No adjustment will be made to the Protected Payment Base as a
result of a withdrawal that exceeds the Protected Payment Amount
immediately prior to the withdrawal, provided:
•
such withdrawal (an “RMD Withdrawal”) is for purposes
of satisfying the minimum distribution requirements of
Section 401(a)(9) and related Code provisions in effect at
that time,
•
you have authorized us to calculate and make periodic
distribution of the Annual RMD Amount for the Calendar Year
required based on the payment frequency you have chosen,
•
the Annual RMD Amount is based on this Contract only, and
•
only RMD withdrawals are made from the Contract during the
Contract Year.
Immediately following an RMD Withdrawal, the Remaining Protected
Balance will decrease by the RMD Withdrawal amount.
See FEDERAL TAX ISSUES – Qualified
Contracts – Required Minimum Distributions.
Depletion
of Contract Value
If a withdrawal (including an RMD withdrawal) does not exceed
the Protected Payment Amount and reduces the Contract Value to
zero, the following will apply:
•
if the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner):
•
was younger than age 65 when the first withdrawal was taken
under the Rider, after the Rider Effective Date or the most
recent Reset Date, whichever is later, the Protected Payment
Amount will be paid each year until the Remaining Protected
Balance is reduced to zero, or
•
was age 65 or older when the first withdrawal was taken
under the Rider after the Rider Effective Date or the most
recent Reset Date, whichever is later, the Protected Payment
Amount will be paid each year until the day of the first death
of an Owner or the date of death of the sole surviving Annuitant
(first Annuitant in the case of a Non-Natural Owner).
•
the Protected Payment Amount will be paid under a series of
pre-authorized withdrawals under a payment frequency as elected
by the Owner, but no less frequently than annually,
•
no additional Purchase Payments will be accepted under the
Contract,
•
any Remaining Protected Balance will not be available for
payment in a lump sum and will not be applied to provide
payments under an Annuity Option, and
•
the Contract will cease to provide any death benefit.
56
Depletion
of Remaining Protected Balance
If a withdrawal (including an RMD Withdrawal) reduced the
Remaining Protected Balance to zero and Contract Value remains,
the following will apply:
If the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner):
•
was younger than age 65 when the first withdrawal was taken
under the Rider after the Rider Effective Date or the most
recent Reset Date, whichever is later, this Rider will
terminate, or
•
was age 65 or older when the first withdrawal was taken
under the Rider after the Rider Effective Date or the most
recent Reset Date, whichever is later, you may elect to withdraw
up to the Protected Payment Amount each year until the day of
the first death of an Owner or the date of death of the sole
surviving Annuitant (first Annuitant in the case of a
Non-Natural Owner). If an Automatic or Owner-Elected Reset
occurs, the Remaining Protected Balance will be reinstated to an
amount equal to the Contract Value as of that Contract
Anniversary.
Before your Remaining Protected Balance is zero, if you took
your first withdrawal before 65 and you would like to be
eligible for lifetime payments under the Rider, an Automatic or
Owner-Elected Reset must occur and your first withdrawal after
that Reset must be taken on or after age 65. See the
Reset of Protected Payment Base and Remaining Protected
Balance subsection of this Rider. If you are younger than 65
when the Remaining Protected Balance is zero and Contract Value
remains, the Rider will terminate and there is no opportunity
for a Reset.
If a withdrawal (except an RMD withdrawal) made from the
Contract exceeds the Protected Payment Amount, the withdrawal
will be treated as an excess withdrawal and the Protected
Payment Base will be reduced according to the Withdrawals
Exceeding the Protected Payment Amount subsection.
Any death benefit proceeds to be paid to the Beneficiary from
remaining Contract Value will be paid according to the Death
Benefit provisions of the Contract.
Reset of
Protected Payment Base and Remaining Protected Balance
Regardless of which reset option is used, on and after each
Reset Date, the provisions of this Rider shall apply in the same
manner as they applied when the Rider was originally issued. The
limitations and restrictions on Purchase Payments and
withdrawals, the deduction of Rider charges and any future reset
options available on and after the Reset Date, will again apply
and will be measured from that Reset Date. A reset occurs when
the Protected Payment Base and Remaining Protected Balance are
changed to an amount equal to the Contract Value as of the Reset
Date.
Automatic Reset. On each Contract Anniversary
while this Rider is in effect and before the Annuity Date, we
will automatically reset the Protected Payment Base and
Remaining Protected Balance to an amount equal to 100% of the
Contract Value, if the Protected Payment Base is less than the
Contract Value on that Contract Anniversary. The annual charge
percentage may change as a result of any Automatic Reset (see
CHARGES, FEES AND DEDUCTIONS – Optional Rider
Charges).
Automatic Reset – Opt-Out
Election. Within 60 days after a Contract
Anniversary on which an Automatic Reset is effective, you have
the option to reinstate the Protected Payment Base, Remaining
Protected Balance, Protected Payment Amount and annual charge
percentage to their respective amounts immediately before the
Automatic Reset. Any future Automatic Resets will continue in
accordance with the Automatic Reset paragraph above.
If you elect this option, your opt-out election must be
received, in a form satisfactory to us, at our Service Center
within the same 60 day period after the Contract
Anniversary on which the reset is effective.
Automatic Reset – Future
Participation. You may elect not to participate
in future Automatic Resets at any time. Your election must be
received, in a form satisfactory to us, at our Service Center,
while this Rider is in effect and before the Annuity Date. Such
election will be effective for future Contract Anniversaries.
If you previously elected not to participate in Automatic
Resets, you may re-elect to participate in future Automatic
Resets at any time. Your election to resume participation must
be received, in a form satisfactory to us, at our Service Center
while this Rider is in effect and before the Annuity Date. Such
election will be effective for future Contract Anniversaries as
described in the Automatic Reset paragraph above.
Owner-Elected Resets (Non-Automatic). You may,
on any Contract Anniversary, elect to reset the Remaining
Protected Balance and Protected Payment Base to an amount equal
to 100% of the Contract Value. An Owner-Elected Reset may be
elected while Automatic Resets are in effect. The annual charge
percentage may change as a result of this Reset.
If you elect this option, your election must be received, in a
form satisfactory to us, at our Service Center within
60 days after the Contract Anniversary on which the reset
is effective. The reset will be based on the Contract Value as
of that Contract Anniversary. Your election of this option
may result in a reduction in the Protected Payment Base,
Remaining Protected Balance and Protected Payment Amount.
Generally, the reduction will occur when your Contract Value is
less than the Protected Payment Base as of the
57
Contract Anniversary you elected the reset. You are strongly
advised to work with your financial professional prior to
electing an Owner-Elected Reset. We will provide you with
written confirmation of your election.
Subsequent
Purchase Payments
If we receive additional Purchase Payments after the Rider
Effective Date, we will increase the Protected Payment Base and
Remaining Protected Balance by the amount of the Purchase
Payments. However, for purposes of this Rider, we reserve the
right to restrict additional Purchase Payments that result in a
total of all Purchase Payments received on or after the later of
the first
(1st)
Contract Anniversary or most recent Reset Date to exceed
$100,000 without our prior approval. This provision only applies
if the Contract to which this Rider is attached, permits
Purchase Payments after the first
(1st)
Contract Anniversary, measured from the Contract Date.
Annuitization
If you annuitize the Contract at the maximum Annuity Date
specified in your Contract and this Rider is still in effect at
the time of your election and a Life Only fixed annuity option
is chosen, the annuity payments will be equal to the greater of:
•
the Life Only fixed annual payment amount based on the terms of
your Contract, or
•
the Protected Payment Amount in effect at the maximum Annuity
Date.
If you annuitize the Contract at any time prior to the maximum
Annuity Date specified in your Contract, your annuity payments
will be determined in accordance with the terms of your
Contract. The Protected Payment Base, Remaining Protected
Balance and Protected Payment Amount under this Rider will not
be used in determining any annuity payments. Work with your
financial professional to determine if you should annuitize your
Contract before the maximum Annuity Date or stay in the
accumulation phase and continue to take withdrawals under the
Rider.
The annuity payments described in this subsection are available
to you even if your first withdrawal was taken prior to
age 65 and no Resets have occurred.
Continuation
of Rider if Surviving Spouse Continues Contract
If the Contract Value or Remaining Protected Balance is zero
when the Owner dies, this Rider will terminate. If the Owner
dies while this Rider is in effect and if the surviving spouse
of the deceased Owner elects to continue the Contract in
accordance with its terms, the surviving spouse may continue to
take withdrawals of the Protected Payment Amount under this
Rider, until the Remaining Protected Balance is reduced to zero.
The surviving spouse may elect any of the reset options
available under this Rider for subsequent Contract
Anniversaries. If a reset takes place then the provisions of
this Rider will continue in full force and in effect for the
surviving spouse. If the surviving spouse is 65 when a reset
occurs, the surviving spouse may take withdrawals of the
Protected Payment Amount (based on the new Protected Payment
Base) for life.
The surviving spouse may elect to receive any death benefit
proceeds instead of continuing the Contract and Rider (see
DEATH BENEFITS AND OPTIONAL DEATH BENEFIT
RIDERS – Death Benefits).
Termination
You cannot request a termination of the Rider. Except as
otherwise provided below, the Rider will automatically terminate
on the earliest of:
•
the day any portion of the Contract Value is no longer allocated
according to the Investment Allocation Requirements,
•
the day the Remaining Protected Balance is reduced to zero if
the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner), was younger than 65 when the first
withdrawal was taken under the Rider after the Rider Effective
Date or the most recent Reset Date, whichever is later,
•
the date of the first death of an Owner or the date of death of
the sole surviving Annuitant (except as provided under the
Continuation of Rider if Surviving Spouse Continues Contract
subsection),
•
for Contracts with a Non-Natural Owner, the date of the first
death of an Annuitant, including Primary, Joint and Contingent
Annuitants,
•
the day the Contract is terminated in accordance with the
provisions of the Contract,
•
the day we are notified of a change in ownership of the Contract
to a non-spouse Owner if the Contract is Non-Qualified
(excluding changes in ownership to or from certain trusts),
•
the day you exchange this Rider for another withdrawal benefit
Rider,
58
•
the Annuity Date (see the Annuitization subsection for
additional information), or
•
the day the Contract Value is reduced to zero as a result of a
withdrawal (except an RMD withdrawal) that exceeds the Protected
Payment Amount.
The Rider will not terminate the day the Remaining Protected
Balance is reduced to zero if the oldest Owner (or youngest
Annuitant, in the case of a Non-Natural Owner) was age 65
or older when the first withdrawal was taken under the Rider
after the Rider Effective Date or the most recent Reset Date,
whichever is later. In this case, the Rider will terminate the
date of the first death of an Owner or the date of death of the
sole surviving Annuitant.
The Rider and the Contract will not terminate the day the
Contract Value is zero and you begin taking pre-authorized
withdrawals of the Protected Payment Amount. In this case, the
Rider and the Contract will terminate:
•
the day the Remaining Protected Balance is reduced to zero if
the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner), was younger than 65 when the first
withdrawal was taken under the Rider after the Rider Effective
Date or the most recent Reset Date, whichever is later, or
•
the date of the first death of an Owner or the date of death of
the sole surviving Annuitant if the oldest Owner (or youngest
Annuitant, in the case of a Non-Natural Owner) was age 65
or older when the first withdrawal was taken under the Rider
after the Rider Effective Date or the most recent Reset Date,
whichever is later.
Sample
Calculations
Hypothetical sample calculations are in the attached APPENDIX
C: COREINCOME ADVANTAGE RIDER SAMPLE CALCULATIONS. The
examples are based on certain hypothetical assumptions and are
for example purposes only. These examples are not intended to
serve as projections of future investment returns.
You may purchase this optional Rider on the Contract Date or on
any Contract Anniversary if the age of each Annuitant is 85
years or younger on the date of purchase, the Contract is not
issued as an Inherited IRA or Inherited TSA, and you allocate
your entire Contract Value according to the Investment
Allocation Requirements.
Rider
Terms
Annual RMD Amount – The amount required to
be distributed each Calendar Year for purposes of satisfying the
minimum distribution requirements of Code Section 401(a)(9)
(“Section 401(a)(9)”) and related Code provisions
in effect as of the Rider Effective Date.
Protected Payment Amount – The maximum
amount that can be withdrawn each Contract Year under this Rider
without reducing the Protected Payment Base. The Protected
Payment Amount on any day after the Rider Effective Date is
equal to the lesser of:
•
7% of the Protected Payment Base as of that day, or
•
the Remaining Protected Balance as of that day.
The Protected Payment Amount for a Contract Year is determined
at the beginning of that Contract Year and will remain unchanged
throughout that Contract Year. The initial Protected Payment
Amount on the Rider Effective Date is equal to 7% of the initial
Protected Payment Base.
Protected Payment Base – An amount used to
determine the Protected Payment Amount. The Protected Payment
Base will remain unchanged except as otherwise described under
the provisions of this Rider. The initial Protected Payment Base
is equal to the initial Purchase Payment, if the Rider Effective
Date is on the Contract Date, or the Contract Value, if the
Rider Effective Date is on a Contract Anniversary.
Remaining Protected Balance – The amount
available for future withdrawals made under this Rider. The
initial Remaining Protected Balance is equal to the initial
Purchase Payment, if the Rider Effective Date is on the Contract
Date, or the Contract Value, if the Rider Effective Date is on a
Contract Anniversary.
Step-Up Date – Any Contract Anniversary
beginning with the first
(1st)
Contract Anniversary after the Rider Effective Date or the most
recent Step-Up Date, whichever is later, on which an Automatic
Step-Up occurs or you elect to Step-Up the Remaining Protected
Balance to an amount equal to 100% of the Contract Value,
determined as of that Contract Anniversary.
Rider Effective Date – The date the
guarantees and charges for the Rider become effective. If the
Rider is purchased within 60 days of the Contract Date, the
Rider Effective Date is the Contract Date. If the Rider is
purchased within 60 days of a Contract Anniversary, the Rider
Effective Date is the date of that Contract Anniversary.
59
How the
Rider Works
This Rider allows for withdrawals up to the Protected Payment
Amount each Contract Year, regardless of market performance,
until the Rider terminates. This Rider does not provide lifetime
withdrawal benefits. Once the Rider is purchased, you cannot
request a termination of the Rider (see the Termination
subsection of this Rider for more information).
The Income Access Rider also provides, on any Contract
Anniversary beginning with the first
(1st)
anniversary of the Effective Date or most recent Step-Up Date,
Automatic Annual Step-Ups and Owner-Elected Step-Ups of the
Protected Payment Base and Remaining Protected Balance to an
amount equal to 100% of the Contract Value as of that Contract
Anniversary.
The Protected Payment Base and Remaining Protected Balance may
change over time. An Automatic Step-Up or Owner-Elected Step-Up
will increase or decrease the Protected Payment Base and
Remaining Protected Balance depending on the Contract Value on
the Step-Up Date. A withdrawal that is less than or equal to
the Protected Payment Amount will reduce the Remaining Protected
Balance by the amount of the withdrawal and will not change the
Protected Payment Base. If a withdrawal is greater than the
Protected Payment Amount and the Contract Value is less than the
Protected Payment Base, both the Protected Payment Base and
Remaining Protected Balance will be reduced by an amount that is
greater than the excess amount withdrawn. For withdrawals that
are greater than the Protected Payment Amount, see the
Withdrawal of Protected Payment Amount subsection.
For purposes of this Rider, the term “withdrawal”
includes any applicable withdrawal charges. Amounts withdrawn
under the Rider will reduce the Contract Value by the amount
withdrawn and will be subject to the same conditions,
limitations, restrictions and all other fees, charges and
deductions, if applicable, as withdrawals otherwise made under
the provisions of the Contract. Withdrawals under this Rider are
not annuity payouts. Annuity payouts generally receive a more
favorable tax treatment than other withdrawals.
If your Contract is a Qualified Contract, including a TSA/403(b)
Contract, you are subject to restrictions on withdrawals you may
take prior to a triggering event (e.g. reaching age
591/2,
separation from service, disability) and you should consult your
tax or legal advisor prior to purchasing this optional
guarantee, the primary benefit of which is guaranteeing
withdrawals. For additional information regarding withdrawals
and triggering events, see FEDERAL TAX ISSUES –
IRAs and Qualified Plans.
Withdrawal
of Protected Payment Amount
While the Rider is in effect, you may make cumulative
withdrawals up to the Protected Payment Amount each Contract
Year, regardless of market performance, until the Remaining
Protected Balance equals zero. Any portion of the Protected
Payment Amount not withdrawn during a Contract Year may not be
carried over to the next Contract Year.
Under your Contract, you may withdraw more than the Protected
Payment Amount each Contract Year. However, withdrawals of
more than the Protected Payment Amount in a Contract Year will
cause an immediate adjustment to the Remaining Protected
Balance, the Protected Payment Base, and, at the next Contract
Anniversary, the Protected Payment Amount.
If a withdrawal does not cause the total amount withdrawn during
the Contract Year to exceed the Protected Payment Amount, the
Protected Payment Base will remain unchanged. The Remaining
Protected Balance will decrease by the withdrawal amount
immediately following the withdrawal.
Withdrawals Exceeding the Protected Payment Amount. If a
withdrawal (except an RMD withdrawal) causes the total amount
withdrawn during the Contract Year to exceed the Protected
Payment Amount, we will (immediately following the excess
withdrawal) reduce the Protected Payment Base on a proportionate
basis for the amount in excess of the Protected Payment Amount.
We will reduce the Remaining Protected Balance either on a
proportionate basis or by the total withdrawal amount, whichever
results in the lower Remaining Protected Balance amount. (See
example 4 in APPENDIX D: INCOME ACCESS RIDER SAMPLE
CALCULATIONS for a numerical example of the adjustments to
the Protected Payment Base and Remaining Protected Balance as a
result of an excess withdrawal.) If a withdrawal is greater than
the Protected Payment Amount and the Contract Value is less than
the Protected Payment Base, both the Protected Payment Base and
Remaining Protected Balance will be reduced by an amount that is
greater than the excess amount withdrawn.
The Protected Payment Amount will remain unchanged until the
next Contract Anniversary, when the Protected Payment Amount for
the new Contract Year is determined.
For information regarding taxation of withdrawals, see
FEDERAL TAX ISSUES.
The amount available for withdrawal under the Contract must be
sufficient to support any withdrawal that would otherwise exceed
the Protected Payment Amount.
A withdrawal may not exceed the amount available for withdrawal
under the Contract, if such withdrawal would cause the
cumulative withdrawals for that Contract Year to exceed the
Protected Payment Amount and reduce the Contract Value to zero.
60
Except as otherwise provided under the Required Minimum
Distributions subsection below, if, immediately after a
withdrawal, the cumulative withdrawals for that Contract Year do
not exceed the Protected Payment Amount and the Contract Value
is reduced to zero, the following will apply:
•
the Protected Payment Amount will be paid under a series of
pre-authorized withdrawals under a payment frequency, as elected
by you, but no less frequently than annually, until the
Remaining Protected Balance is reduced to zero,
•
no additional Purchase Payments will be accepted under the
Contract,
•
any Remaining Protected Balance will not be available for
payment in a lump sum or may not be applied to provide payments
under an Annuity Option, and
•
the Contract will cease to provide any death benefit.
If the Owner or sole surviving Annuitant dies and the Contract
Value is zero as of the date of death, any Remaining Protected
Balance will be paid to the designated Beneficiary under the
series of pre-authorized withdrawals and payment frequency then
in effect at the time of the Owner’s or sole surviving
Annuitant’s death. If, however, the Remaining Protected
Balance would be paid over a period that exceeds the life
expectancy of the Beneficiary, the pre-authorized withdrawal
amount will be adjusted so that the withdrawal payments will be
paid over a period that does not exceed the Beneficiary’s
life expectancy.
Required
Minimum Distributions
No adjustment will be made to the Protected Payment Base as a
result of a withdrawal that exceeds the Protected Payment Amount
immediately prior to the withdrawal, provided:
•
such withdrawal (an “RMD Withdrawal”) is for purposes
of satisfying the minimum distribution requirements of
Section 401(a)(9) and related Code provisions in effect at
that time,
•
you have authorized us to calculate and make periodic
distribution of the Annual RMD Amount for the Calendar Year
required based on the payment frequency you have chosen,
•
the Annual RMD Amount is based on this Contract only, and
•
only RMD withdrawals are made from the Contract during the
Contract Year.
Immediately following an RMD Withdrawal, the Remaining Protected
Balance will decrease by the RMD Withdrawal amount.
If the Contract Value is reduced to zero, RMD withdrawals will
cease and any Remaining Protected Balance will be paid under a
series of pre-authorized withdrawals in accordance with the
terms of the Rider.
See FEDERAL TAX ISSUES – Qualified
Contracts – Required Minimum Distributions.
Step-Up
of Protected Payment Base and Remaining Protected
Balance
Regardless of which Step-Up option is used, on and after each
Step-Up Date, the provisions of this Rider shall apply in the
same manner as they applied when the Rider was originally
issued. The limitations and restrictions on Purchase Payments
and withdrawals, the deduction of annual Charges and any future
Step-Up options available on and after the Step-Up Date, will
again apply and will be measured from that Step-Up Date. Please
discuss with your financial professional your Contract’s
maximum Annuity Date when considering
Step-Up
options. A Step-Up occurs when the Protected Payment Base and
Remaining Protected Balance are stepped-up to an amount equal to
the Contract Value as of the Step-Up Date.
If you want to participate in Automatic Step-Ups, you must make
an affirmative election in a form satisfactory to us. Otherwise,
you may Step-Up the Protected Payment Base and Remaining
Protected Balance as outlined under Owner-Elected Step-Ups
(Non-Automatic) below.
Automatic Step-Up. On each Contract
Anniversary while this Rider is in effect and before the Annuity
Date, we will automatically Step-Up the Protected Payment Base
and Remaining Protected Balance to an amount equal to 100% of
the Contract Value, if the Protected Payment Base is less than
the Contract Value on that Contract Anniversary. The annual
charge percentage may change as a result of any Automatic
Step-Up (see CHARGES, FEES AND DEDUCTIONS –
Optional Rider Charges).
Automatic Step-Up – Opt-Out
Election. Within 60 days after a Contract
Anniversary on which an Automatic Step-Up is effective, you have
the option to reinstate the Protected Payment Base, Remaining
Protected Balance and any change in the annual charge percentage
to their respective amounts immediately before the Automatic
Step-Up. Any future Automatic Step-Ups will continue in
accordance with the Automatic Step-Up paragraph above.
If you elect this option, your opt-out election must be
received, in a form satisfactory to us, at our Service Center
within the same 60 day period after the Contract
Anniversary on which the Step-Up is effective.
61
Automatic Step-Up – Future
Participation. You may elect not to participate
in future Automatic Step-Ups at any time. Your election must be
received, in a form satisfactory to us, at our Service Center,
while this Rider is in effect and before the Annuity Date. Such
election will be effective for future Contract Anniversaries.
If you previously elected not to participate in Automatic
Step-Ups, you may re-elect to participate in future Automatic
Step-Ups at any time. Your election to resume participation must
be received, in a form satisfactory to us, at our Service Center
while this Rider is in effect and before the Annuity Date. Such
election will be effective for future Contract Anniversaries as
described in the Automatic Step-Up paragraph above.
Owner-Elected Step-Ups (Non-Automatic). On any
Contract Anniversary beginning with the first
(1st)
Contract Anniversary, measured from the Rider Effective Date or
the most recent Step-Up Date, whichever is later, you may elect
to Step-Up the Remaining Protected Balance and Protected Payment
Base to an amount equal to 100% of the Contract Value. The
annual charge percentage may change as a result of this Step-Up.
If you elect this option, your election must be received, in a
form satisfactory to us, at our Service Center within
60 days after the Contract Anniversary on which the Step-Up
is effective. The Step-Up will be based on the Contract Value as
of that Contract Anniversary. Your election of this option
may result in a reduction in the Protected Payment Base,
Remaining Protected Balance and Protected Payment Amount.
Generally, the reduction will occur when your Contract Value is
less than the Protected Payment Base as of the Contract
Anniversary you elected the
Step-Up.
You are strongly advised to work with your financial
professional prior to electing an Owner-Elected
Step-Up.
We will provide you with written confirmation of your
election.
Subsequent
Purchase Payments
If we receive any additional Purchase Payments to the Contract,
we will immediately increase the Protected Payment Base and
Remaining Protected Balance by the amount of the Purchase
Payment. However, the Protected Payment Amount will remain
unchanged until the next Contract Anniversary, when the
Protected Payment Amount for the new Contract Year is determined.
For purposes of the Income Access Rider, we reserve the right to
restrict additional Purchase Payments.
Continuation
of Rider if Surviving Spouse Continues Contract
If the Owner dies while this Rider is in effect and if the
surviving spouse of the deceased Owner elects to continue the
Contract in accordance with its terms, the surviving spouse may
continue to take withdrawals of the Protected Payment Amount
under this Rider, until the Remaining Protected Balance is
reduced to zero (0). The surviving spouse may elect any of the
reset options available under this Rider for subsequent Contract
Anniversaries.
The surviving spouse may elect to receive any death benefit
proceeds instead of continuing the Contract and Rider (see
DEATH BENEFITS AND OPTIONAL DEATH BENEFIT
RIDERS – Death Benefits).
Termination
You cannot request a termination of the Rider. Except as
otherwise provided below, the Rider will automatically end on
the earliest of:
•
the Contract Anniversary immediately following the day any
portion of the Contract Value is no longer allocated according
to the Investment Allocation Requirements,
•
the Contract Anniversary immediately following the day the
Remaining Protected Balance is reduced to zero,
•
the date of the first death of an Owner or the date of death of
the sole surviving Annuitant (except as provided under the
Continuation of Rider if Surviving Spouse Continues Contract
subsection),
•
for Contracts with a
Non-Natural
Owner, the date of the first death of an Annuitant, including
Primary, Joint and Contingent Annuitants,
•
the day the Contract is terminated in accordance with the
provisions of the Contract, except as otherwise provided in the
paragraph below,
•
the day you exchange this Rider for another withdrawal benefit
Rider,
•
the Annuity Date, or
•
the day the Contract Value is reduced to zero as a result of a
withdrawal (except an RMD withdrawal) that exceeds the Protected
Payment Amount.
The Rider and the Contract will not terminate on the first death
of an Owner or death of the sole surviving Annuitant, or the day
the Contract is terminated in accordance with the provisions of
the Contract if, at the time of those events, the Contract Value
is zero and we are making pre-authorized withdrawals of the
Remaining Protected Balance under the provisions of the Rider.
If we are making pre-
62
authorized withdrawals, the Contract will terminate on the
Contract Anniversary immediately following the day the Remaining
Protected Balance is zero.
Sample
Calculations
Hypothetical sample calculations are in the attached
APPENDIX D: INCOME ACCESS RIDER SAMPLE CALCULATIONS.
The examples provided are based on certain hypothetical
assumptions and are for example purposes only. These examples
are not intended to serve as projections of future investment
returns.
You may purchase the optional Rider on the Contract Date or on
any subsequent Contract Anniversary if:
•
the age of each Annuitant is 85 years or younger on the
date of purchase,
•
the date of the purchase is at least 10 years before your
selected Annuity Date, and
•
you allocate your entire Contract Value according to the
Investment Allocation Requirements.
How the
Rider Works
The Rider will remain in effect, unless otherwise terminated,
for a
10-year
period (the “Term”) beginning on the Effective Date of
the Rider.
On the last day of the Term, we will add an additional amount to
your Contract Value if, on that day, the Contract Value is less
than the Guaranteed Protection Amount. The additional amount
will be equal to the difference between the Contract Value on
the last day of the Term and the Guaranteed Protection Amount.
The additional amount added to the Contract Value will be
considered earnings and allocated to your Investment Options
according to your most recent allocation instructions.
Additional Purchase Payments that are not part of the Guaranteed
Protection Amount (Purchase Payments made after the first year
of a Term and not included in a Step-Up) will not be included in
the benefit calculation at the end of Term.
The Guaranteed Protection Amount is equal to (a) plus
(b) minus (c) as indicated below:
(a)
is the Contract Value at the start of the Term,
(b)
is the amount of each subsequent Purchase Payment received
during the first year of the Term, and
(c)
is a pro rata adjustment for withdrawals made from the Contract
during the Term. The adjustment for each withdrawal is
calculated by multiplying the Guaranteed Protection Amount prior
to the withdrawal by the ratio of the amount of the withdrawal,
including any applicable withdrawal charges, premium taxes,
and/or other taxes, to the Contract Value immediately prior to
the withdrawal.
For purposes of determining the Contract Value at the start of
the Term, if the Effective Date of the Rider is the Contract
Date, the Contract Value is equal to the initial Purchase
Payment. If the Effective Date of the Rider is a Contract
Anniversary, the Contract Value is equal to the Contract Value
on that Contract Anniversary. Any subsequent Purchase Payments
received after the first year of a Term are not included in the
Guaranteed Protection Amount.
If, on the last day of the Term, the Contract is annuitized, the
first death of an Owner or the death of the last surviving
Annuitant occurs (death of any Annuitant for Non-Natural
Owners), or a full withdrawal is made, the Contract Value will
reflect any additional amount owed under the Rider before the
payment of any annuity or death benefits, or full withdrawal. No
additional amount will be made if the Contract Value on the last
day of the Term is greater than or equal to the Guaranteed
Protection Amount.
Optional
Step-Up in the Guaranteed Protection Amount
On any Contract Anniversary beginning with the third
(3rd)
anniversary of the Effective Date of this Rider and before the
Annuity Date, you may elect to increase (“Step-Up”)
your Guaranteed Protection Amount.
If you elect the optional Step-Up, the following conditions will
apply:
•
your election of a Step-Up must be received, in a form
satisfactory to us, at our Service Center within 60 days
after the Contract Anniversary on which the Step-Up is effective,
•
the Guaranteed Protection Amount will be equal to your Contract
Value as of the Effective Date of the Step-Up (“Step-Up
Date”),
•
a new
10-year Term
will begin as of the Step-Up Date, and
•
you may not elect another Step-Up until on or after the
3rd anniversary
of the latest Step-Up Date.
63
We will not permit a Step-Up if the new
10-year Term
will extend beyond the Annuity Date.
The annual charge percentage may change if you elect a Step-Up,
but it will never be more than the maximum annual charge
percentage associated with the Rider. If you do not elect any
Step-Up of the Guaranteed Protection Amount during the Term of
the Rider, your annual charge percentage will remain the same as
it was on the Effective Date of the Rider.
Continuation
of Rider if Surviving Spouse Continues Contract
If the Owner dies during the Term and the surviving spouse of
the deceased Owner elects to continue the Contract in accordance
with its terms, then the provisions of the Rider will continue
until the end of the Term.
Termination
The Rider will automatically terminate at the end of the Term,
or, if earlier on:
•
the day any portion of the Contract Value is no longer allocated
according to the Investment Allocation Requirements,
•
the day we receive notification from the Owner to terminate the
Rider,
•
the date a full withdrawal of the amount available for
withdrawal is made under the Contract,
•
the date of the first death of an Owner or the date of death of
the last surviving Annuitant (except as provided under the
Continuation of Rider if Surviving Spouse Continues Contract
subsection),
•
for Contracts with a Non-Natural Owner, the date of the first
death of an Annuitant, including Primary, Joint and Contingent
Annuitants,
•
the date the Contract is terminated according to the provisions
of the Contract, or
•
the Annuity Date.
If your request to terminate the Rider is received at our
Service Center within 60 days after a Contract Anniversary,
the Rider will terminate on that Contract Anniversary. If your
request to terminate the Rider is received at our Service Center
more than 60 days after a Contract Anniversary, the Rider
will terminate the day we receive the request.
If the Rider is terminated, you must wait until a Contract
Anniversary that is at least one (1) year from the
Effective Date of the termination before the Rider may be
purchased again (if available).
Sample Calculations
Hypothetical sample calculations are in the attached
APPENDIX E: GUARANTEED PROTECTION ADVANTAGE 3
(GPA 3) AND GUARANTEED PROTECTION ADVANTAGE 5
(GPA 5) RIDER SAMPLE CALCULATIONS. The examples are
based on certain hypothetical assumptions and are for example
purposes only. These examples are not intended to serve as
projections of future investment returns.
You may purchase this optional Rider on the Contract Date or on
any subsequent Contract Anniversary if:
•
the age of each Annuitant is 85 years or younger on the
date of purchase,
•
the date of the purchase is at least 10 years before your
selected Annuity Date, and
•
you allocate your entire Contract Value according to the
Investment Allocation Requirements.
How the
Rider Works
The Rider will remain in effect, unless otherwise terminated,
for a 10-year period (the “Term”) beginning on the
Effective Date of the Rider.
On the last day of the Term, we will add an additional amount to
your Contract Value if, on that day, the Contract Value is less
than a specified amount (the “Guaranteed Protection
Amount”). The additional amount will be equal to the
difference between the Contract Value on the last day of the
Term and the Guaranteed Protection Amount. The additional amount
added to the Contract Value will be considered earnings and
allocated to your Investment Options according to your most
recent allocation instructions.
The Guaranteed Protection Amount is equal to (a) plus
(b) minus (c) as indicated below:
(a)
is the Contract Value at the start of the Term,
64
(b)
is the amount of each subsequent Purchase Payment received
during the first year of the Term, and
(c)
is a pro rata adjustment for withdrawals made from the Contract
during the Term. The adjustment for each withdrawal is
calculated by multiplying the Guaranteed Protection Amount prior
to the withdrawal by the ratio of the amount of the withdrawal,
including any applicable withdrawal charges, premium taxes,
and/or other taxes, to the Contract Value immediately prior to
the withdrawal.
For purposes of determining the Contract Value at the start of
the Term, if the Effective Date of the Rider is the Contract
Date, the Contract Value is equal to the initial Purchase
Payment. If the Effective Date of the Rider is a Contract
Anniversary, the Contract Value is equal to the Contract Value
on that Contract Anniversary. Any subsequent Purchase Payments
received after the first year of the Term are not included in
the Guaranteed Protection Amount. However, the Rider charge will
be based on the Contract Value which may include any subsequent
Purchase Payments that are not included in the Guaranteed
Protection Amount.
If, on the last day of the Term, the Contract is annuitized, the
first death of an Owner or the death of the last surviving
Annuitant occurs (death of any Annuitant for Non-Natural
Owners), or a full withdrawal is made, the Contract Value will
reflect any additional amount owed under the Rider before the
payment of any annuity or death benefits, or full withdrawal. No
additional amount will be made if the Contract Value on the last
day of the Term is greater than or equal to the Guaranteed
Protection Amount.
Optional
Step-Up in the Guaranteed Protection Amount
On any Contract Anniversary beginning with the
5th
anniversary of the Effective Date of this Rider and before the
Annuity Date, you may elect to increase (“Step-Up”)
your Guaranteed Protection Amount.
If you elect the optional Step-Up, the following conditions will
apply:
•
your election of a Step-Up must be received, in a form
satisfactory to us, at our Service Center within 60 days
after the Contract Anniversary on which the Step-Up is effective,
•
the Guaranteed Protection Amount will be equal to your Contract
Value as of the Effective Date of the Step-Up (“Step-Up
Date”),
•
a new 10-year Term will begin as of the Step-Up Date, and
•
you may not elect another Step-Up until on or after the
5th
anniversary of the latest Step-Up Date.
We will not permit a Step-Up if the new
10-year Term
will extend beyond the Annuity Date.
The Guaranteed Protection Charge (“GPA 5 Charge”)
may change if you elect a Step-Up, but it will never be more
than the GPA 5 Charge being charged under the then current
terms and conditions of the Rider. If you do not elect any
Step-Up of the Guaranteed Protection Amount during the lifetime
of the Rider, your GPA 5 Charge will remain the same as it
was on the Effective Date of the Rider.
Continuation
of Rider if Surviving Spouse Continues Contract
If the Owner dies during the Term and the surviving spouse of
the deceased Owner elects to continue the Contract in accordance
with its terms, then the provisions of the Rider will continue
until the end of the Term.
Termination
The Rider will automatically terminate at the end of the Term,
or, if earlier on:
•
the Contract Anniversary immediately following the date any
portion of the Contract Value is no longer allocated according
to the Investment Allocation Requirements,
•
the Contract Anniversary immediately following the date we
receive notification from the Owner to terminate the Rider,
•
the date a full withdrawal of the amount available for
withdrawal is made under the Contract,
•
the date of the first death of an Owner or the date of death of
the last surviving Annuitant (except as provided under the
Continuation of Rider if Surviving Spouse Continues Contract
subsection),
•
for Contracts with a Non-Natural Owner, the date of the first
death of an Annuitant, including Primary, Joint and Contingent
Annuitants,
•
the date the Contract is terminated according to the provisions
of the Contract, or
•
the Annuity Date.
If your request to terminate the Rider is received at our
Service Center within 60 days after a Contract Anniversary,
the Rider will terminate on that Contract Anniversary. If your
request to terminate the Rider is received at our Service Center
more than 60 days after a Contract Anniversary, the Rider
will terminate the day we receive the request.
65
If the Rider is terminated, you must wait until a Contract
Anniversary that is at least 1 year from the Effective Date
of the termination before the Rider may be purchased again (if
available).
Sample
Calculations
Hypothetical sample calculations are in the attached
APPENDIX E: GUARANTEED PROTECTION ADVANTAGE 3
(GPA 3) AND GUARANTEED PROTECTION ADVANTAGE 5
(GPA 5) RIDER SAMPLE CALCULATIONS. The examples are
based on certain hypothetical assumptions and are for example
purposes only. These examples are not intended to serve as
projections of future investment returns.
You may purchase this Rider on the Contract Date or on any
Contract Anniversary. You may purchase this Rider only if the
age of each Annuitant is 80 years or younger on the date of
purchase and you allocate your entire Contract Value according
to the Investment Allocation Requirements.
How the
Rider Works
You may, prior to the Annuity Date, choose any of the Annuity
Options described in your Contract, or you may choose the GIA
Plus Annuity Option provided this Rider has been in effect for
at least 10 years from its Effective Date. If you choose
the GIA Plus Annuity Option, you must choose fixed annuity
payments and the entire amount available for annuitization at
the time you convert to the GIA Plus Annuity Option must be
annuitized. The guaranteed income purchased per $1,000 of the
net amount applied to the annuity payments will be based on an
effective annual interest rate of 2.0% and the 1996 US Annuity
2000 Mortality Table with the age set back 8 years.
Annuity Payments – The annuity payments
that may be elected under the GIA Plus Annuity Option are:
•
Life Only,
•
Life with 10 years or more Period Certain,
•
Joint and Survivor Life, or
•
20 years or more Period Certain.
The Rider contains annuity tables for each GIA Plus Annuity
Option available.
On the Annuity Date, the Net Amount applied to the annuity
payments under the GIA Plus Annuity Option will be equal to the
greater of the Guaranteed Income Base on that day or the GIA
Plus Step-Up Value on that day, less the following:
•
applicable withdrawal charges resulting from the conversion
to the GIA Plus Annuity Option,
•
applicable annual charges for expenses related to other optional
benefit riders attached to the Contract that are in effect as of
the Annuity Date, and
•
charges for premium taxes and/or other taxes. See CHARGES,
FEES AND DEDUCTIONS – Premium Taxes.
If you elect the GIA Plus Annuity Option, the waiver of
withdrawal charges as described in the Contract will not apply.
See CHARGES, FEES AND DEDUCTIONS – Withdrawal
Charge.
For information regarding taxation of annuity payments, see
FEDERAL TAX ISSUES.
Initial Values – The Guaranteed Income
Base, GIA Plus Withdrawal Base, GIA Plus Withdrawal Amount and
GIA Plus Step-Up Value are values used in determining the Net
Amount applied on the Annuity Date to provide payments under the
GIA Plus Annuity Option.
The initial values are determined on the Rider Effective Date as
follows:
•
if this Rider is effective on the Contract Date, the Guaranteed
Income Base is equal to the initial Purchase Payment.
•
if this Rider is effective on a Contract Anniversary, the
Guaranteed Income Base is equal to the Contract Value on that
day.
•
if this Rider is effective on the Contract Date, the GIA Plus
Withdrawal Base is equal to the total Purchase Payments received
in the first 60 days since the Rider Effective Date.
•
if this Rider is effective on a Contract Anniversary, the GIA
Plus Withdrawal Base is equal to the Contract Value on that day
plus any Purchase Payments received in the first 60 days
since the Rider Effective Date.
66
•
the GIA Plus Withdrawal Amount for the Contract Year beginning
on the Rider Effective Date is equal to 5% of the GIA Plus
Withdrawal Base.
•
the GIA Plus Step-Up Value is equal to the Contract Value on the
Rider Effective Date.
The GIA Plus Withdrawal Base and GIA Plus Withdrawal Amount
after the Rider Effective Date are recalculated only on each
subsequent Contract Anniversary.
Subsequent Values – The Guaranteed Income
Base, GIA Plus Withdrawal Base, GIA Plus Withdrawal Amount and
GIA Plus Step-Up Value after the Rider Effective Date are
determined as follows:
Limitation on Subsequent Purchase
Payments – For purposes of this Rider, we
reserve the right to restrict additional Purchase Payments that
result in a total of all Purchase Payments received on or after
the first
(1st)
Contract Anniversary from the Effective Date of the Rider to
exceed $100,000 without our prior approval. This provision only
applies if the Contract to which this Rider is attached, permits
Purchase Payments after the first
(1st)
Contract Anniversary, measured from the Contract Date.
Guaranteed Income Base – On any day after
the Rider Effective Date, the Guaranteed Income Base is equal to:
•
the Guaranteed Income Base on the prior day, multiplied by a
daily factor of 1.000133680 which is equivalent to increasing
the Guaranteed Income Base at an annual growth rate of 5%, plus
•
Purchase Payments received by us on that day, less
•
adjustments for withdrawals made on that day.
The adjustment for each withdrawal is calculated by multiplying
the Guaranteed Income Base immediately prior to the withdrawal
by the percentage decrease in Contract Value as a result of the
withdrawal.
However, on each Contract Anniversary after the Rider Effective
Date, if there is at least one withdrawal during the prior
Contract Year and the cumulative withdrawals for that Contract
Year do not exceed the sum of:
•
the GIA Plus Withdrawal Amount for that Contract Year, and
•
any remaining dollar amount of the prior Contract Year’s
GIA Plus Withdrawal Amount,
the Guaranteed Income Base as of that Contract Anniversary will
be reset to equal:
•
the Guaranteed Income Base on the Rider Effective Date or prior
Contract Anniversary, whichever is later, increased at an annual
growth rate of 5%, plus
•
the amount of any subsequent Purchase Payments received by us
during the prior Contract Year, each increased at an annual
growth rate of 5% from the effective date of that Purchase
Payment, less
•
the amount of cumulative withdrawals during the prior Contract
Year.
The 5% annual growth rate will stop accruing as of the earlier
of:
•
the Contract Anniversary prior to the youngest Annuitant’s
81st birthday, or
•
the day this Rider terminates.
GIA Plus Withdrawal Base – On each
Contract Anniversary after the Rider Effective Date, the GIA
Plus Withdrawal Base is equal to:
•
the GIA Plus Withdrawal Base determined on the Rider Effective
Date, plus
•
the amount of any subsequent Purchase Payments received by us
after the Rider Effective Date, up through the day immediately
prior to that Contract Anniversary.
GIA Plus Withdrawal Amount – On each
Contract Anniversary after the Rider Effective Date, the GIA
Plus Withdrawal Amount for the Contract Year beginning on that
Contract Anniversary is equal to 5% of the GIA Plus Withdrawal
Base as of that Contract Anniversary.
GIA Plus Step-Up Value – On any day after
the Rider Effective Date, the GIA Plus Step-Up Value is equal to:
•
the GIA Plus Step-Up Value as of the prior day, plus
•
Purchase Payments received by us on that day, less
•
adjustment for withdrawals made on that day.
The adjustment for each withdrawal is calculated by multiplying
the GIA Plus Step-Up Value immediately prior to the withdrawal
by the percentage decrease in Contract Value as a result of that
withdrawal.
67
On any Contract Anniversary after the Rider Effective Date and
prior to the youngest Annuitant’s
81st
birthday, the GIA Plus Step-Up Value is set equal to the greater
of:
•
the Contract Value as of that Contract Anniversary, or
•
the GIA Plus Step-Up Value immediately prior to that Contract
Anniversary.
The GIA Plus Step-Up Value will then be adjusted for any
Purchase Payments or withdrawals on that Contract Anniversary in
accordance with the first paragraph of this subsection.
The GIA Plus Step-Up Value on each Contract Anniversary on and
after the youngest Annuitant’s
81st birthday
is equal to the GIA Plus Step-Up Value immediately prior to the
Contract Anniversary preceding that
81st birthday,
adjusted for any Purchase Payments and withdrawals since that
anniversary.
Partial Conversion of Net Contract Value for Annuity
Payments – If a portion of the Net Contract
Value (Contract Value less Contract Debt) is converted to
provide payments under an Annuity Option described in the
Contract at any time before you annuitize under the GIA Plus
Annuity Option, the amount converted will be considered a
“withdrawal” for purposes of determining withdrawal
adjustments to the Guaranteed Income Base and GIA Plus Step-Up
Value. A withdrawal charge may also apply.
Continuation
of Rider if Surviving Spouse Continues Contract
If the Owner dies while this Rider is in effect and if the
surviving spouse of the deceased Owner elects to continue the
Contract in accordance with its terms, then the provisions of
this Rider will continue, unless otherwise terminated.
Termination
Except as otherwise provided below, the Rider will remain in
effect until the earlier of:
•
the day any portion of the Contract Value is no longer allocated
according to the Investment Allocation Requirements,
•
the day we receive notification from you to terminate the Rider,
•
the date of the first death of an Owner or the date of death of
the sole surviving Annuitant (except as provided under the
Continuation of Rider if Surviving Spouse Continues Contract
subsection),
•
for Contracts with a Non-Natural Owner, the date of the first
death of an Annuitant, including Primary, Joint and Contingent
Annuitants,
•
the date the Contract is terminated in accordance with the terms
of the Contract, or
•
the Annuity Date.
Upon your request, the Rider may be terminated at any time. If
your request to terminate the Rider is received at our Service
Center within 60 days after a Contract Anniversary, the
Rider will terminate on that Contract Anniversary. If your
request to terminate the Rider is received at our Service Center
more than 60 days after a Contract Anniversary, the Rider
will terminate the day we receive the request.
If the Rider is terminated, you must wait until a Contract
Anniversary that is at least 1 year from the Effective Date
of the termination before the Rider may be purchased again (if
available).
Sample
Calculations
Hypothetical sample calculations are in the attached APPENDIX
F: GUARANTEED INCOME ADVANTAGE PLUS RIDER SAMPLE
CALCULATIONS. The examples provided are based on certain
hypothetical assumptions and are for example purposes only.
These examples are not intended to serve as projections of
future investment returns.
Pacific Life Insurance Company is a life insurance company
domiciled in Nebraska. Along with our subsidiaries and
affiliates, our operations include life insurance, annuity,
pension and institutional products, mutual funds, broker-dealer
operations, and investment advisory services. At the end of
2009, we had $214.9 billion of individual life insurance in
force and total admitted assets of approximately
$94.7 billion.
We are authorized to conduct our life insurance and annuity
business in the District of Columbia and in all states except
New York. Our executive office is located at 700 Newport Center
Drive, Newport Beach, California92660.
68
We were originally organized on January 2, 1868, under the
name “Pacific Mutual Life Insurance Company of
California” and reincorporated as “Pacific Mutual Life
Insurance Company” on July 22, 1936. On
September 1, 1997, we converted from a mutual life
insurance company to a stock life insurance company ultimately
controlled by a mutual holding company and were authorized by
California regulatory authorities to change our name to Pacific
Life Insurance Company. On September 1, 2005, Pacific Life
changed from a California corporation to a Nebraska corporation.
Pacific Life is a subsidiary of Pacific LifeCorp, a holding
company, which, in turn, is a subsidiary of Pacific Mutual
Holding Company, a mutual holding company. Under their
respective charters, Pacific Mutual Holding Company must always
hold at least 51% of the outstanding voting stock of Pacific
LifeCorp, and Pacific LifeCorp must always own 100% of the
voting stock of Pacific Life. Owners of Pacific Life’s
annuity contracts and life insurance policies have certain
membership interests in Pacific Mutual Holding Company,
consisting principally of the right to vote on the election of
the Board of Directors of the mutual holding company and on
other matters, and certain rights upon liquidation or
dissolutions of the mutual holding company.
Our subsidiary, Pacific Select Distributors, Inc. (PSD) serves
as the principal underwriter (distributor) for the Contracts.
PSD is located at 700 Newport Center Drive, Newport Beach,
California92660. We and PSD enter into selling agreements with
broker-dealers, whose financial professionals are authorized by
state insurance departments to sell the Contracts.
We may provide you with reports of our ratings both as an
insurance company and as to our claims-paying ability with
respect to our General Account assets.
Separate Account A was established on September 7, 1994 as
a separate account of ours, and is registered with the SEC under
the Investment Company Act of 1940 (the “1940 Act”),
as a type of investment company called a “unit investment
trust.” We established the Separate Account under the laws
of the state of California. The Separate Account is maintained
under the laws of the state of Nebraska.
Obligations arising under your Contract are our general
corporate obligations. We are also the legal owner of the assets
in the Separate Account. Assets of the Separate Account
attributed to the reserves and other liabilities under the
Contract and other contracts issued by us that are supported by
the Separate Account may not be charged with liabilities arising
from any of our other business; any income, gain or loss
(whether or not realized) from the assets of the Separate
Account are credited to or charged against the Separate Account
without regard to our other income, gain or loss.
We may invest money in the Separate Account in order to commence
its operations and for other purposes, but not to support
contracts other than variable annuity contracts. A portion of
the Separate Account’s assets may include accumulations of
charges we make against the Separate Account and investment
results of assets so accumulated. These additional assets are
ours and we may transfer them to our General Account at any
time; however, before making any such transfer, we will consider
any possible adverse impact the transfer might have on the
Separate Account. Subject to applicable law, we reserve the
right to transfer our assets in the Separate Account to our
General Account.
The Separate Account is not the sole investor in the Funds.
Investment in a Fund by other separate accounts in connection
with variable annuity and variable life insurance contracts may
create conflicts. See the accompanying Prospectus and SAI for
the Funds for more information.
The table below is designed to help you understand how the
Variable Investment Options have performed. It shows the value
of a Subaccount Unit at the beginning and end of each period, as
well as the number of Subaccount Units at the end of each
period. A Subaccount Unit is also called an Accumulation
Unit.
You should read the table in conjunction with the financial
statements for Separate Account A, which are included in its
annual report dated as of December 31, 2009.
With Stepped-Up
With Standard Death Benefit
Death Benefit Rider
Number of
Number of
Subaccount
Subaccount
AUV at
AUV at
Units
AUV at
AUV at
Units
Beginning of
End of
Outstanding at
Beginning of
End of
Outstanding at
Year
Year
End of Year
Year
Year
End of Year
International Value
2009
$5.33
$6.75
19,460,681
$5.31
$6.71
4,837,056
2008
$10.33
$5.33
20,503,775
$10.31
$5.31
5,267,838
02/02/2007-12/31/2007
$9.98
$10.33
8,109,751
$9.93
$10.31
2,350,908
Long/Short Large Cap
2009
$6.55
$8.26
13,449,471
$6.54
$8.23
3,335,387
05/02/2008-12/31/2008
$10.16
$6.55
6,351,995
$10.16
$6.54
1,627,838
International Small-Cap
2009
$5.23
$6.73
9,865,371
$5.21
$6.69
2,514,525
2008
$10.13
$5.23
6,478,002
$10.12
$5.21
1,701,166
02/02/2007-12/31/2007
$10.02
$10.13
2,685,589
$9.98
$10.12
801,779
Mid-Cap Value
05/01/2009-12/31/2009
$10.00
$13.14
6,191,918
$10.00
$13.12
1,531,711
Equity Index
2009
$6.32
$7.89
28,000,337
$6.30
$7.85
6,889,770
2008
$10.21
$6.32
9,058,715
$10.19
$6.30
2,317,667
02/02/2007-12/31/2007
$10.02
$10.21
2,044,621
$10.01
$10.19
576,759
Small-Cap Index
2009
$6.07
$7.69
595,013
$6.05
$7.65
149,226
2008
$9.45
$6.07
533,771
$9.43
$6.05
119,381
02/02/2007-12/31/2007
$10.02
$9.45
2,487,572
$9.99
$9.43
706,343
Small-Cap Equity
2009
$7.50
$9.66
5,262,079
$7.47
$9.60
1,388,338
2008
$10.27
$7.50
4,674,528
$10.25
$7.47
1,257,822
02/05/2007-12/31/2007
$10.02
$10.27
1,221,870
$10.11
$10.25
378,421
Equity
2009
$5.93
$7.92
167,198
$5.90
$7.88
38,873
2008
$10.18
$5.93
61,872
$10.16
$5.90
18,594
04/09/2007-12/31/2007
$10.00
$10.18
24,371
$10.57
$10.16
5,312
American
Funds®
Asset Allocation
02/04/2009-12/31/2009
$10.09
$12.85
2,215,593
$10.09
$12.82
789,239
American
Funds®
Growth-Income
2009
$6.21
$8.03
12,998,633
$6.19
$7.98
3,365,635
2008
$10.15
$6.21
9,976,119
$10.13
$6.19
2,572,297
02/02/2007-12/31/2007
$10.02
$10.15
4,997,965
$10.00
$10.13
1,400,081
American
Funds®
Growth
2009
$5.98
$8.21
7,701,460
$5.96
$8.16
1,991,481
2008
$10.84
$5.98
10,475,889
$10.82
$5.96
2,648,236
02/02/2007-12/31/2007
$9.99
$10.84
3,487,622
$9.97
$10.82
1,014,851
Large-Cap Value
2009
$6.48
$7.89
28,377,207
$6.45
$7.84
7,057,304
2008
$10.05
$6.48
15,528,514
$10.03
$6.45
3,907,488
02/02/2007-12/31/2007
$10.00
$10.05
6,372,883
$10.01
$10.03
1,816,502
Technology
2009
$5.67
$8.55
299,813
$5.65
$8.50
51,186
2008
$11.86
$5.67
97,094
$11.84
$5.65
8,698
03/12/2007-12/31/2007
$9.90
$11.86
37,631
$9.67
$11.84
10,848
Floating Rate Loan
2009
$6.81
$8.37
8,071,324
$6.78
$8.32
1,808,868
2008
$9.74
$6.81
4,887,411
$9.72
$6.78
1,047,786
05/04/2007-12/31/2007
$10.00
$9.74
1,614,026
$10.00
$9.72
375,541
Small-Cap Growth
2009
$5.85
$8.52
4,586,260
$5.82
$8.47
1,180,892
2008
$11.18
$5.85
4,877,059
$11.16
$5.82
1,239,389
02/02/2007-12/31/2007
$9.99
$11.18
1,651,894
$9.94
$11.16
483,958
70
With Stepped-Up
With Standard Death Benefit
Death Benefit Rider
Number of
Number of
Subaccount
Subaccount
AUV at
AUV at
Units
AUV at
AUV at
Units
Beginning of
End of
Outstanding at
Beginning of
End of
Outstanding at
Year
Year
End of Year
Year
Year
End of Year
Short Duration Bond
2009
$9.68
$10.39
9,193,335
$9.64
$10.33
2,160,498
2008
$10.31
$9.68
8,029,629
$10.29
$9.64
1,859,123
02/02/2007-12/31/2007
$10.00
$10.31
3,170,097
$10.01
$10.29
823,924
Comstock
2009
$5.87
$7.47
20,156,455
$5.85
$7.42
5,044,765
2008
$9.40
$5.87
13,677,681
$9.38
$5.85
3,553,186
02/02/2007-12/31/2007
$10.02
$9.40
6,714,459
$10.01
$9.38
1,885,878
Growth LT
2009
$6.47
$8.78
9,495,391
$6.45
$8.73
2,328,171
2008
$11.09
$6.47
7,093,768
$11.07
$6.45
1,790,492
02/02/2007-12/31/2007
$10.01
$11.09
2,480,463
$9.99
$11.07
730,877
Focused 30
2009
$6.08
$9.04
415,347
$6.06
$8.99
80,649
2008
$12.34
$6.08
2,397,634
$12.31
$6.06
592,805
02/22/2007-12/31/2007
$10.16
$12.34
134,388
$9.51
$12.31
25,963
Health Sciences
2009
$7.69
$9.67
238,126
$7.66
$9.62
49,078
2008
$10.83
$7.69
101,815
$10.81
$7.66
22,262
03/13/2007-12/31/2007
$9.52
$10.83
46,309
$9.62
$10.81
16,677
Mid-Cap Equity
2009
$5.61
$7.74
15,108,098
$5.58
$7.69
3,841,977
2008
$9.30
$5.61
24,657,745
$9.28
$5.58
6,303,963
02/02/2007-12/31/2007
$10.04
$9.30
10,885,695
$10.03
$9.28
3,161,402
International Large-Cap
2009
$6.70
$8.85
19,079,617
$6.67
$8.79
4,846,830
2008
$10.48
$6.70
15,288,061
$10.46
$6.67
3,978,194
02/02/2007-12/31/2007
$9.98
$10.48
6,613,196
$9.92
$10.46
1,916,860
Mid-Cap Growth
2009
$5.86
$9.22
8,142,532
$5.83
$9.17
2,055,569
2008
$11.47
$5.86
4,690,198
$11.45
$5.83
1,188,014
02/02/2007-12/31/2007
$10.03
$11.47
2,578,651
$10.00
$11.45
768,502
Real Estate
2009
$4.49
$5.87
5,479,949
$4.47
$5.84
1,475,170
2008
$7.57
$4.49
3,938,926
$7.55
$4.47
1,087,183
02/02/2007-12/31/2007
$10.04
$7.57
2,495,224
$10.05
$7.55
773,958
Small-Cap Value
2009
$7.01
$8.81
4,778,372
$6.98
$8.76
1,208,517
2008
$9.88
$7.01
2,491,618
$9.86
$6.98
621,931
02/06/2007-12/31/2007
$9.99
$9.88
951,658
$9.99
$9.86
225,015
Multi-Strategy
2009
$5.53
$6.72
125,520
$5.51
$6.69
25,379
2008
$10.17
$5.53
118,503
$10.15
$5.51
12,573
04/12/2007-12/31/2007
$10.17
$10.17
69,023
$10.31
$10.15
7,297
Main
Street®
Core
2009
$6.11
$7.82
10,082,899
$6.09
$7.77
2,478,796
2008
$10.12
$6.11
10,870,264
$10.10
$6.09
2,715,459
02/02/2007-12/31/2007
$10.01
$10.12
5,190,000
$10.01
$10.10
1,459,632
Emerging Markets
2009
$6.77
$12.37
8,575,973
$6.75
$12.30
2,171,322
2008
$13.10
$6.77
6,974,273
$13.07
$6.75
1,816,263
02/02/2007-12/31/2007
$10.07
$13.10
3,243,563
$10.10
$13.07
958,086
Cash Management (formerly called Money Market)
2009
$10.46
$10.36
2,006,526
$10.42
$10.30
448,181
2008
$10.34
$10.46
2,502,469
$10.32
$10.42
635,342
02/06/2007-12/31/2007
$10.01
$10.34
445,015
$10.02
$10.32
139,631
High Yield Bond
2009
$7.71
$10.65
5,859,563
$7.68
$10.59
1,306,420
2008
$10.02
$7.71
2,953,396
$10.00
$7.68
639,042
02/06/2007-12/31/2007
$10.03
$10.02
1,040,964
$10.03
$10.00
234,439
Managed Bond
2009
$10.47
$12.53
21,907,317
$10.43
$12.46
5,250,651
2008
$10.78
$10.47
17,020,629
$10.76
$10.43
3,944,404
02/02/2007-12/31/2007
$10.01
$10.78
7,397,143
$10.03
$10.76
1,915,895
71
With Stepped-Up
With Standard Death Benefit
Death Benefit Rider
Number of
Number of
Subaccount
Subaccount
AUV at
AUV at
Units
AUV at
AUV at
Units
Beginning of
End of
Outstanding at
Beginning of
End of
Outstanding at
Year
Year
End of Year
Year
Year
End of Year
Inflation Managed
2009
$9.81
$11.71
24,178,167
$9.77
$11.64
5,740,354
2008
$10.94
$9.81
19,621,944
$10.92
$9.77
4,755,991
02/02/2007-12/31/2007
$10.01
$10.94
9,143,848
$10.02
$10.92
2,505,220
Pacific Dynamix – Conservative Growth
05/22/2009-12/31/2009
$10.19
$11.34
758,989
$10.10
$11.32
64,778
Pacific Dynamix – Moderate Growth
05/07/2009-12/31/2009
$10.18
$11.87
1,139,083
$10.50
$11.85
247,302
Pacific Dynamix – Growth
05/11/2009-12/31/2009
$10.32
$12.34
749,177
$10.46
$12.32
171,991
Dividend Growth
(formerly called Diversified Research)
2009
$5.92
$7.75
3,342,794
$5.90
$7.71
919,960
2008
$9.83
$5.92
5,316,934
$9.81
$5.90
1,329,063
02/02/2007-12/31/2007
$10.02
$9.83
3,188,637
$9.96
$9.81
890,148
Large-Cap Growth
2009
$5.67
$7.87
11,478,264
$5.65
$7.83
2,818,515
2008
$11.58
$5.67
4,545,989
$11.56
$5.65
1,162,588
02/02/2007-12/31/2007
$10.01
$11.58
1,913,202
$10.00
$11.56
549,242
Diversified Bond
2009
$9.14
$10.31
14,390,296
$9.10
$10.25
3,360,594
2008
$10.03
$9.14
10,700,128
$10.01
$9.10
2,469,487
02/02/2007-12/31/2007
$10.01
$10.03
4,695,508
$10.02
$10.01
1,220,835
Invesco V.I. Global Multi-Asset
(formerly called AIM V.I. PowerShares ETF Allocation)
02/05/2009-12/31/2009
$10.04
$13.38
346,660
$9.24
$13.35
66,924
AllianceBernstein VPS Balanced Wealth Strategy
2009
$7.08
$8.71
3,139,639
$7.07
$8.68
609,931
05/05/2008-12/31/2008
$10.03
$7.08
1,221,813
$9.99
$7.07
372,379
BlackRock Global Allocation V.I.
2009
$7.92
$9.46
24,831,756
$7.91
$9.43
4,222,873
05/05/2008-12/31/2008
$10.04
$7.92
10,017,720
$10.04
$7.91
2,108,239
Franklin Templeton VIP Founding Funds Allocation
2009
$6.61
$8.50
5,729,414
$6.61
$8.48
1,202,014
05/08/2008-12/31/2008
$10.00
$6.61
2,447,072
$10.18
$6.61
644,591
GE Investments Total
Return1
02/09/2009-12/31/2009
$10.29
$12.54
1,804,642
$10.29
$12.51
161,393
Van Kampen LIT Global Tactical Asset Allocation
02/09/2009-12/31/2009
$10.31
$12.64
805,348
$10.31
$12.62
172,164
1
All investments in GE Investments
Total Return Class 4 were converted to GE Investments Total
Return Class 3 on November 20, 2009.
The following summary of federal income tax issues is based
on our understanding of current tax laws and regulations, which
may be changed by legislative, judicial or administrative
action. The summary is general in nature and is not intended as
tax advice. Moreover, it does not consider any applicable
foreign, state or local tax laws. We do not make any guarantee
regarding the tax status, federal, foreign, state or local, of
any Contract or any transaction involving the Contracts.
Accordingly, you should consult a qualified tax adviser for
complete information and advice before purchasing a Contract.
Additional tax information is included in the SAI.
Diversification
Requirements and Investor Control
Section 817(h) of the Code provides that the investments
underlying a variable annuity must satisfy certain
diversification requirements in order for the contract to be
treated as an annuity contract and qualify for tax deferral. We
believe the underlying Variable Investment Options for the
contract meet these requirements. Details on these
diversification requirements appear in the Pacific Select Fund
SAI.
In addition, for a variable annuity contract to qualify for tax
deferral, assets in the separate accounts supporting the
contract must be considered to be owned by the insurance company
and not by the contract owner. Under current U.S. tax law, if a
contract owner has excessive control over the investments made
by a separate account, or the underlying fund, the contract
owner will be taxed currently on income and gains from the
account or fund. In other words, in such a case of investor
control the contract owner would not derive the tax benefits
normally associated with variable annuities. For more
information regarding investor control, please refer to the
contract SAI.
Section 72 of the Code governs the taxation of annuities in
general, and we designed the Contracts to meet the requirements
of Section 72 of the Code. We believe that, under current
law, the Contract will be treated as an annuity for federal
income tax purposes if the Contract Owner is a natural person or
an agent for a natural person, and that we (as the issuing
insurance company), and not the Contract Owner(s), will be
treated as the owner of the investments underlying the Contract.
Accordingly, no tax should be payable by you as a Contract Owner
as a result of any increase in Contract Value until you receive
money under your Contract. You should, however, consider how
amounts will be taxed when you do receive them. The following
discussion assumes that your Contract will be treated as an
annuity for federal income tax purposes.
These general rules apply to Non-Qualified Contracts. As
discussed below, however, tax rules may differ for Qualified
Contracts and you should consult a qualified tax adviser if you
are purchasing a Qualified Contract.
Taxes
Payable
A Contract Owner is not taxed on the increases in the value of a
Contract until an amount is received or deemed to be received.
An amount could be received or deemed to be received, for
example, if there is a partial distribution, a lump sum
distribution, an Annuity payment or a material change in the
Contract. Increases in Contract Value that are received or
deemed to be received are taxable to the Contract Owner as
ordinary income. Distributions of net investment income or
capital gains that each Subaccount receives from its
corresponding Portfolio are automatically reinvested in such
Portfolio unless we, on behalf of the Separate Account, elect
otherwise. As noted above, you will be subject to federal income
taxes on the investment income from your Contract only when it
is distributed to you.
Non-Natural
Persons as Owners
If a contract is not owned or held by a natural person or as
agent for a natural person, the contract generally will not be
treated as an “annuity” for tax purposes, meaning that
the contract owner will be subject to current tax on annual
increases in Contract Value at ordinary income rates unless some
other exception applies. Certain entities, such as some trusts,
may be deemed to be acting as agents for natural persons.
Corporations, including S corps, C corps, LLCs,
partnerships and FLPs, and tax exempt entities are non-natural
persons that will not be deemed to be acting as agents for
natural persons.
Addition
of Optional Rider or Material Change to Contract
The addition of a rider to the Contract, or a material change in
the Contract’s provisions, such as a change in Contract
ownership or an assignment of the Contract, could cause it to be
considered newly issued or entered into for tax purposes, and
thus could cause a taxable event or the Contract to lose certain
grandfathered tax status. Please contact your tax adviser for
more information.
Taxes
Payable on Withdrawals Prior to the Annuity Date
Amounts you withdraw before annuitization, including amounts
withdrawn from your Contract Value in connection with partial
withdrawals for payment of any charges and fees, will be treated
first as taxable income to the extent that your Contract Value
exceeds the aggregate of your Purchase Payments reduced by
non-taxable amounts previously received (investment in the
Contract), and then as non-taxable recovery of your Purchase
Payments. Therefore, you include in your gross income the
smaller of: a) the amount of the partial
73
withdrawal, or b) the amount by which your Contract Value
(determined without considering any surrender charge)
immediately before you receive the distribution exceeds your
investment in the Contract at that time. If at the time of a
partial withdrawal your Contract Value does not exceed your
investment in the Contract, then the withdrawal will not be
includable in gross income and will simply reduce your
investment in the Contract. Exceptions to this rule are
distributions in full discharge of your Contract (a full
surrender) or distributions from contracts issued and
investments made before August 14, 1982.
The assignment or pledge of (or agreement to assign or pledge)
the value of the Contract for a loan will be treated as a
withdrawal subject to these rules. You should consult your tax
adviser for additional information regarding taking a partial or
a full distribution from your Contract.
Multiple
Contracts (Aggregation Rule)
Multiple Non-Qualified Contracts that are issued after
October 21, 1988, by us or our affiliates to the same Owner
during the same calendar year are treated as one Contract for
purposes of determining the taxation of distributions (the
amount includible in gross income under Code Section 72(e))
prior to the Annuity Date from any of the Contracts. A Contract
received in a tax-free exchange under Code Section 1035 may
be treated as a new Contract for this purpose. For Contracts
subject to the Aggregation Rule, the values of the Contracts and
the investments in the Contracts should be added together to
determine the taxation under Code Section 72(e).
Withdrawals will be treated first as withdrawals of income until
all of the income from all such Contracts is withdrawn. The
Treasury Department has specific authority under Code Section
72(e)(11) to issue regulations to prevent the avoidance of the
income-out-first rules for withdrawals prior to the Annuity Date
through the serial purchase of Contracts or otherwise. As of the
date of this Prospectus there are no regulations interpreting
these aggregation provisions.
10% Tax
Penalty Applicable to Certain Withdrawals and Annuity
Payments
The Code provides that the taxable portion of a withdrawal or
other distribution may be subject to a tax penalty equal to 10%
of that taxable portion unless the withdrawal is:
•
made on or after the date you reach age
591/2,
•
made by a Beneficiary after your death,
•
attributable to your becoming disabled,
•
any payment made under an immediate annuity,
•
attributable to an investment in the Contract made prior to
August 14, 1982, or
•
any distribution that is a part of a series of substantially
equal periodic payments (Code Section 72(q) payments) made
(at least annually) over your life (or life expectancy) or the
joint lives (or life expectancies) of you and your designated
beneficiary.
Additional exceptions may apply to certain Qualified Contracts
(see Taxes Payable on Annuity Payments and the
applicable Qualified Contracts).
Taxes
Payable on Optional Rider Charges
It is our understanding that the charges relating to any
optional death benefit rider are not subject to current taxation
and we will not report them as such. However, the IRS may
determine that these charges should be treated as partial
withdrawals subject to current taxation to the extent of any
gain and, if applicable, the 10% tax penalty. We reserve the
right to report any optional death benefit rider charges as
partial withdrawals if we believe that we would be expected to
report them in accordance with IRS regulations.
Distributions
After the Annuity Date
After you annuitize, a portion of each annuity payment you
receive under a Contract generally will be treated as a partial
recovery of Investments (as used here, “Investments”
means the aggregate Purchase Payments less any amounts that were
previously received under the Contract but not included in
income) and will not be taxable. (In certain circumstances,
subsequent modifications to an initially-established payment
pattern may result in the imposition of a tax penalty.) The
remainder of each annuity payment will be taxed as ordinary
income. However, after the full amount of aggregate Investments
has been recovered, the full amount of each annuity payment will
be taxed as ordinary income. Exactly how an annuity payment is
divided into taxable and non-taxable portions depends on the
period over which annuity payments are expected to be received,
which in turn is governed by the form of annuity selected and,
where a lifetime annuity is chosen, by the life expectancy of
the Annuitant(s) or payee(s). Such a payment may also be subject
to a tax penalty.
Same-Sex
Spouses
Pursuant to Section 3 of the federal Defense of Marriage
Act (“DOMA”), same-sex marriages currently are not
recognized for purposes of federal law. Therefore, the favorable
income-deferral options afforded by federal tax law to an
opposite-sex spouse under Internal Revenue Code
sections 72(s) and 401(a)(9) are currently NOT available to
a same-sex spouse. Same-sex spouses who own or are considering
the
74
purchase of annuity products that provide benefits based upon
status as a spouse should consult a tax advisor. To the extent
that an annuity contract or certificate accords to spouses other
rights or benefits that are not affected by DOMA, same-sex
spouses remain entitled to such rights or benefits to the same
extent as any annuity holder’s spouse.
Distributions
to Beneficiary After Contract Owner’s Death
Generally, the same tax rules apply to amounts received by the
Beneficiary as those that apply to the Contract Owner, except
that the early withdrawal tax penalty does not apply. Thus, any
annuity payments or lump sum withdrawal will be divided into
taxable and non-taxable portions.
If within sixty days after the date on which a lump sum death
benefit first becomes payable and the Beneficiary elects to
receive annuity or life expectancy payments in lieu of the lump
sum death benefit, then the Beneficiary will not be treated for
tax purposes as having received the lump sum death benefit in
the tax year it first becomes payable. Rather, in that case, the
Beneficiary will be taxed on the annuity or life expectancy
payments as they are received.
If death occurs after the Annuity Date, but before the
expiration of a period certain option, the Beneficiary will
recover the balance of the Investments as payments are made and
may be allowed a deduction on the final tax return for the
unrecovered Investments. A lump sum payment taken by the
Beneficiary in lieu of remaining monthly annuity payments is not
considered an annuity payment for tax purposes. The portion of
any lump sum payment to a Beneficiary in excess of aggregate
unrecovered Investments would be subject to income tax.
Contract
Owner’s Estate
Generally, any amount payable to a Beneficiary after the
Contract Owner’s death, whether before or after the Annuity
Date, will be included in the estate of the Contract Owner for
federal estate tax purposes. If the inclusion of the value of
the Contract triggers a federal estate tax to be paid, the
Beneficiary may be able to use a deduction called Income in
Respect of Decedent (IRD) in calculating the income taxes
payable upon receipt of the death benefit proceeds. In addition,
designation of a non-spouse Beneficiary who either is
371/2
or more years younger than a Contract Owner or is a grandchild
of a Contract Owner may have Generation Skipping Transfer Tax
(GSTT) consequences under section 2601 of the Code. You
should consult with a qualified tax advisor if you have
questions about federal estate tax, IRD, or GSTT.
Gifts of
Annuity Contracts
Generally, gifts of Non-Qualified Contracts prior to the annuity
start date will trigger tax reporting to the donor on the gain
on the Contract, with the donee getting a stepped-up basis for
the amount included in the donor’s income. The 10% early
withdrawal tax penalty and gift tax also may be applicable. This
provision does not apply to transfers between spouses or
incident to a divorce, or transfers to and from a trust acting
as agent for the Owner or the Owner’s spouse.
Tax
Withholding for Non-Qualified Contracts
Unless you elect to the contrary, any amounts you receive under
your Contract that are attributable to investment income will be
subject to withholding to meet federal income tax obligations.
For nonperiodic distributions, you will have the option to
provide us with withholding information at the time of your
withdrawal request. If you do not provide us with withholding
information, we will generally withhold 10% of the taxable
distribution amount and remit it to the IRS. For periodic
(annuity) payments, the rate of withholding will be determined
on the basis of the withholding information you provide to us
with your application. If you do not provide us with withholding
information, we are required to determine the withholding, from
every annuity payment, as if you are a married person with 3
exemptions.
Certain states have indicated that pension and annuity
withholding will apply to payments made to residents.
Please call
1-800-722-4448
with any questions about the required withholding information.
Financial professionals may call us at
1-800-722-2333.
Tax
Withholding for
Non-resident
Aliens or Non U.S. Persons
Taxable distributions to Contract Owners who are non-resident
aliens or other non U.S. persons are generally subject to
U.S. federal income tax withholding at a 30% rate, unless a
lower treaty rate applies. Prospective foreign owners are
advised to consult with a tax advisor regarding the U.S., state
and foreign tax treatment of a Contract.
Exchanges
of Non-Qualified Contracts (1035 Exchanges)
You may make your initial or an additional Purchase Payment
through an exchange of an existing annuity contract or endowment
life insurance contract pursuant to Section 1035 of the
Code (a 1035 exchange). The exchange can be effected by
completing the Transfer/Exchange form, indicating in the
appropriate section of the form that you are making a 1035
exchange and submitting any applicable state replacement form.
The form is available by calling your Financial professional or
by calling our Contract Owner number at
75
1-800-722-4448.
Financial professionals can call
1-800-722-2333.
Once completed, the form should be mailed to us, along with the
annuity contract or life insurance policy you are exchanging. If
you are making an initial Purchase Payment, a completed Contract
application should also be attached.
In general terms, Section 1035 of the Code provides that no
gain or loss is recognized when you exchange one annuity or life
insurance contract for another annuity contract. Transactions
under Section 1035, however, may be subject to special
rules and may require special procedures and record keeping,
particularly if the exchanged annuity contract was issued prior
to August 14, 1982. You should consult your tax adviser
prior to effecting a 1035 exchange.
Partial
1035 Exchanges
A partial exchange is the direct transfer of only a portion of
an existing annuity’s Contract Value to a new annuity
contract. Rev. Proc.
2008-24
adopted the provisions of
Notice 2003-51,
with some modifications, finalizing the guidelines for partial
1035 exchanges. Under Rev. Proc.
2008-24, the
24 month period is reduced to 12 months, so that a
partial exchange will be treated as tax-free under Code
Section 1035 if there are no distributions, from either
annuity, within 12 months of the partial 1035 exchange.
Alternatively, a partial 1035 exchange will be treated as
tax-free under Code Section 1035 if the taxpayer demonstrates
that any distribution taken within the 12 months is due to
a specifically identified condition that occurred between the
date of the partial transfer and the distribution (the
conditions are death, disability, attaining age
591/2,
divorce or loss of employment). Rev
Proc. 2008-24
removes the subjective element of Notice
2003-51
(whether the distribution was contemplated at the time of the
partial exchange). Also, Rev.
Proc. 2008-24
provides that if the partial exchange does not qualify as a
tax-free exchange under Code Section 1035, it will be
treated as a taxable distribution with a subsequent repurchase,
and that if the partial exchange is treated as tax-free under
Code Section 1035 and this Rev. Proc., the two contracts
will not be aggregated and treated as one contract, but rather
will be treated as two separate contracts for tax and penalty
purposes.
You should consult your tax adviser prior to effecting a partial
1035 exchange.
In general, in the case of Non-Qualified Contracts, if you are
an individual and expect to accumulate your Contract Value over
a relatively long period of time without making significant
withdrawals, there may be federal income tax advantages in
purchasing such a Contract. This is because any increase in
Contract Value is not subject to current taxation. Income taxes
are deferred until the money is withdrawn, at which point
taxation occurs only on the gain from the investment in the
Contract. With income taxes deferred, you may accumulate more
money over the long term through a variable annuity than you may
through non-tax-deferred investments. The advantage may be
greater if you decide to liquidate your Contract Value in the
form of monthly annuity payments after your retirement, or if
your tax rate is lower at that time than during the period that
you held the Contract, or both.
When withdrawals or distributions are taken from the variable
annuity, the gain is taxed as ordinary income. This may be a
potential disadvantage because money that had been invested in
other types of assets may qualify for a more favorable federal
tax rate. For example, in 2010 the tax rate applicable both to
the sale of capital gain assets held more than 1 year and
to the receipt of qualifying dividends by individuals is
generally 15% (5% for lower-income individuals). In contrast, an
ordinary income tax rate of up to 35% applies to taxable
withdrawals on distributions from a variable annuity in 2010.
Also, withdrawals or distributions taken from a variable annuity
may be subject to a tax penalty equal to 10% of the taxable
portion, although exceptions to the tax penalty may apply.
An owner of a variable annuity cannot deduct or offset losses on
transfers to or from Subaccounts, or at the time of any partial
withdrawals. If you surrender your Contract and your Net
Contract Value is less than the aggregate of your investments in
the Contract (reduced by any previous non-taxable
distributions), there may be a deductible ordinary income loss,
although the deduction may be limited. Consult with your tax
adviser regarding the impact of federal income taxes on your
specific situation.
Although the Separate Account is registered as an investment
company, it is not a separate taxpayer for purposes of the Code.
The earnings of the Separate Account are taxed as part of our
operations. No charge is made against the Separate Account for
our federal income taxes (excluding the charge for premium
taxes), but we will review, periodically, the question of
charges to the Separate Account or your Contract for such taxes.
Such a charge may be made in future years for any federal income
taxes that would be attributable to the Separate Account or to
our operations with respect to your Contract, or attributable,
directly or indirectly, to investments in your Contract.
Under current law, we may incur state and local taxes (in
addition to premium taxes) in several states. At present, these
taxes are not significant and they are not charged against the
Contract or the Separate Account. If there is a material change
in applicable state or local tax laws, the imposition of any
such taxes upon us that are attributable to the Separate Account
or to our operations with respect to your Contract may result in
a corresponding charge against the Separate Account or your
Contract.
Given the uncertainty of future changes in applicable federal,
state or local tax laws, we cannot appropriately describe the
effect a tax law change may have on taxes that would be
attributable to the Separate Account or your Contract.
The Contracts are available to a variety of Qualified Plans and
IRAs. Tax restrictions and consequences for Contracts under each
type of Qualified Plan and IRAs differ from each other and from
those for Non-Qualified Contracts. No attempt is made herein to
provide more than general information about the use of the
Contract with the various types of Qualified Plans and IRAs.
Participants under such Qualified Plans, as well as Contract
Owners, Annuitants and Beneficiaries, are cautioned that the
rights of any person to any benefits under such Qualified Plans
may be subject to the terms and conditions of the Plans
themselves or limited by applicable law, regardless of the terms
and conditions of the Contract issued in connection therewith.
Tax
Deferral
It is important to know that Qualified Plans such as 401(k)s, as
well as IRAs, are already tax-deferred. Therefore, an annuity
contract should be used to fund an IRA or Qualified Plan to
benefit from the annuity’s features other than tax
deferral. The other benefits of using a variable annuity to fund
a Qualified Plan or an IRA include the lifetime income options,
guaranteed death benefit options and the ability to transfer
among Investment Options without sales or withdrawal charges.
You should consider if the Contract is a suitable investment if
you are investing through a Qualified Plan or IRA.
Taxes
Payable
Generally, amounts received from Qualified Contracts are taxed
as ordinary income under Section 72, to the extent that
they are not treated as a tax free recovery of contributions.
Different rules apply for Roth IRAs. Consult your tax advisor
before requesting a distribution from a Qualified Contract.
10% Tax
Penalty for Early Withdrawals
Generally, distributions from IRAs and Qualified Plans that
occur before you attain age
591/2
are subject to a 10% tax penalty imposed on the amount of the
distribution that is includable in gross income, with certain
exceptions. These exceptions include distributions:
•
made to a beneficiary after the owner’s/participant’s
death,
•
attributable to the owner/participant becoming disabled under
Section 72(m)(7),
•
that are part of a series of substantially equal periodic
payments (also referred to as SEPPs or 72(t) payments) made (at
least annually) over your life (or life expectancy) or the joint
lives (or joint life expectancies) of you and your designated
beneficiary,
•
for certain higher education expenses (IRAs only),
•
used to pay for certain health insurance premiums or medical
expenses (IRAs only),
•
for costs related to the purchase of your first home (IRAs
only), and
•
(except for IRAs) made to an employee after separation from
service after reaching age 55 (or age 50 in the case of a
qualified public safety employee).
Tax
Withholding for Qualified Contracts
Distributions from a Contract under a Qualified Plan (not
including an individual retirement annuity subject to Code
Section 408 or Code Section 408A) to an employee,
surviving spouse, or former spouse who is an alternate payee
under a qualified domestic relations order, in the form of a
lump sum settlement or periodic annuity payments for a fixed
period of fewer than 10 years are subject to mandatory
income tax withholding of 20% of the taxable amount of the
distribution, unless:
•
the distributee directs the transfer of such amounts in cash to
another Qualified Plan or a traditional IRA, or
•
the payment is a minimum distribution required under the Code.
The taxable amount is the amount of the distribution less the
amount allocable to after-tax contributions. All other types of
taxable distributions are subject to withholding unless the
distributee elects not to have withholding apply.
Certain states have indicated that pension and annuity
withholding will apply to payments made to residents.
IRAs and
Other Qualified Contracts with Optional Benefit Riders
As of the date of this Prospectus, there are special
considerations for purchases of any optional living or death
benefit riders. IRS regulations state that Individual Retirement
Accounts (IRAs) may generally not invest in life insurance
contracts. We believe that these regulations do not prohibit the
optional living or death benefit riders from being added to your
Contract if it is issued as a Traditional IRA, Roth IRA, SEP IRA
or SIMPLE IRA. However, the law is unclear and it is possible
that a Contract that has optional living or death benefit riders
and is issued as a Traditional IRA, Roth IRA, or SIMPLE IRA
could be disqualified and may result in increased taxes to the
Owner.
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Similarly, section 401 plans, section 403(b), 457(b)
annuities and IRAs (but not Roth IRAs) can only offer
incidental death benefits. The Internal Revenue Service
(IRS) could take the position that the enhanced death benefits
provided by optional benefit riders are not incidental. In
addition, to the extent that the optional benefit riders alter
the timing or the amount of the payment of distributions under a
Qualified Contract, the riders cannot be paid out in violation
of the minimum distribution rules of the Code.
It is our understanding that the charges relating to the
optional benefit riders are not subject to current taxation and
we will not report them as such. However, the IRS may determine
that these charges should be treated as partial withdrawals
subject to current income taxation to the extent of any gain
and, if applicable, the 10% tax penalty. We reserve the right to
report the rider charges as partial withdrawals if we believe
that we would be expected to report them in accordance with IRS
regulations.
Required
Minimum Distributions
The regulations provide that you cannot keep assets in Qualified
Plans or IRAs indefinitely. Eventually they are required to be
distributed; at that time (the Required Beginning Date (RBD)),
Required Minimum Distributions (RMDs) are the amount that must
be distributed each year.
Under Section 401 of the Code (for Qualified Plans) and
Section 408 of the Code (for IRAs), the entire interest
under the Contract must be distributed to the Owner/Annuitant no
later than the Owner/Annuitant’s RBD, or distributions over
the life of the Owner/Annuitant (or the Owner/Annuitant and his
beneficiary) must begin no later than the RBD.
The RBD for distributions from a Qualified Contract maintained
for an IRA under Section 408 of the Code is generally
April 1 of the calendar year following the year in which
the Owner/Annuitant reaches
age 701/2.
The RBD for a Qualified Contract maintained for a qualified
retirement or pension plan under Section 401 of the Code or
a Section 403(b) annuity is April 1 of the calendar
year following the later of the year in which the
Owner/Annuitant reaches age
701/2,
or, if the plan so provides, the year in which the
Owner/Annuitant retires. There is no RBD for a Roth IRA
maintained pursuant to Section 408A of the Code.
The IRS issued Final and Temporary Regulations on April 17,2002 (“Final Regulations”). Effective January 1,2003, the IRS requires that all IRA holders and Qualified Plan
Participants (with one exception discussed below) use the
Uniform Lifetime Table to calculate their RMDs.
The Uniform Lifetime Table is based on a joint life expectancy
and uses the IRA owner’s actual age and assumes that the
beneficiary is 10 years younger than the IRA owner. Note
that under these Final Regulations, the IRA owner does not need
to actually have a named beneficiary when they turn age
701/2.
The exception noted above is for an IRA owner who has a spouse,
who is more than 10 years younger, as the sole beneficiary
on the IRA. In that situation, the spouse’s actual age (and
life expectancy) will be used in the joint life calculation.
If the Owner/Annuitant dies prior to his RBD or complete
distribution from the Qualified Contract, the remainder shall be
distributed as provided in the “Qualified Contract
Distribution Rules” section of this Prospectus. For
non-spouse beneficiaries, life expectancy is initially computed
by use of the Single Life Table of the Final Regulations
(Regulation
Section 1.401(a)(9)-9).
Subsequent life expectancy shall be calculated by reducing the
life expectancy of the Beneficiary by one in each following
calendar year.
For calendar year 2003 and thereafter, taxpayers (and the
underlying Qualified Plan) must rely on the Final and Temporary
Regulations (discussed above) for determining RMDs. If any
future guidance from the IRS is more restrictive than the
guidance in these Final and Temporary Regulations, the future
guidance will be issued without retroactive effect.
The method of distribution selected must comply with the minimum
distribution rules of Code Section 401(a)(9), and the
applicable proposed Regulations thereunder.
Actuarial
Value
In accordance with recent changes in laws and regulations, RMDs
may be calculated based on the sum of the contract value and the
actuarial value of any additional death benefits and benefits
from optional riders that you have purchased under the Contract.
As a result, RMDs may be larger than if the calculation were
based on the contract value only, which may in turn result in an
earlier (but not before the required beginning date)
distribution under the Contract and an increased amount of
taxable income distributed to the contract owner, and a
reduction of death benefits and the benefits of any optional
riders.
RMDs and
Annuity Options
Under the Final Regulations, for retirement plans that qualify
under Section 401 or 408 of the Code, the period elected
for receipt of RMDs as annuity payments under Annuity Options 2
and 4 generally may be:
•
no longer than the joint life expectancy of the Annuitant and
Beneficiary in the year that the Annuitant reaches age
701/2,
and
•
must be shorter than such joint life expectancy if the
Beneficiary is not the Annuitant’s spouse and is more than
10 years younger than the Annuitant.
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Under Annuity Option 3, if the Beneficiary is not the
Annuitant’s spouse and is more than 10 years younger
than the Annuitant, the
662/3%
and 100% elections specified below may not be available. The
restrictions on options for retirement plans that qualify under
Sections 401 and 408 also apply to a retirement plan that
qualifies under Section 403(b) with respect to amounts that
accrued after December 31, 1986.
Loans
Certain Owners of Qualified Contracts may borrow against their
Contracts. Otherwise loans from us are not permitted. You may
request a loan from us, using your Contract Value as your only
security if yours is a Qualified Contract that is:
•
not subject to Title 1 of ERISA,
•
issued under Section 403(b) of the Code, and
•
issued under a Plan that permits Loans (a “Loan Eligible
Plan”).
You may have only one loan outstanding at any time. The minimum
loan amount is $1,000, subject to certain state limitations.
Your Contract Debt at the effective date of your loan may not
exceed the lesser of:
•
50% of the amount available for withdrawal under this Contract
(see WITHDRAWALS – Optional Withdrawals –
Amount Available for Withdrawal), or
•
$50,000 less your highest outstanding Contract Debt during the
12-month
period immediately preceding the effective date of your loan.
If your request for a loan is processed, you will be charged
interest on your Contract Debt at a fixed annual rate equal to
5%. The amount held in the Loan Account to secure your loan will
earn a return equal to an annual rate of 3%. These rates may
vary by state.
Interest charges accrue on your Contract Debt daily, beginning
on the effective date of your loan. Interest earned on the Loan
Account Value accrues daily beginning on the day following the
effective date of the loan, and those earnings will be
transferred once a year to your Investment Options in accordance
with your most recent allocation instructions. For more
information about loans, including the consequences of loans,
loan procedures, loan terms and repayment terms, see the SAI.
We may change these loan provisions to reflect changes in the
Code or interpretations thereof. We urge you to consult with
a qualified tax adviser prior to effecting any loan transaction
under your Contract.
The following is only a general discussion about types of
IRAs and Qualified Plans for which the Contracts are available.
We are not the administrator of any Qualified Plan. The plan
administrator and/or custodian, whichever is applicable, (but
not us) is responsible for all Plan administrative duties
including, but not limited to, notification of distribution
options, disbursement of Plan benefits, handling any processing
and administration of Qualified Plan loans, compliance
regulatory requirements and federal and state tax reporting of
income/distributions from the Plan to Plan participants and, if
applicable, Beneficiaries of Plan participants and IRA
contributions from Plan participants. Our administrative duties
are limited to administration of the Contract and any
disbursements of any Contract benefits to the Owner, Annuitant,
or Beneficiary of the Contract, as applicable. Our tax reporting
responsibility is limited to federal and state tax reporting of
income/distributions to the applicable payee and IRA
contributions from the Owner of a Contract, as recorded on our
books and records. The Qualified Plan (the plan administrator or
the custodian) is required to provide us with information
regarding individuals with signatory authority on the
Contract(s) owned. If you are purchasing a Qualified Contract,
you should consult with your plan administrator and/or a
qualified tax adviser. You should also consult with a qualified
tax adviser and/or plan administrator before you withdraw any
portion of your Contract Value.
Individual
Retirement Annuities (“IRAs”)
In addition to “traditional” IRAs established under
Code 408, there are SEP IRAs under Code Section 408(k), Roth
IRAs governed by Code Section 408A and SIMPLE IRAs
established under Code Section 408(p). Also, Qualified
Plans under Section 401, 403(b), or 457(b) of the Code that
include after-tax employee contributions may be treated as
deemed IRAs subject to the same rules and limitations as
traditional IRAs. Contributions to each of these types of IRAs
are subject to differing limitations. The following is a very
general description of each type of IRA and other Qualified
Plans.
Traditional
IRAs
Traditional IRAs are subject to limitations on the amount that
may be contributed each year, the persons who may be eligible to
contribute, when rollovers are available and when distributions
must commence. Depending upon the circumstances of the
individual, contributions to a traditional IRA may be made on a
deductible or non-deductible basis.
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Annual contributions are generally allowed for persons who have
not attained
age 701/2
and who have compensation (as defined by the IRS) of at least
the contribution amount. Distributions of minimum amounts
specified by the Code must commence by April 1 of the
calendar year following the calendar year in which you attain
age
701/2.
Failure to make mandatory minimum distributions may result in
imposition of a 50% tax penalty on any difference between the
required distribution amount and the amount actually
distributed. Additional distribution rules apply after your
death.
You (or your surviving spouse if you die) may rollover funds
(such as proceeds from existing insurance policies, annuity
contracts or securities) from certain existing Qualified Plans
into your traditional IRA if those funds are in cash. This will
require you to liquidate any value accumulated under the
existing Qualified Plan. Mandatory withholding of 20% may apply
to any rollover distribution from your existing Qualified Plan
if the distribution is not transferred directly to your
traditional IRA. To avoid this withholding you should have cash
transferred directly from the insurance company or plan trustee
to your traditional IRA.
SIMPLE
IRAs
The Savings Incentive Match Plan for Employees of Small
Employers (“SIMPLE Plan”) is a type of IRA established
under Code Section 408(p)(2). Depending upon the SIMPLE
Plan, employers may make plan contributions into a SIMPLE IRA
established by each participant of the SIMPLE Plan. Like other
IRAs, a 10% tax penalty is imposed on certain distributions that
occur before an employee attains
age 591/2.
In addition, the tax penalty is increased to 25% for amounts
received or rolled to another IRA or Qualified Plan during the
2-year
period beginning on the date an employee first participated in a
qualified salary reduction arrangement pursuant to a SIMPLE Plan
maintained by their employer. Contributions to a SIMPLE IRA will
generally include employee salary deferral contributions and
employer contributions. Distributions from a SIMPLE IRA may be
transferred to another SIMPLE IRA tax free or may be eligible
for tax free rollover to a traditional IRA, a 403(b), a 457(b)
or other Qualified Plan after the required
2-year
period.
SEP-IRAs
A Simplified Employee Pension (SEP) is an employer sponsored
retirement plan under which an employer is allowed to make
contributions toward their employees’ retirement, as well
as their own retirement (if the employer is self-employed). A
SEP is a type of IRA established under Code Section 408(k).
Under a SEP, a separate IRA account called a SEP-IRA is set up
by or for each eligible employee and the employer makes the
contribution to the account. Like other IRAs, a 10% tax penalty
is imposed on certain distributions that occur before an
employee attains age
591/2.
Roth
IRAs
Section 408A of the Code permits eligible individuals to
establish a Roth IRA. Contributions to a Roth IRA are not
deductible, but withdrawals of amounts contributed and the
earnings thereon that meet certain requirements are not subject
to federal income tax. In general, Roth IRAs are subject to
limitations on the amount that may be contributed and the
persons who may be eligible to contribute and are subject to
certain required distribution rules on the death of the Contract
Owner. Unlike a traditional IRA, Roth IRAs are not subject to
minimum required distribution rules during the Contract
Owner’s lifetime. Generally, however, the amount remaining
in a Roth IRA must be distributed by the end of the fifth year
after the death of the Contract Owner/Annuitant or distributed
over the life expectancy of the Designated Beneficiary. The
owner of a traditional IRA may convert a traditional IRA into a
Roth IRA under certain circumstances. The conversion of a
traditional IRA to a Roth IRA will subject the amount of the
converted traditional IRA to federal income tax. Anyone
considering the purchase of a Qualified Contract as a Roth IRA
or a “conversion” Roth IRA should consult with a
qualified tax adviser.
In accordance with recent changes in laws and regulations, at
the time of either a full or partial conversion from a
Traditional IRA annuity to a Roth IRA annuity, the determination
of the amount to be reported as income will be based on the
annuity contract’s “fair market value”, which
will include all front-end loads and other non-recurring charges
assessed in the 12 months immediately preceding the
conversion, and the actuarial present value of any additional
contract benefits.
Tax
Sheltered Annuities (“TSAs”)
Employees of certain tax-exempt organizations, such as public
schools or hospitals, may defer compensation through an eligible
plan under Code Section 403(b). Salary deferral amounts
received from employers for these employees are excludable from
the employees’ gross income (subject to maximum
contribution limits). Distributions under these Contracts must
comply with certain limitations as to timing, or result in tax
penalties. Distributions from amounts contributed to a TSA
pursuant to a salary reduction arrangement, may be made from a
TSA only upon attaining age
591/2,
severance from employment, death, disability, or financial
hardship. Section 403(b) annuity distributions can be
rolled over to other Qualified Plans in a manner similar to
those permitted by Qualified Plans that are maintained pursuant
to Section 401 of the Code.
In accordance with Code Section 403(b) and final
regulations published on July 26, 2007 (“Final
Regulations”), as of January 1, 2009, we are required
to provide information regarding loans or hardship distributions
from your Contract to your 403(b) employer or an agent of your
403(b) employer, upon request. In addition, prior to processing
your request for a loan, a hardship distribution or a rollover,
we are required to verify certain information about you with
your 403(b) employer (or if applicable, former 403(b) employer).
Certain employees of governmental entities or tax exempt
employers may defer compensation through an eligible plan under
Code section 457(b). Contributions to a Contract of an
eligible plan are subject to limitations. Subject to plan
provisions and a qualifying triggering event, assets in a
Section 457(b) plan established by a governmental entity
may be transferred or rolled into an IRA or another Qualified
Plan, if the Qualified Plan allows the transfer or rollover. If
a rollover to an IRA is completed, the assets become subject to
IRA rules, including the 10% penalty on distributions prior to
age
591/2.
Assets from other plans may be rolled into a governmental 457(b)
plan if the 457(b) plan allows the rollover and if the
investment provider is able to segregate the assets for tax
reporting purposes. Consult both the distributing plan and the
receiving plan prior to making this election. Assets in a 457(b)
plan set up by a tax exempt employer may not be rolled to a
different type of Qualified Plan or IRA at any time.
401(k)
Plans; Pension and Profit-Sharing Plans
Qualified Plans may be established by an employer for certain
eligible employees under Section 401 of the Code. These
plans may be 401(k) plans, profit-sharing plans, or other
pension or retirement plans. Contributions to these plans are
subject to limitations. Rollover to other eligible plans may be
available. Please consult your Qualified Plans Summary Plan
description for more information.
We are the legal owner of the shares of the Portfolios held by
the Subaccounts. We may vote on any matter voted on at
shareholders’ meetings of the Funds. However, our current
interpretation of applicable law requires us to vote the number
of shares attributable to your Variable Account Value (your
“voting interest”) in accordance with your directions.
We will pass proxy materials on to you so that you have an
opportunity to give us voting instructions for your voting
interest. You may provide your instructions by proxy or in
person at the shareholders’ meeting. If there are shares of
a Portfolio held by a Subaccount for which we do not
receive timely voting instructions, we will vote those shares in
the same proportion as all other shares of that Portfolio held
by that Subaccount for which we have received timely
voting instructions. If we do not receive any voting
instructions for the shares in a Separate Account, we will vote
the shares in that Separate Account in the same proportion as
the total votes for all of our separate accounts for which
we’ve received timely instructions. If we hold shares of a
Portfolio in our General Account, we will vote such shares in
the same proportion as the total votes cast for all of our
separate accounts, including Separate Account A. We will vote
shares of any Portfolio held by our non-insurance affiliates in
the same proportion as the total votes for all separate accounts
of ours and our insurance affiliates. As a result of
proportional voting, the votes cast by a small number of
Contract Owners may determine the outcome of a vote.
We may elect, in the future, to vote shares of the Portfolios
held in Separate Account A in our own right if we are permitted
to do so through a change in applicable federal securities laws
or regulations, or in their interpretation.
The number of Portfolio shares that form the basis for your
voting interest is determined as of the record date set by the
Board of Trustees of the Fund. It is equal to:
•
your Contract Value allocated to the Subaccount corresponding to
that Portfolio, divided by
•
the net asset value per share of that Portfolio.
Fractional votes will be counted. We reserve the right, if
required or permitted by a change in federal regulations or
their interpretation, to amend how we calculate your voting
interest.
After your Annuity Date, if you have selected a variable
annuity, the voting rights under your Contract will continue
during the payout period of your annuity, but the number of
shares that form the basis for your voting interest, as
described above, will decrease throughout the payout period.
Transfer of Contract ownership may involve federal income tax
and/or gift tax consequences; you should consult a qualified tax
adviser before effecting such a transfer. A change to or from
joint Contract ownership is considered a transfer of ownership.
If your Contract is Non-Qualified, you may change Contract
ownership at any time while the Annuitant is living and prior to
your Annuity Date. You may name a different Owner or add or
remove a Joint Owner or Contingent Owner. A Contract cannot name
more than two Contract Owners (either as Joint or Contingent
Owners) at any time. Any newly-named Contract Owners, including
Joint and/or Contingent Owners, must be under the age of 86 at
the time of change or addition. The Contract Owner(s) may make
all decisions regarding the Contract, including making
allocation decisions and exercising voting rights. Transactions
under a Contract with Joint Owners require approval from both
Owners.
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If your Contract is Qualified under Code Sections 401 or
457(b), the Qualified Plan must be the sole Owner of the
Contract and the ownership cannot be changed unless and until a
triggering event has been met under the terms of the Qualified
Plan. Upon such event, the ownership can only be changed to the
Annuitant. If your Contract is Qualified under Code
Sections 408 and 403(b), you must be the sole Owner of the
Contract and no changes can be made.
Annuitant
and Contingent or Joint Annuitant
Your sole Annuitant cannot be changed, and Joint Annuitants
cannot be added or changed, once your Contract is issued.
Certain changes may be permitted in connection with Contingent
Annuitants. See ANNUITIZATION – Selecting Your
Annuitant. There may be limited exceptions for certain
Qualified Contracts.
Beneficiaries
Your Beneficiary is the person(s) or entity who may receive
death benefit proceeds under your Contract or any remaining
annuity payments after the Annuity Date if the Annuitant or
Owner dies. You may change or remove your Beneficiary or add
Beneficiaries at any time prior to the death of the Annuitant or
Owner, as applicable. Any change or addition will generally take
effect only when we receive all necessary documents, in proper
form, at our Service Center and we record the change or
addition. Any change or addition will not affect any payment
made or any other action taken by us before the change or
addition was received and recorded.
Spousal consent may be required to change the Beneficiary of an
IRA. If you are considering removing a spouse as a Beneficiary,
it is recommended that you consult your legal or tax advisor
regarding any applicable state or federal laws prior to
requesting the change. If you have named your Beneficiary
irrevocably, you will need to obtain that Beneficiary’s
consent before making any changes. Qualified Contracts may have
additional restrictions on naming and changing Beneficiaries. If
your Contract was issued in connection with a Qualified Plan
subject to Title I of ERISA, contact your Plan
Administrator for details. We require that Contracts issued
under Code Sections 401 and 457(b) name the Plan as
Beneficiary. If you leave no surviving Beneficiary or Contingent
Beneficiary, your estate will receive any death benefit proceeds
under your Contract.
If, in the judgment of our management, continued investment by
Separate Account A in one or more of the Portfolios becomes
unsuitable or unavailable, we may seek to alter the Variable
Investment Options available under the Contracts. We do not
expect that a Portfolio will become unsuitable, but
unsuitability issues could arise due to changes in investment
policies, market conditions, tax laws, or due to marketing or
other reasons.
Alterations of Variable Investment Options may take differing
forms. We reserve the right to substitute shares of any
Portfolio that were already purchased under any Contract (or
shares that were to be purchased in the future under a Contract)
with shares of another Portfolio, shares of another investment
company or series of another investment company, or another
investment vehicle. Required approvals of the SEC and state
insurance regulators will be obtained before any such
substitutions are effected, and you will be notified of any
planned substitution.
We may add new Subaccounts to Separate Account A and any new
Subaccounts may invest in Portfolios of a Fund or in other
investment vehicles. Availability of any new Subaccounts to
existing Contract Owners will be determined at our discretion.
We will notify you, and will comply with the filing or other
procedures established by applicable state insurance regulators,
to the extent required by applicable law. We also reserve the
right, after receiving any required regulatory approvals, to do
any of the following:
•
cease offering any Subaccount;
•
add or change designated investment companies or their
portfolios, or other investment vehicles;
•
add, delete or make substitutions for the securities and other
assets that are held or purchased by the Separate Account or any
Variable Account;
•
permit conversion or exchanges between portfolios and/or classes
of contracts on the basis of Owners’ requests;
•
add, remove or combine Variable Accounts;
•
combine the assets of any Variable Account with any other of our
separate accounts or of any of our affiliates;
•
register or deregister Separate Account A or any Variable
Account under the 1940 Act;
•
operate any Variable Account as a managed investment company
under the 1940 Act, or any other form permitted by law;
•
run any Variable Account under the direction of a committee,
board, or other group;
•
restrict or eliminate any voting rights of Owners with respect
to any Variable Account or other persons who have voting rights
as to any Variable Account;
•
make any changes required by the 1940 Act or other federal
securities laws;
82
•
make any changes necessary to maintain the status of the
Contracts as annuities under the Code;
•
make other changes required under federal or state law relating
to annuities;
You may reach our service representatives at 1-800-722-4448
between the hours of 6:00 a.m. and 5:00 p.m., Pacific
time. Financial professionals may call us at 1-800-722-2333.
Please send your forms and written requests or questions to:
If you are submitting a Purchase Payment or other payment by
mail, please send it, along with your application if you are
submitting one, to the following address:
The effective date of certain notices or of instructions is
determined by the date and time on which we “receive”
the notice or instructions. We “receive” this
information only when it arrives, in proper form, at the correct
mailing address set out above. In those instances when we
receive electronic transmission of the information on the
application from your financial professional’s
broker-dealer firm and our administrative procedures with your
broker-dealer so provide, we consider the application to be
received on the Business Day we receive the transmission. If the
address on your Contract specification pages is different and
our administrative procedures with your broker-dealer so
provide, in those instances when information regarding your
Purchase Payment is electronically transmitted to us by the
broker-dealer, we will consider the Purchase Payment to be
received by us on the Business Day we receive the transmission
of the information. Please call us at
1-800-722-4448
if you have any questions regarding which address you should
use. Financial professionals may call us at
1-800-722-2333.
We reserve the right to process any Purchase Payment received at
an incorrect address when it is received at either the address
indicated in your Contract specification pages or the
appropriate address indicated in the Prospectus.
Purchase Payments after your initial Purchase Payment, loan
requests, transfer requests, loan repayments and withdrawal
requests we receive before the close of the New York Stock
Exchange, which usually closes at 4:00 p.m. Eastern time, will
normally be effective at the end of the same Business Day that
we receive them in “proper form,” unless the
transaction or event is scheduled to occur on another day.
Generally, whenever you submit any other form, notice or
request, your instructions will be effective on the next
Business Day after we receive them in “proper form”
unless the transaction or event is scheduled to occur on another
day. “Proper form” means in a form satisfactory to us
and may require, among other things, a signature guarantee or
other verification of authenticity. We do not generally require
a signature guarantee unless it appears that your signature may
have changed over time or the signature does not appear to be
yours; or an executed application or confirmation of
application, as applicable, in proper form is not received by
us; or, to protect you or us. Requests regarding death benefit
proceeds must be accompanied by both proof of death and
instructions regarding payment satisfactory to us. You should
call your financial professional or us if you have questions
regarding the required form of a request.
You are automatically entitled to make certain transactions by
telephone or, to the extent available, electronically. You may
also authorize other people to make certain transaction requests
by telephone or, to the extent available, electronically by so
indicating on the application or by sending us instructions in
writing in a form acceptable to us. We cannot guarantee that you
or any other person you authorize will always be able to reach
us to complete a telephone or electronic transaction; for
example, all telephone lines may be busy or access to our
website may be unavailable during certain periods, such as
periods of substantial market fluctuations or other drastic
economic or market change, or telephones or the Internet may be
out of service or unavailable during severe weather conditions
or other emergencies. Under these circumstances, you should
submit your request in writing (or other form acceptable to us).
Transaction instructions we receive by telephone or
electronically before the close of the New York Stock Exchange,
which usually closes at 4:00 p.m.
83
Eastern time, on any Business Day will usually be effective at
the end of that day, and we will provide you confirmation of
each telephone or electronic transaction.
We have established procedures reasonably designed to confirm
that instructions communicated by telephone or electronically
are genuine. These procedures may require any person requesting
a telephone or electronic transaction to provide certain
personal identification upon our request. We may also record all
or part of any telephone conversation with respect to
transaction instructions. We reserve the right to deny any
transaction request made by telephone or electronically. You are
authorizing us to accept and to act upon instructions received
by telephone or electronically with respect to your Contract,
and you agree that, so long as we comply with our procedures,
neither we, any of our affiliates, nor any Fund, or any of their
directors, trustees, officers, employees or agents will be
liable for any loss, liability, cost or expense (including
attorneys’ fees) in connection with requests that we
believe to be genuine. This policy means that so long as we
comply with our procedures, you will bear the risk of loss
arising out of the telephone or electronic transaction
privileges of your Contract. If a Contract has Joint Owners,
each Owner may individually make telephone and/or electronic
transaction requests.
Subject to availability, you may authorize us to provide
prospectuses, prospectus supplements, annual and semi-annual
reports, quarterly statements and immediate confirmations, proxy
solicitation, privacy notice and other notices and documentation
in electronic format when available instead of receiving paper
copies of these documents by U.S. mail. You may enroll in
this service by so indicating on the application, via our
Internet website, or by sending us instructions in writing in a
form acceptable to us to receive such documents electronically.
Not all contract documentation and notifications may be
currently available in electronic format. You will continue to
receive paper copies of any documents and notifications not
available in electronic format by U.S. mail. In addition,
you will continue to receive paper copies of annual statements
if required by state or federal law. By enrolling in this
service, you consent to receive in electronic format any
documents added in the future. For jointly owned contracts, both
owners are consenting to receive information electronically.
Documents will be available on our Internet website. As
documents become available, we will notify you of this by
sending you an
e-mail
message that will include instructions on how to retrieve the
document. You must have ready access to a computer with Internet
access, an active
e-mail
account to receive this information electronically, and the
ability to read and retain it. You may access and print all
documents provided through this service.
If you plan on enrolling in this service, or are currently
enrolled, please note that:
•
We impose no additional charge for electronic delivery, although
your Internet provider may charge for Internet access.
•
You must provide a current
e-mail
address and notify us promptly when your
e-mail
address changes.
•
You must update any
e-mail
filters that may prevent you from receiving
e-mail
notifications from us.
•
You may request a paper copy of the information at any time for
no charge, even though you consented to electronic delivery, or
if you decide to revoke your consent.
•
For jointly owned contracts, both owners are consenting that the
primary owner will receive information electronically. (Only the
primary owner will receive
e-mail
notices.)
•
This election will be effective for all Contracts you currently
own or acquire in the future.
•
Electronic delivery will be cancelled if
e-mails are
returned undeliverable.
•
This consent will remain in effect until you revoke it.
We are not required to deliver this information electronically
and may discontinue electronic delivery in whole or in part at
any time. If you are currently enrolled in this service, please
call (800) 722-4448 if you would like to revoke your consent,
wish to receive a paper copy of the information above, or need
to update your
e-mail
address.
For withdrawals, including exchanges under Code
Section 1035 and other Qualified transfers, from the
Variable Investment Options or for death benefit payments
attributable to your Variable Account Value, we will normally
send the proceeds within 7 calendar days after your request
is effective or after the Notice Date, as the case may be. We
will normally effect periodic annuity payments on the day that
corresponds to the Annuity Date and will make payment on the
following day. Payments or transfers may be suspended for a
longer period under certain extraordinary circumstances. These
include: a closing of the New York Stock Exchange other than on
a regular holiday or weekend; a trading restriction imposed by
the SEC; or an emergency declared by the SEC. Amounts withdrawn
or transferred from any
fixed-rate
General Account Investment Option may be delayed for up to six
months after the request is effective. See THE GENERAL
ACCOUNT for more details.
Confirmations will be sent out for unscheduled Purchase Payments
and transfers, loans, loan repayments, unscheduled partial
withdrawals, a full withdrawal, optional living benefit rider
Automatic or Owner Elected Resets/Step-Ups, and on payment of
any death benefit proceeds. Periodically, we will send you a
statement that provides certain information pertinent to your
Contract. These statements disclose Contract Value, Subaccount
values, any fixed option values, fees and charges applied to
your Contract Value, transactions made and specific Contract
data that apply to your Contract. Confirmations of your
transactions under the pre-authorized checking plan, dollar cost
averaging, earnings sweep, portfolio rebalancing, and
pre-authorized withdrawal options will appear on your quarterly
account statements. Your fourth-quarter statement will contain
annual information about your Contract Value and transactions.
You may also access these statements online.
If you suspect an error on a confirmation or quarterly
statement, you must notify us in writing as soon as possible to
ensure proper accounting to your Contract. When you write, tell
us your name, contract number and a description of the suspected
error. We assume transactions are accurate unless you notify us
otherwise within 30 days of receiving the transaction
confirmation or, if the transaction is first confirmed on the
quarterly statement, within 30 days of receiving the
quarterly statement. All transactions are deemed final and may
not be changed after the applicable 30 day period.
You will also be sent an annual report for the Separate Account
and the Funds and a list of the securities held in each
Portfolio of the Funds, as required by the 1940 Act; or more
frequently if required by law.
Contract Owner Mailings. To help reduce expenses,
environmental waste and the volume of mail you receive, only one
copy of Contract Owner documents (such as the prospectus,
supplements, announcements, and each annual and semi-annual
report) may be mailed to Contract Owners who share the same
household address (Householding). If you are already
participating, you may opt out by contacting us. Please allow 30
calendar days for regular delivery to resume. You may also elect
to participate in Householding by writing to us. The current
documents are available on our website any time or an individual
copy of any of these documents may be requested – see
the last page of this Prospectus for more information.
PSD, a broker-dealer and our subsidiary, pays various forms of
sales compensation to broker-dealers (including other
affiliates) that solicit applications for the Contracts. PSD
also may reimburse other expenses associated with the promotion
and solicitation of applications for the Contracts.
We offer the Contracts for sale through broker-dealers that have
entered into selling agreements with PSD. Broker-dealers sell
the Contracts through their financial professionals. PSD pays
compensation to broker-dealers for the promotion and sale of the
Contracts. The individual financial professional who sells you a
Contract typically will receive a portion of the compensation,
under the financial professional’s own arrangement with his
or her broker-dealer. Broker-dealers may receive aggregate
commissions of up to 8.00% of your aggregate Purchase Payments.
Under certain circumstances where PSD pays lower initial
commissions, certain broker-dealers that solicit applications
for Contracts may be paid an ongoing persistency trail
commission (sometimes called a residual) which will take into
account, among other things, the Account Value and the length of
time Purchase Payments have been held under a Contract. A trail
commission is not anticipated to exceed 1.50%, on an annual
basis, of the Account Value considered in connection with the
trail commission. Certain broker-dealers may also be paid an
amount under a persistency program which will be based on assets
under management and duration of Contracts. The amount under the
persistency program for a financial professional is not expected
to exceed .25% of their total assets under management.
We may also provide compensation to broker-dealers for providing
ongoing service in relation to Contracts that have already been
purchased.
Additional
Compensation and Revenue Sharing
To the extent permitted by SEC and FINRA rules and other
applicable laws and regulations, selling broker-dealers may
receive additional payments in the form of cash, other special
compensation or reimbursement of expenses, sometimes called
“revenue sharing”. These additional compensation or
reimbursement arrangements may include, for example, payments in
connection with the firm’s “due diligence”
examination of the contracts, payments for providing conferences
or seminars, sales or training programs for invited financial
professionals and other employees, payments for travel expenses,
including lodging, incurred by financial professionals and other
employees for such seminars or training programs, seminars for
the public, advertising and sales campaigns regarding the
Contracts, and payments to assist a firm in connection with its
administrative systems, operations and marketing expenses and/or
other events or activities sponsored by the firms. Subject to
applicable FINRA rules and other applicable laws and
regulations, PSD and its affiliates may contribute to, as well
as sponsor, various educational programs, sales contests and/or
promotions in which participating firms and their salespersons
may receive prizes such as merchandise, cash, or other awards.
Such additional compensation may give us greater access to
financial professionals of the broker-dealers that receive such
compensation or may otherwise influence the way that a
broker-dealer and financial professional market the Contracts.
85
These arrangements may not be applicable to all firms, and the
terms of such arrangements may differ between firms. We provide
additional information on special compensation or reimbursement
arrangements involving selling firms and other financial
institutions in the Statement of Additional Information, which
is available upon request. Any such compensation will not result
in any additional direct charge to you by us.
The compensation and other benefits provided by PSD or its
affiliates may be more or less than the overall compensation on
similar or other products. This may influence your financial
professional or broker-dealer to present this Contract over
other investment options available in the marketplace. You may
ask your financial professional about these differing and
divergent interests, how he/she is personally compensated and
how his/her broker-dealer is compensated for soliciting
applications for the Contract.
We have entered into services agreements with certain Funds, or
Fund affiliates, which pay us for administrative and other
services, including, but not limited to, certain communications
and support services. The fees are based on an annual percentage
of average daily net assets of certain Fund portfolios purchased
by us at Contract Owner’s instructions. Currently, the fees
received do not exceed an annual percentage of 0.30% and each
Fund (or Fund affiliate) may not pay the same annual percentage
(some may pay significantly less). Because we receive such fees,
we may be subject to competing interests in making these Funds
available as Investment Options under the Contracts.
AllianceBernstein Investments, Inc. pays us for each
AllianceBernstein Variable Products Series Fund, Inc. portfolio
(Class B) held by our separate accounts. BlackRock
Distributors, Inc. pays us for each BlackRock Variable Series
Funds, Inc. portfolio (Class III) held by our separate
accounts. Franklin Templeton Services, LLC pays us for each
Franklin Templeton Variable Insurance Products Trust portfolio
(Class 4) held by our separate accounts. Invesco Advisers, Inc.
and its affiliates pay us for each AIM Variable Insurance Funds
(Invesco Variable Insurance Funds) portfolio
(Series II) held by our separate accounts. Pacific
Investment Management Company LLC pays us for each PIMCO
Variable Insurance Trust portfolio held by our separate
accounts. Van Kampen Funds Inc. pays us for each Van Kampen Life
Investment Trust portfolio (Class II) held by our separate
accounts. GE Investments Funds, Inc. pays us for each GE
Investments Funds, Inc. portfolio (Class 3) held by our separate
accounts.
PSD shall pay American Funds Distributors, Inc. at a rate of
0.16% of Purchase Payments up to $1.5 billion, 0.14% on
Purchase Payments on next $1.5 billion and 0.10% on
Purchase Payments made in excess, attributable to the Master
Funds for certain marketing assistance.
The term “replacement” has a special meaning in the
life insurance industry and is described more fully below.
Before you make your purchase decision, we want you to
understand how a replacement may impact your existing plan of
insurance.
A policy “replacement” occurs when a new policy or
contract is purchased and, in connection with the sale, an
existing policy or contract is surrendered, lapsed, forfeited,
assigned to the replacing insurer, otherwise terminated, or used
in a financed purchase. A “financed purchase” occurs
when the purchase of a new life insurance policy or annuity
contract involves the use of funds obtained from the values of
an existing life insurance policy or annuity contract through
withdrawal, surrender or loan.
There are circumstances in which replacing your existing life
insurance policy or annuity contract can benefit you. As a
general rule, however, replacement is not in your best interest.
Accordingly, you should make a careful comparison of the costs
and benefits of your existing policy or contract and the
proposed policy or contract to determine whether replacement is
in your best interest.
Certain Contract features described in this Prospectus may
vary or may not be available in your state. The state in which
your Contract is issued governs whether or not certain features,
Riders, charges or fees are available or will vary under your
Contract. These variations are reflected in your Contract and in
Riders or Endorsements to your Contract. See your financial
professional or contact us for specific information that may be
applicable to your state.
For Contracts issued in the state of Pennsylvania, any person
who knowingly and with intent to defraud any insurance company
or other person files an application for insurance or statement
of claim containing any materially false information or conceals
for the purpose of misleading, information concerning any fact
material thereto commits a fraudulent insurance act, which is a
crime and subjects such person to criminal and civil penalties.
In addition, you understand that benefits and values provided
under the Contract may be on a variable basis. Amounts directed
into one or more variable Investment Options will reflect the
investment experience of those Investment Options. These amounts
may increase or decrease and are not guaranteed as to a dollar
amount.
86
California
Applicants Age 60 or Older
For residents of the state of California 60 years of age or
older, the Free Look period is a 30-day period beginning on the
day you receive your Contract. If you are a California applicant
age 60 or older and your Contract is delivered or issued for
delivery on or after July 1, 2004, you must elect, at the
time you apply for your Contract, to receive a return of either
your Purchase Payments or your Contract Value proceeds if you
exercise your Right to Cancel and return your Contract to us.
If you elect to receive the return of Purchase Payments option,
the following will apply:
•
We will allocate all or any portion of any Purchase Payment we
receive to any available fixed option if you instruct us to do
so. We will allocate all or any portion of any Purchase Payment
designated for any Variable Investment Option to the Cash
Management Subaccount until the Free Look Transfer Date. The
Free Look Transfer Date is 30 days from the Contract Date.
On the Free Look Transfer Date, we will automatically transfer
your Cash Management Subaccount Value according to the
instructions on your application, or your most recent
instruction, if any. This automatic transfer to the Variable
Investment Options according to your initial allocation
instruction is excluded from the Transfer limitations. See
HOW YOUR PURCHASE PAYMENTS ARE ALLOCATED –
Transfers and Market-timing Restrictions.
•
If you specifically instruct us to allocate all or any portion
of any additional Purchase Payments we receive to any Variable
Investment Option other than the Cash Management Subaccount
before the Free Look Transfer Date, you will automatically
change your election to the return of your Contract Value
proceeds option. This will automatically cancel your election of
the “return of Purchase Payments” option for the
entire Contract.
•
If you request a transfer of all or any portion of your Contract
Value from the Cash Management Subaccount to any other Variable
Investment Option before the Free Look Transfer Date, you will
automatically change your election to the return of your
Contract Value proceeds option. This will automatically cancel
your election of the “return of Purchase Payments”
option for the entire Contract.
•
If you exercise your Right to Cancel, we will send you your
Purchase Payments.
If you elect the return of Contract Value proceeds option, the
following will apply:
•
We will immediately allocate any Purchase Payments we receive to
the Investment Options you select on your application or your
most recent instructions, if any.
•
If you exercise your Right to Cancel, we will send you your
Contract Value proceeds described in the Right to Cancel
(“Free Look”) section of this prospectus.
•
Once you elect this option, it may not be changed.
For the Flexible Lifetime Income Rider (Joint) and Foundation
10 Rider issued in the state of Washington, the annual
rider charge is the current charge percentage multiplied by the
Contract Value.
The statements of assets and liabilities of Separate Account A
as of December 31, 2009, the related statements of
operations for the periods presented, the statements of changes
in net assets for each of the periods presented and the
financial highlights for each of the periods presented are
incorporated by reference in the Statement of Additional
Information from the Annual Report of Separate Account A dated
December 31, 2009. Pacific Life’s consolidated
financial statements as of December 31, 2009 and 2008 and
for each of the three years in the period ended
December 31, 2009 are contained in the Statement of
Additional Information.
Rule
12h-7 Representation
In reliance on the exemption provided by
Rule 12h-7
of the Securities Exchange Act of 1934
(“34 Act”), we do not intend to file periodic
reports as required under the 34 Act.
All amounts allocated to a fixed option become part of our
General Account. Subject to applicable law, we exercise sole
discretion over the investment of General Account assets, and
bear the associated investment risk. You will not share in the
investment experience of General Account assets. Unlike the
Separate Account, the General Account is subject to liabilities
arising from any of our other business. Any guarantees provided
for under the contract or through optional riders are backed by
our financial strength and claims paying ability. You must look
to the strength of the insurance company with regard to such
guarantees.
87
Because of exemptive and exclusionary provisions, interests in
the General Account under the Contract are not registered under
the Securities Act of 1933, as amended, and the General Account
has not been registered as an investment company under the 1940
Act. Any interest you have in a fixed option is not subject to
these Acts, and we have been advised that the SEC staff has not
reviewed disclosure in this Prospectus relating to any fixed
option. This disclosure may, however, be subject to certain
provisions of federal securities laws relating to the accuracy
and completeness of statements made in prospectuses.
Guarantee
Terms
When you allocate any portion of your Investments or Contract
Value to any fixed option, we guarantee you an interest rate (a
“Guaranteed Interest Rate”) for a specified period of
time (a “Guarantee Term”) of up to one year. Guarantee
Terms will be offered at our discretion.
Guaranteed Interest Rates for any fixed option may be changed
periodically for new allocations. Your allocation will receive
the Guaranteed Interest Rate in effect for that fixed option on
the effective date of your allocation. All Guaranteed Interest
Rates will credit interest daily at a rate that compounds over
one year to equal the annual effective rate. The Guaranteed
Interest Rate on your fixed option will remain in effect for the
Guarantee Term and will never be less than an annual rate of 3%.
Withdrawals
and Transfers
Prior to the Annuity Date, you may withdraw or transfer amounts
from any fixed option to one or more of the other Variable
Investment Options. No partial withdrawal or transfer may be
made from a fixed option within 30 days of the Contract
Date. Currently, we are not requiring the
30-day
waiting period on partial withdrawals and transfers, but we
reserve the right to require the
30-day
waiting period on partial withdrawals and transfers in the
future. If your withdrawal leaves you with a Net Contract Value
of less than $1,000, we have the right, at our option, to
terminate your Contract and send you the withdrawal proceeds.
Amounts transferred or withdrawn from any fixed option may be
delayed, as described under ADDITIONAL
INFORMATION – Timing of Payments and Transactions.
Any amount delayed, so long as it is held under any fixed
option, will continue to earn interest at the Guaranteed
Interest Rate then in effect until that Guarantee Term has
ended, and the minimum guaranteed interest rate of 3%
thereafter, unless state law requires a greater rate be paid.
Before your Annuity Date, you can allocate all or some of your
Investment(s) to the DCA Plus Fixed Option. The initial minimum
amount that you may allocate to the DCA Plus Fixed Option is
$5,000. Currently, we are not enforcing the minimum amount you
may allocate to the DCA Plus Fixed Option but we reserve the
right to enforce the minimum amount in the future. You may not
transfer any amount to the DCA Plus Fixed Option from any other
Investment Option. All Investments allocated to the DCA Plus
Fixed Option will earn interest at the then current Guaranteed
Interest Rate declared by us.
The DCA Plus Fixed Option Value on any Business Day is the DCA
Plus Fixed Option Value on the prior Business Day, increased by
any additions to the DCA Plus Fixed Option on that day as a
result of any:
•
interest, plus
•
Purchase Payments received by us then allocated to the DCA Plus
Fixed Option, plus
•
any additional amounts allocated to the DCA Plus Fixed Option,
and decreased by any deductions from the DCA Plus Fixed Option
on that day as a result of any;
•
transfers, including transfers to the Loan Account,
•
withdrawals, including any applicable withdrawal charges,
•
amounts applied to provide an annuity,
•
annual fees,
•
charges for premium taxes and/or other taxes, and
•
proportionate reductions for annual charges for expenses
relating to optional benefit riders attached to the Contract.
The DCA Plus program will automatically terminate at the end of
your DCA Plus Guarantee Term, or upon the earliest of:
•
the date death benefit proceeds become payable under the
Contract,
•
the date you transfer the entire amount from the DCA Plus Fixed
Option to another Investment Option,
•
the date the Contract is terminated, or
•
the Annuity Date.
88
At the end of the DCA Plus program, upon receipt of an
additional Purchase Payment that satisfies our minimum
allocation requirements, you may request, in a form satisfactory
to us, a new DCA Plus program.
We reserve the right to change the terms and conditions of the
DCA Plus program, but not a DCA Plus program you already have in
effect.
Guarantee
Terms
The day that the first Investment allocation is made to the DCA
Plus Fixed Option will begin the Guarantee Term. You can choose
a Guarantee Term of up to one year. Currently, we offer
Guarantee Terms of 6 or 12 months with monthly transfers on the
same day of each month thereafter to the Variable Investment
Options that you selected. The amount transferred each month is
equal to your DCA Plus Fixed Option Value on that day divided by
the remaining number of monthly transfers in the Guarantee Term.
Example: On May 1, you submit a $10,000
Investment entirely to the DCA Plus Fixed Option at a then
current Guaranteed Interest Rate of 5.00% with a Guarantee Term
of 6 months. On June 1, the value of the DCA Plus Fixed
Option is $10,041.52. On June 1, a transfer equal to
$1,673.59 (10,041.52/6) will be made according to your DCA Plus
transfer instructions. Your remaining DCA Plus Fixed Option
Value after the transfer is $8,367.93. On July 1, your DCA
Plus Fixed Option has now increased to $8,401.56. We will
transfer $1,680.31 ($8,401.56/5) to the Variable Investment
Options, leaving a remaining value of $6,721.25 in the DCA Plus
Fixed Option.
During the Guarantee Term, you can allocate all or a part of any
additional Investments to the DCA Plus Fixed Option. Additional
allocations must be at least $250. Each additional allocation
will be transferred to the Variable Investment Options you
select over the remaining Guarantee Term. Transfers will be
made from the DCA Plus Fixed Option Value attributed to the
oldest Investment allocation and each subsequent Investment in
the order received.
Example: (using the previous example): On July 15,
you allocate an additional $5,000 to the DCA Plus Option at a
Guaranteed Interest Rate of 4.00%. On August 1, your DCA
Plus Fixed Option Value has increased to $11,758.30. An amount
equal to $2,939.58 ($11,758.30/4) is transferred from the DCA
Plus Fixed Option to the Variable Investment Options. The
remaining DCA Plus Fixed Option Value is $8,818.72.
Transfers
DCA Plus transfers must be made on a monthly basis to the
Variable Investment Options. No transfers to the DCA Plus Fixed
Option may be made at any time. You cannot choose to transfer
other than monthly. Unless otherwise instructed, any additional
Investment we receive during a Guarantee Term will be allocated
to the Investment Options, including the DCA Plus Fixed Option
if so indicated, according to your most recent allocation
instructions.
If the Owner dies while transfers are being made from the DCA
Plus Fixed Option and the surviving spouse of the deceased Owner
elects to continue the Contract in accordance with its terms,
transfers will continue to be made from the DCA Plus Fixed
Option to the selected Variable Investment Options, until the
Guarantee Term ends.
Some of the terms
we’ve used in this Prospectus may be new to you.
We’ve identified them in the Prospectus by capitalizing the
first letter of each word. You will find an explanation of what
they mean below.
If you have any
questions, please ask your financial professional or call us at
1-800-722-4448.
Financial professionals may call us at
1-800-722-2333.
Account
Value –
The amount of your Contract Value allocated to a specified
Variable Investment Option or any fixed option.
Annual
Fee –
A $40 fee charged each year on your Contract Anniversary and at
the time of a full withdrawal, if your Net Contract Value is
less than $50,000 on that date.
Annuitant –
A person on whose life annuity payments may be determined. An
Annuitant’s life may also be used to determine certain
increases in death benefits, and to determine the Annuity Date.
A Contract may name a single (“sole”) Annuitant or two
(“Joint”) Annuitants, and may also name a
“Contingent” Annuitant. If you name Joint Annuitants
or a Contingent Annuitant, “the Annuitant” means the
sole surviving Annuitant, unless otherwise stated.
Annuity
Date –
The date specified in your Contract, or the date you later
elect, if any, for the start of annuity payments if the
Annuitant (or Joint Annuitants) is (or are) still living and
your Contract is in force; or if earlier, the date that annuity
payments actually begin.
Annuity
Option –
Any one of the income options available for a series of payments
after your Annuity Date.
Beneficiary –
A person who may have a right to receive the death benefit
payable upon the death of the Annuitant or a Contract Owner
prior to the Annuity Date, or may have a right to receive
remaining guaranteed annuity payments, if any, if the Annuitant
dies after the Annuity Date.
Business
Day –
Any day on which the value of an amount invested in a Variable
Investment Option is required to be determined, which currently
includes each day that the New York Stock Exchange is open for
trading and our administrative offices are open. The New York
Stock Exchange and our administrative offices are closed on
weekends and on the following holidays: New Year’s Day,
Martin Luther King Jr. Day, President’s Day, Good Friday,
Memorial Day, July Fourth, Labor Day, Thanksgiving Day and
Christmas Day, and the Friday before New Year’s Day, July
Fourth or Christmas Day if that holiday falls on a Saturday, the
Monday following New Year’s Day, July Fourth or Christmas
Day if that holiday falls on a Sunday, unless unusual business
conditions exist, such as the ending of a monthly or yearly
accounting period. In this Prospectus, “day” or
“date” means Business Day unless otherwise specified.
If any transaction or event called for under a Contract is
scheduled to occur on a day that is not a Business Day, such
transaction or event will be deemed to occur on the next
following Business Day unless otherwise specified. Any
systematic pre-authorized transaction scheduled to occur on
December 30 or December 31 where that day is not a
Business Day will be deemed an order for the last Business Day
of the calendar year and will be calculated using the applicable
Subaccount Unit Value at the close of that Business Day. Special
circumstances such as leap years and months with fewer than
31 days are discussed in the SAI.
Code –
The Internal Revenue Code of 1986, as amended.
Contingent
Annuitant –
A person, if named in your Contract, who will become your sole
surviving Annuitant if your existing sole Annuitant (or both
Joint Annuitants) should die before your Annuity Date.
Contingent
Owner –
A person, if named in your Contract, who will succeed to the
rights as a Contract Owner of your Contract if all named
Contract Owners die before your Annuity Date.
Contract
Anniversary –
The same date, in each subsequent year, as your Contract Date.
Contract
Date –
The date we issue your Contract. Contract Years, Contract
Semi-Annual Periods, Contract Quarters and Contract Months are
measured from this date.
Contract
Debt –
As of the end of any given Business Day, the principal amount
you have outstanding on any loan under your Contract, plus any
accrued and unpaid interest. Loans are only available on certain
Qualified Contracts.
Contract Owner,
Owner, Policyholder, you, or
your –
Generally, a person who purchases a Contract and makes the
Investments. A Contract Owner has all rights in the Contract,
including the right to make withdrawals, designate and change
beneficiaries, transfer amounts among Investment Options, and
designate an Annuity Option. If your Contract names Joint
Owners, both Joint Owners are Contract Owners and share all such
rights.
Contract
Value –
As of the end of any Business Day, the sum of your Variable
Account Value, any fixed option value, the value of any other
Investment Option added to the Contract by Rider or Endorsement,
and any Loan Account Value.
Contract
Year –
A year that starts on the Contract Date or on a Contract
Anniversary.
DCA Plus Fixed
Option –
If you allocate all or part of your investments to the DCA Plus
Fixed Option, such amounts are held in our General Account and
receive interest at rates declared periodically (the
“Guaranteed Interest Rate”), but not less than an
annual rate of 3%.
DCA Plus Fixed
Option
Value –
The aggregate amount of your Contract Value allocated to the DCA
Plus Fixed Option.
Earnings –
As of the end of any Business Day, your Earnings equal your
Contract Value less your aggregate Purchase Payments, which are
reduced by withdrawals of prior Investments.
Fund –
Pacific Select Fund, AIM Variable Insurance Funds (Invesco
Variable Insurance Funds), AllianceBernstein Variable Products
Series Fund, Inc., BlackRock Variable Series Funds, Inc.,
Franklin Templeton Variable Insurance Products Trust, GE
Investments Funds, PIMCO Variable Insurance Trust,
and/or Van
Kampen Life Investment Trust.
General
Account –
Our General Account consists of all of our assets other than
those assets allocated to Separate Account A or to any of
our other separate accounts.
Guarantee
Term –
The period during which an amount you allocate to any available
fixed option earns interest at a Guaranteed Interest Rate. These
terms are up to one-year for a fixed option.
Guaranteed
Interest
Rate –
The interest rate guaranteed at the time of allocation (or
rollover) for the Guarantee Term on amounts allocated to a fixed
option. All Guaranteed Interest Rates are expressed as annual
rates and interest is accrued daily. The rate will not be less
than an annual rate of 3%.
Investment
(“Purchase
Payment”) –
An amount paid to us by or on behalf of a Contract Owner as
consideration for the benefits provided under the Contract.
Investment
Option –
A Subaccount, any fixed option or any other Investment Option
added to the Contract by Rider or Endorsement.
Joint
Annuitant –
If your Contract is a Non-Qualified Contract, you may name two
Annuitants, called “Joint Annuitants,” in your
application for your Contract. Special restrictions apply for
Qualified Contracts.
Loan
Account –
The Account in which the amount equal to the principal amount of
a loan and any interest accrued is held to secure any Contract
Debt.
Loan Account
Value –
The amount, including any interest accrued, held in the Loan
Account to secure any Contract Debt.
Net Contract
Value –
Your Contract Value less Contract Debt.
Non-Natural
Owner –
A corporation, trust or other entity that is not a (natural)
person.
Non-Qualified
Contract –
A Contract other than a Qualified Contract.
Policyholder –
The Contract Owner.
90
Portfolio –
A separate portfolio of a Fund in which a Subaccount invests its
assets.
Primary
Annuitant –
The individual that is named in your Contract, the events in the
life of whom are of primary importance in affecting the timing
or amount of the payout under the Contract.
Purchase Payment
(“Investment”) –
An amount paid to us by or on behalf of a Contract Owner as
consideration for the benefits provided under the Contract.
Qualified
Contract –
A Contract that qualifies under the Code as an individual
retirement annuity or account (IRA), or form thereof, or a
Contract purchased by a Qualified Plan, qualifying for special
tax treatment under the Code.
Qualified
Plan –
A retirement plan that receives favorable tax treatment under
Section 401, 403, or 457 of the Code.
SEC –
Securities and Exchange Commission.
Separate Account
A (the “Separate
Account”) –
A separate account of ours registered as a unit investment trust
under the Investment Company Act of 1940, as amended (the
“1940 Act”).
Subaccount –
An investment division of the Separate Account. Each Subaccount
invests its assets in shares of a corresponding Portfolio.
Subaccount
Annuity
Unit –
Subaccount Annuity Units (or “Annuity Units”) are used
to measure variation in variable annuity payments. To the extent
you elect to convert all or some of your Contract Value into
variable annuity payments, the amount of each annuity payment
(after the first payment) will vary with the value and number of
Annuity Units in each Subaccount attributed to any variable
annuity payments. At annuitization (after any applicable premium
taxes and/or other taxes are paid), the amount annuitized to a
variable annuity determines the amount of your first variable
annuity payment and the number of Annuity Units credited to your
annuity in each Subaccount. The value of Subaccount Annuity
Units, like the value of Subaccount Units, is expected to
fluctuate daily, as described in the definition of Unit Value.
Subaccount
Unit –
Before your Annuity Date, each time you allocate an amount to a
Subaccount, your Contract is credited with a number of
Subaccount Units in that Subaccount. These Units are used for
accounting purposes to measure your Account Value in that
Subaccount. The value of Subaccount Units is expected to
fluctuate daily, as described in the definition of Unit Value.
Unit
Value –
The value of a Subaccount Unit (“Subaccount Unit
Value”) or Subaccount Annuity Unit (“Subaccount
Annuity Unit Value”). Unit Value of any Subaccount is
subject to change on any Business Day in much the same way that
the value of a mutual fund share changes each day. The
fluctuations in value reflect the investment results, expenses
of and charges against the Portfolio in which the Subaccount
invests its assets. Fluctuations also reflect charges against
the Separate Account. Changes in Subaccount Annuity Unit Values
also reflect an additional factor that adjusts Subaccount
Annuity Unit Values to offset our Annuity Option Table’s
implicit assumption of an annual investment return of 5%. The
effect of this assumed investment return is explained in detail
in the SAI. Unit Value of a Subaccount Unit or Subaccount
Annuity Unit on any Business Day is measured as of the close of
the New York Stock Exchange on that Business Day, which usually
closes at 4:00 p.m., Eastern time, although it occasionally
closes earlier.
Variable Account
Value –
The aggregate amount of your Contract Value allocated to all
Subaccounts.
Variable
Investment
Option –
A Subaccount (also called a Variable Account).
Redemptions of Remaining Guaranteed Variable Payments Under
Options 2 and 4
Corresponding Dates
Age and Sex of Annuitant
Systematic Transfer Programs
Pre-Authorized Withdrawals
Joint Annuitants on Qualified Contracts
More on Federal Tax Issues
Safekeeping of Assets
OTHER OPTIONAL RIDERS
Flexible Lifetime Income Plus Rider (Single)
Flexible Lifetime Income Plus Rider (Joint)
Automatic Income Builder Rider
Flexible Lifetime Income Rider (Single)
Flexible Lifetime Income Rider (Joint)
Foundation 10 Rider
FINANCIAL STATEMENTS
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND INDEPENDENT
AUDITORS
APPENDIX A: FLEXIBLE LIFETIME INCOME PLUS RIDER (SINGLE AND
JOINT) SAMPLE CALCULATIONS
APPENDIX B: AUTOMATIC INCOME BUILDER RIDER SAMPLE
CALCULATIONS
APPENDIX C: FLEXIBLE LIFETIME INCOME RIDER (SINGLE AND
JOINT) SAMPLE CALCULATIONS
APPENDIX D: FOUNDATION 10 RIDER SAMPLE CALCULATIONS
To receive a current copy of the Pacific Voyages SAI without
charge, call
(800) 722-4448.
Financial professionals may call us at
(800) 722-2333.
You may also complete the following and send it to:
Pacific Life Insurance Company
Post Office Box 2378
Omaha, Nebraska
68103-2378
The examples provided are based on certain hypothetical
assumptions and are for example purposes only. Where Contract
Value is reflected, the examples do not assume any specific
return percentage. The examples have been provided to assist in
understanding the benefits provided by this Rider and to
demonstrate how Purchase Payments received and withdrawals made
from the Contract prior to the Annuity Date affect the values
and benefits under this Rider over an extended period of time.
There may be minor differences in the calculations due to
rounding. These examples are not intended to serve as
projections of future investment returns nor are they a
reflection of how your Contract will actually perform.
Example #1 – Setting
of Initial Values.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
Beginning
Protected
Protected
Remaining
of Contract
Purchase
Contract Value
Payment
Payment
Protected
Year
Payment
Withdrawal
after Activity
Base
Amount
Balance
1
$100,000
$100,000
$100,000
$5,000
$100,000
On the Rider Effective Date, the initial values are set as
follows:
•
Protected Payment Base = Initial Purchase
Payment = $100,000
Protected Payment Amount = 5% of Protected Payment
Base = $5,000
Example #2 – Subsequent
Purchase Payments.
The values shown below are based on the following assumptions:
•
Rider purchased at Contract issue by a 64-year old.
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
A subsequent Purchase Payment of $100,000 is received during
Contract Year 1.
•
No withdrawals taken.
•
Automatic Reset at Beginning of contract Year 2.
Beginning
Protected
Protected
Remaining
of Contract
Purchase
Contract Value
Payment
Payment
Protected
Year
Payment
Withdrawal
after Activity
Base
Amount
Balance
1
$100,000
$100,000
$100,000
$5,000
$100,000
Activity
$100,000
$200,000
$200,000
$10,000
$200,000
2
(Prior to Automatic Reset)
$207,000
$200,000
$10,000
$200,000
2
(After Automatic Reset)
$207,000
$207,000
$10,350
$207,000
Immediately after the $100,000 subsequent Purchase Payment
during Contract Year 1, the Protected Payment Base and
Remaining Protected Balance are increased by the Purchase
Payment amount to $200,000 ($100,000 + $100,000). The Protected
Payment Amount after the Purchase Payment is equal to $10,000
(5% of the Protected Payment Base after the Purchase Payment).
An automatic reset takes place at the beginning of Contract
Year 2, since the Contract Value ($207,000) is higher than
the Protected Payment Base ($200,000). This resets the Protected
Payment Base and Remaining Protected Balance to $207,000 and the
Protected Payment Amount to $10,350 (5% × $207,000). Also,
the Protected Payment Amount will now be paid for life.
In addition to Purchase Payments, the Contract Value is further
subject to increases and/or decreases during each Contract Year
as a result of charges, fees and other deductions, and increases
and/or decreases in the investment performance of the Variable
Account.
93
Example #3 – Withdrawals
Not Exceeding Protected Payment Amount.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
A subsequent Purchase Payment of $100,000 is received during
Contract Year 1.
•
A withdrawal equal to or less than the Protected Payment Amount
is taken during Contract Year 2.
•
Automatic Resets at Beginning of Contract Years 2 and 3.
Beginning
Protected
Protected
Remaining
of Contract
Purchase
Contract Value
Payment
Payment
Protected
Year
Payment
Withdrawal
after Activity
Base
Amount
Balance
1
$100,000
$100,000
$100,000
$5,000
$100,000
Activity
$100,000
$200,000
$200,000
$10,000
$200,000
2
(Prior to Automatic Reset)
$207,000
$200,000
$10,000
$200,000
2
(After Automatic Reset)
$207,000
$207,000
$10,350
$207,000
Activity
$5,000
$216,490
$207,000
$5,350
$202,000
3
(Prior to Automatic Reset)
$216,490
$207,000
$10,350
$202,000
3
(After Automatic Reset)
$216,490
$216,490
$10,825
$216,490
For an explanation of the values and activities at the start of
and during Contract Year 1, refer to Examples #1
and #2.
As the withdrawal during Contract Year 2 did not exceed
the Protected Payment Amount immediately prior to the withdrawal
($10,350):
•
the Protected Payment Base remains unchanged; and
•
the Remaining Protected Balance is reduced by the amount of the
withdrawal to $202,000 ($207,000 – $5,000) and
the Protected Payment Amount is reduced by the amount of the
withdrawal to $5,350 ($10,350 -$5,000).
Because at the Beginning of Contract Year 3, the Protected
Payment Base was less than the Contract Value on that Contract
Anniversary (see balances at Beginning of Contract Year
3 – Prior to Automatic Reset), an automatic
reset occurred which resets the Protected Payment Base and
Remaining Protected Balance to an amount equal to 100% of the
Contract Value (see balances at Beginning of Contract Year
3 – After Automatic Reset). As a result, the
Protected Payment Amount is equal to $10,825 (5% of the reset
Protected Payment Base).
Example #4 –
Withdrawals Exceeding Protected Payment Amount.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
A subsequent Purchase Payment of $100,000 is received during
Contract Year 1.
•
A withdrawal greater than the Protected Payment Amount is taken
during Contract Year 2.
•
Automatic Resets at Beginning of Contract Years 2 and 3.
Beginning
Contract
Protected
Protected
Remaining
of Contract
Purchase
Value after
Payment
Payment
Protected
Year
Payment
Withdrawal
Activity
Base
Amount
Balance
1
$100,000
$100,000
$100,000
$5,000
$100,000
Activity
$100,000
$200,000
$200,000
$10,000
$200,000
2
(Prior to Automatic Reset)
$207,000
$200,000
$10,000
$200,000
2
(After Automatic Reset)
$207,000
$207,000
$10,350
$207,000
Activity
$25,000
$196,490
$192,655
$0
$182,000
3
(Prior to Automatic Reset)
$196,490
$192,655
$9,633
$182,000
3
(After Automatic Reset)
$196,490
$196,490
$9,825
$196,490
For an explanation of the values and activities at the start of
and during Contract Year 1, refer to Examples #1
and #2.
Because the $25,000 withdrawal during Contract Year 2
exceeds the Protected Payment Amount immediately prior to
the withdrawal ($25,000 > $10,350), the Protected
Payment Base and Remaining Protected Balance immediately after
the withdrawal are reduced.
The Values shown below are based on the following assumptions
immediately before the excess withdrawal:
No withdrawals were taken prior to the excess withdrawal
A withdrawal of $25,000 was taken, which exceeds the Protected
Payment Amount of $10,350 for the Contract Year. The Protected
Payment Base and Remaining Protected Balance will be reduced
based on the following calculation:
First, determine the excess withdrawal amount. The excess
withdrawal amount is the total withdrawal amount less the
Protected Payment Amount. Numerically, the excess withdrawal
amount is $14,650 (total withdrawal amount – Protected
Payment Amount; $25,000 – $10,350 = $14,650).
Second, determine the ratio for the proportionate reduction. The
ratio is the excess withdrawal amount determined above divided
by (Contract Value – Protected Payment Amount). The
Contract Value prior to the withdrawal was $221,490, which
equals the $196,490 after the withdrawal plus the $25,000
withdrawal amount. Numerically, the ratio is 6.93%
($14,650 ¸
($221,490 – $10,350);
$14,650 ¸
$211,140 = 0.0693 or 6.93%).
Third, determine the new Protected Payment Base. The Protected
Payment Base will be reduced on a proportionate basis. The
Protected Payment Base is multiplied by 1 less the ratio
determined above. Numerically, the new Protected Payment Base is
$192,655 (Protected Payment Base × (1-ratio);
$207,000 × (1-6.93%); $207,000 ×
93.07% = $192,655).
Fourth, determine the new Remaining Protected Balance. The
Remaining Protected Balance is reduced either on a proportionate
basis or by the total withdrawal amount, whichever results in
the lower Remaining Protected Balance amount.
To determine the proportionate reduction, the Remaining
Protected Balance immediately before the withdrawal is reduced
by the Protected Payment Amount multiplied by 1 less the ratio
determined above. Numerically, after the proportionate
reduction, the new Remaining Protected Balance is $183,022
((Remaining Protected Balance immediately before the
withdrawal – Protected Payment Amount) ×
(1-ratio); ($207,000 – $10,350) × (1-6.93%);
$196,650 × 93.07% = $183,022).
To determine the total withdrawal amount reduction, the
Remaining Protected Balance immediately before the withdrawal is
reduced by the total withdrawal amount. Numerically, after the
Remaining Protected Balance is reduced by the total withdrawal
amount, the new Remaining Protected Balance is $182,000
(Remaining Protected Balance immediately before the
withdrawal – total withdrawal amount;
$207,000 – $25,000 = $182,000).
Therefore, since $182,000 (total withdrawal amount method) is
less than $183,022 (proportionate method) the new Remaining
Protected Balance is $182,000.
The Protected Payment Amount immediately after the withdrawal is
equal to $0 (5% of the Protected Payment Base after the
withdrawal (5% of $192,655 = $9,633), less cumulative
withdrawals during that Contract Year ($25,000), but not less
than zero).
Because at the Beginning of Contract Year 3, the Protected
Payment Base was less than the Contract Value on that Contract
Anniversary (see balances at Beginning of Contract
Year 3 – Prior to Automatic Reset), an
Automatic Reset occurred which resets the Protected Payment Base
and Remaining Protected Balance to an amount equal to 100% of
the Contract Value (see balances at Beginning of Contract
Year 3 – After Automatic Reset).
Example #5 –
RMD Withdrawals.
This is an example of the effect of cumulative RMD Withdrawals
during the Contract Year that exceed the Protected Payment
Amount established for that Contract Year and its effect on the
Protected Payment Base and Remaining Protected Balance. The
Annual RMD Amount is based on the entire interest of your
Contract as of the previous year-end.
95
This table assumes quarterly withdrawals of only the Annual RMD
Amount during the Contract Year. The calculated Annual RMD
amount for the Calendar Year is $7,500 and the Contract
Anniversary is May 1 of each year.
Annual
Protected
Protected
Remaining
Activity
RMD
Non-RMD
RMD
Payment
Payment
Protected
Date
Withdrawal
Withdrawal
Amount
Base
Amount
Balance
05/01/2006
$100,000
$5,000
$100,000
Contract
Anniversary
01/01/2007
$7,500
03/15/2007
$1,875
$100,000
$3,125
$98,125
05/01/2007
$100,000
$5,000
$98,125
Contract
Anniversary
06/15/2007
$1,875
$100,000
$3,125
$96,250
09/15/2007
$1,875
$100,000
$1,250
$94,375
12/15/2007
$1,875
$100,000
$0
$92,500
01/01/2008
$8,000
03/15/2008
$2,000
$100,000
$0
$90,500
05/01/2008
$100,000
$5,000
$90,500
Contract
Anniversary
Since the RMD Amount for 2008 increases to $8,000, the quarterly
withdrawals of the RMD Amount increase to $2,000, as shown by
the RMD withdrawal on March 15, 2008. Because all
withdrawals during the Contract Year were RMD Withdrawals, there
is no adjustment to the Protected Payment Base for exceeding the
Protected Payment Amount. The only effect is a reduction in the
Remaining Protected Balance equal to the amount of each
withdrawal. In addition, each contract year the Protected
Payment Amount is reduced by the amount of each withdrawal until
the Protected Payment Amount is zero.
This chart assumes quarterly withdrawals of the Annual RMD
Amount and other non-RMD Withdrawals during the Contract Year.
The calculated Annual RMD amount and Contract Anniversary are
the same as above.
Annual
Protected
Protected
Remaining
Activity
RMD
Non-RMD
RMD
Payment
Payment
Protected
Date
Withdrawal
Withdrawal
Amount
Base
Amount
Balance
05/01/2006
$0
$100,000
$5,000
$100,000
Contract
Anniversary
01/01/2007
$7,500
03/15/2007
$1,875
$100,000
$3,125
$98,125
04/01/2007
$2,000
$100,000
$1,125
$96,125
05/01/2007
$100,000
$5,000
$96,125
Contract
Anniversary
06/15/2007
$1,875
$100,000
$3,125
$94,250
09/15/2007
$1,875
$100,000
$1,250
$92,375
11/15/2007
$4,000
$96,910
$0
$88,309
On 3/15/07
there was an RMD Withdrawal of $1,875 and on
4/1/07 a
non-RMD Withdrawal of $2,000. Because the total withdrawals
during the Contract Year
(5/1/06
through
4/30/07) did
not exceed the Protected Payment Amount of $5,000 there was no
adjustment to the Protected Payment Base. The only effect is a
reduction in the Remaining Protected Balance and the Protected
Payment Amount equal to the amount of each withdrawal. On
5/1/07, the
Protected Payment Amount was re-calculated (5% of the Protected
Payment Base) as of that Contract Anniversary.
On 11/15/07,
there was a non-RMD Withdrawal ($4,000) that caused the
cumulative withdrawals during the Contract Year ($7,750) to
exceed the Protected Payment Amount ($5,000). As the withdrawal
exceeded the Protected Payment Amount immediately prior to the
withdrawal ($1,250), and assuming the Contract Value was $90,000
immediately prior to the withdrawal, the Protected Payment Base
is reduced to $96,910 and the Remaining Protected Balance is
reduced to $88,309.
The Values shown below are based on the following assumptions
immediately before the excess withdrawal:
•
Contract Value = $90,000
•
Protected Payment Base = $100,000
•
Remaining Protected Balance = $92,375
96
•
Protected Payment Amount = $1,250
A withdrawal of $4,000 was taken, which exceeds the Protected
Payment Amount of $1,250. The Protected Payment Base and
Remaining Protected Balance will be reduced based on the
following calculation:
First, determine the excess withdrawal amount. The excess
withdrawal amount is the total withdrawal amount less the
Protected Payment Amount. Numerically, the excess withdrawal
amount is $2,750 (total withdrawal amount – Protected
Payment Amount; $4,000 – $1,250 = $2,750).
Second, determine the ratio for the proportionate reduction. The
ratio is the excess withdrawal amount determined above divided
by (Contract Value – Protected Payment Amount).
Numerically, the ratio is 3.09%
($2,750 ¸
($90,000 – $1,250);
$2,750 ¸
$88,750 = 0.0309 or 3.09%).
Third, determine the new Protected Payment Base. The Protected
Payment Base will be reduced on a proportionate basis. The
Protected Payment Base is multiplied by 1 less the ratio
determined above. Numerically, the new Protected Payment Base is
$96,910 (Protected Payment Base × (1-ratio);
$100,000 × (1-3.09%); $100,000 ×
96.91% = $96,910).
Fourth, determine the new Remaining Protected Balance. The
Remaining Protected Balance is reduced either on a proportionate
basis or by the total withdrawal amount, whichever results in
the lower Remaining Protected Balance amount.
To determine the proportionate reduction, the Remaining
Protected Balance is reduced by the Protected Payment Amount
multiplied by 1 less the ratio determined above. Numerically,
after the proportionate reduction, the Remaining Protected
Balance is $88,309 ((Remaining Protected Balance –
Protected Payment Amount) × (1-ratio);
($92,375 – $1,250) × (1-3.09%);
$91,125 × 96.91% = $88,309).
To determine the total withdrawal amount reduction, the
Remaining Protected Balance is reduced by the total withdrawal
amount. Numerically, after the Remaining Protected Balance is
reduced by the total withdrawal amount, the Remaining Protected
Balance is $88,375 (Remaining Protected Balance –
total withdrawal amount; $92,375 – $4,000 =
$88,375).
Therefore, since $88,309 (proportionate method) is less than
$88,375 (total withdrawal amount method) the new Remaining
Protected Balance is $88,309.
Example #6 – Lifetime
Income.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
No subsequent Purchase Payments are received.
•
Owner is age 65 or older when the first withdrawal was
taken.
•
Withdrawals, each equal to 5% of the Protected Payment Base are
taken each Contract Year.
•
No Automatic Reset or Owner-Elected Reset is assumed during the
life of the Rider.
97
Protected
Protected
Remaining
Contract
End of Year
Payment
Payment
Protected
Year
Withdrawal
Contract Value
Base
Amount
Balance
1
$5,000
$96,489
$100,000
$5,000
$95,000
2
$5,000
$94,384
$100,000
$5,000
$90,000
3
$5,000
$92,215
$100,000
$5,000
$85,000
4
$5,000
$89,982
$100,000
$5,000
$80,000
5
$5,000
$87,681
$100,000
$5,000
$75,000
6
$5,000
$85,311
$100,000
$5,000
$70,000
7
$5,000
$82,871
$100,000
$5,000
$65,000
8
$5,000
$80,357
$100,000
$5,000
$60,000
9
$5,000
$77,768
$100,000
$5,000
$55,000
10
$5,000
$75,101
$100,000
$5,000
$50,000
11
$5,000
$72,354
$100,000
$5,000
$45,000
12
$5,000
$69,524
$100,000
$5,000
$40,000
13
$5,000
$66,610
$100,000
$5,000
$35,000
14
$5,000
$63,608
$100,000
$5,000
$30,000
15
$5,000
$60,517
$100,000
$5,000
$25,000
16
$5,000
$57,332
$100,000
$5,000
$20,000
17
$5,000
$54,052
$100,000
$5,000
$15,000
18
$5,000
$50,674
$100,000
$5,000
$10,000
19
$5,000
$47,194
$100,000
$5,000
$5,000
20
$5,000
$43,610
$100,000
$5,000
$0
21
$5,000
$39,918
$100,000
$5,000
$0
22
$5,000
$36,115
$100,000
$5,000
$0
23
$5,000
$32,199
$100,000
$5,000
$0
24
$5,000
$28,165
$100,000
$5,000
$0
25
$5,000
$24,010
$100,000
$5,000
$0
26
$5,000
$19,730
$100,000
$5,000
$0
27
$5,000
$15,322
$100,000
$5,000
$0
28
$5,000
$10,782
$100,000
$5,000
$0
29
$5,000
$6,105
$100,000
$5,000
$0
30
$5,000
$1,288
$100,000
$5,000
$0
31
$5,000
$0
$100,000
$5,000
$0
32
$5,000
$0
$100,000
$5,000
$0
33
$5,000
$0
$100,000
$5,000
$0
34
$5,000
$0
$100,000
$5,000
$0
On the Rider Effective Date, the initial values are set as
follows:
•
Protected Payment Base = Initial Purchase
Payment = $100,000
Protected Payment Amount = 5% of Protected Payment
Base = $5,000
Because the amount of each withdrawal does not exceed the
Protected Payment Amount immediately prior to the withdrawal
($5,000): (a) the Protected Payment Base remains unchanged;
and (b) the Remaining Protected Balance is reduced by the
amount of each withdrawal.
Since it was assumed that the Owner was age 65 or older
when the first withdrawal was taken, withdrawals of 5% of the
Protected Payment Base will continue to be paid each year (even
after the Contract Value and Remaining Protected Balance have
been reduced to zero) until the day of the first death of an
Owner or the date of death of the sole surviving Annuitant
(death of any Annuitant for Non-Natural Owners), whichever
occurs first.
The examples provided are based on certain hypothetical
assumptions and are for example purposes only. Where Contract
Value is reflected, the examples do not assume any specific
return percentage. The examples have been provided to assist in
understanding the benefits provided by this Rider and to
demonstrate how Purchase Payments received and withdrawals made
from the Contract prior to the Annuity Date affect the values
and benefits under this Rider over an extended period of time.
There may be minor differences in the calculations due to
rounding. These examples are not intended to serve as
projections of future investment returns nor are they a
reflection of how your contract will actually perform.
Example #1 –
Setting of Initial Values.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
Owner’s Age = 65 on the Contract Date
Annual
Highest
Protected
Protected
Remaining
Purchase
Contract Value
Credit
Anniversary
Payment
Payment
Protected
Payment
Withdrawal
after Activity
Value
Value
Base
Amount
Balance
Rider Effective Date
$100,000
$100,000
$100,000
$100,000
$100,000
$5,000
$100,000
On the Rider Effective Date, the initial values are set as
follows:
•
Annual Credit Value = $100,000
•
Highest Anniversary Value = $100,000
•
Protected Payment Base = Initial Purchase
Payment = $100,000
Protected Payment Amount = 5% of Protected Payment
Base = $5,000
Example #2 –
Subsequent Purchase Payments.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
Owner’s Age = 65 on the Contract Date
•
A subsequent Purchase Payment of $100,000 is received during
Contract Year 1.
•
No withdrawals taken.
•
Each Contract Anniversary referenced in the table represents the
first day of the applicable Contract Year.
Annual
Highest
Protected
Protected
Remaining
Purchase
Contract Value
Credit
Anniversary
Payment
Payment
Protected
Payment
Withdrawal
after Activity
Value
Value
Base
Amount
Balance
Rider Effective Date
$100,000
$100,000
$100,000
$100,000
$100,000
$5,000
$100,000
Activity
$100,000
$200,000
$200,000
$200,000
$200,000
$10,000
$200,000
Year 2 Contract Anniversary
$208,000
$210,000
$208,000
$210,000
$10,500
$210,000
Immediately after the $100,000 subsequent Purchase Payment
during Contract Year 1, the Annual Credit Value, Highest
Anniversary Value, Protected Payment Base and Remaining
Protected Balance are increased by the Purchase Payment amount
to $200,000 ($100,000 + $100,000). The Protected Payment Amount
after the Purchase Payment is equal to $10,000 (5% of the
Protected Payment Base after the Purchase Payment since there
were no withdrawals during that Contract Year).
Since no withdrawal occurred prior to Year 2 Contract
Anniversary, an annual credit of $10,000 (5% of total Purchase
Payments) is applied to the Annual Credit Value on that Contract
Anniversary, increasing it to $210,000. On Year 2 Contract
Anniversary, the Protected Payment Base and Remaining Protected
Balance are reset to $210,000, which is the greater of Annual
Credit Value or Highest Anniversary Value. As a result, the
Protected Payment Amount on that Contract Anniversary is equal
to $10,500 (5% of the Protected Payment Base on that Contract
Anniversary).
99
In addition to Purchase Payments, the Contract Value is further
subject to increases
and/or
decreases during each Contract Year as a result of additional
amounts credited, charges, fees and other deductions, and
increases
and/or
decreases in the investment performance of the Variable Account.
Example #3 –
Withdrawals Not Exceeding Protected Payment Amount.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
Owner’s Age = 65 on the Contract Date
•
A subsequent Purchase Payment of $100,000 is received during
Contract Year 1.
•
A withdrawal equal to or less than the Protected Payment Amount
is taken during Contract Years 2 and 4.
•
Each Contract Anniversary referenced in the table represents the
first day of the applicable Contract Year.
Annual
Highest
Protected
Protected
Remaining
Purchase
Contract Value
Credit
Anniversary
Payment
Payment
Protected
Payment
Withdrawal
after Activity
Value
Value
Base
Amount
Balance
Rider Effective Date
$100,000
$100,000
$100,000
$100,000
$100,000
$5,000
$100,000
Activity
$100,000
$200,000
$200,000
$200,000
$200,000
$10,000
$200,000
Year 2 Contract Anniversary
$208,000
$210,000
$208,000
$210,000
$10,500
$210,000
Activity
$10,500
$205,000
$210,000
$0
$199,500
Year 3 Contract Anniversary
$205,000
NA
NA
$210,000
$10,500
$199,500
Year 4 Contract Anniversary
(Prior to Automatic Reset)
$215,000
NA
NA
$210,000
$10,500
$199,500
Year 4 Contract Anniversary
(After to Automatic Reset)
$215,000
NA
NA
$215,000
$10,750
$215,000
Activity
$10,750
$212,000
$215,000
$0
$204,250
Year 5 Contract Anniversary
(Prior to Automatic Reset)
$217,000
NA
NA
$215,000
$10,750
$204,250
Year 5 Contract Anniversary
(After to Automatic Reset)
$217,000
NA
NA
$217,000
$10,850
$217,000
For an explanation of the values and activities at the start of
and during Contract Year 1, refer to Examples #1 and
#2.
As the withdrawal during Contract Year 2 did not exceed
the Protected Payment Amount immediately prior to the withdrawal
($10,500):
•
the Protected Payment Base remains unchanged;
•
the Remaining Protected Balance is reduced by the amount of the
withdrawal to $199,500 ($210,000 – $10,500); and
•
since a withdrawal occurred, the Annual Credit Value and Highest
Anniversary Value are no longer applicable.
Because at Year 4 Contract Anniversary, the Protected Payment
Base was less than the Contract Value on that Contract
Anniversary (see balances at Year 4 Contract
Anniversary – Prior to Automatic Reset), an
Automatic Reset occurred which resets the Protected Payment Base
and Remaining Protected Balance to an amount equal to 100% of
the Contract Value (see balances at Year 4 Contract
Anniversary – After Automatic Reset). The
Protected Payment Amount is equal to $10,750 (5% of the reset
Protected Payment Base).
As the withdrawal during Contract Year 4 did not exceed
the Protected Payment Amount immediately prior to the withdrawal
($10,750):
•
the Protected Payment Base remains unchanged; and
•
the Remaining Protected Balance is reduced by the amount of the
withdrawal to $204,250 ($215,000 – $10,750).
Because at Year 5 Contract Anniversary, the Protected Payment
Base was less than the Contract Value on that Contract
Anniversary (see balances at Year 5 Contract
Anniversary – Prior to Automatic Reset), an
Automatic Reset occurred which resets the Protected Payment Base
and Remaining Protected Balance to an amount equal to 100% of
the Contract Value (see balances at Year 5 Contract
Anniversary – After Automatic Reset). The
Protected Payment Amount is equal to $10,850 (5% of the reset
Protected Payment Base).
100
Example #4 –
Withdrawals Exceeding Protected Payment Amount.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
Owner’s Age = 65 on the Contract Date
•
A subsequent Purchase Payment of $100,000 is received during
Contract Year 1.
•
A withdrawal greater than the Protected Payment Amount is taken
during Contract Year 2.
•
Each Contract Anniversary referenced in the table represents the
first day of the applicable Contract Year.
Annual
Highest
Protected
Protected
Remaining
Purchase
Contract Value
Credit
Anniversary
Payment
Payment
Protected
Payment
Withdrawal
after Activity
Value
Value
Base
Amount
Balance
Rider Effective Date
$100,000
$100,000
$100,000
$100,000
$100,000
$5,000
$100,000
Activity
$100,000
$200,000
$200,000
$200,000
$200,000
$10,000
$200,000
Year 2 Contract Anniversary
$208,000
$210,000
$208,000
$210,000
$10,500
$210,000
Activity
$20,000
$195,000
$200,235
$0
$190,000
Year 3 Contract Anniversary
$195,000
NA
NA
$200,235
$10,011
$190,000
Year 4 Contract Anniversary
(Prior to Automatic Reset)
$215,000
NA
NA
$200,235
$10,011
$190,000
Year 4 Contract Anniversary
(After to Automatic Reset)
$215,000
NA
NA
$215,000
$10,750
$215,000
For an explanation of the values and activities at the start of
and during Contract Year 1, refer to Examples #1 and
#2.
Because the $20,000 withdrawal during Contract Year 2
exceeds the Protected Payment Amount immediately prior to
the withdrawal ($20,000 > $10,500), the Protected Payment
Base and Remaining Protected Balance immediately after the
withdrawal are reduced. Since a withdrawal occurred, the Annual
Credit Value and Highest Anniversary Value are no longer
applicable.
The Values shown below are based on the following assumptions
immediately before the excess withdrawal:
No withdrawals were taken prior to the excess withdrawal
A withdrawal of $20,000 was taken, which exceeds the Protected
Payment Amount of $10,500 for the Contract Year. The Protected
Payment Base and Remaining Protected Balance will be reduced
based on the following calculation:
First, determine the excess withdrawal amount. The excess
withdrawal amount is the total withdrawal amount less the
Protected Payment Amount. Numerically, the excess withdrawal
amount is $9,500 (total withdrawal amount – Protected
Payment Amount; $20,000 – $10,500 = $9,500).
Second, determine the ratio for the proportionate reduction. The
ratio is the excess withdrawal amount determined above divided
by (Contract Value – Protected Payment Amount). The
Contract Value prior to the withdrawal was $215,000, which
equals the $195,000 after the withdrawal plus the $20,000
withdrawal amount. Numerically, the ratio is 4.65%
($9,500 ¸
($215,000 – $10,500);
$9,500 ¸
$204,500 = 0.0465 or 4.65%).
Third, determine the new Protected Payment Base. The Protected
Payment Base will be reduced on a proportionate basis. The
Protected Payment Base is multiplied by 1 less the ratio
determined above. Numerically, the new Protected Payment Base is
$200,235 (Protected Payment Base × (1-ratio);
$210,000 × (1-4.65%); $210,000 ×
95.35% = $200,235).
Fourth, determine the new Remaining Protected Balance. The
Remaining Protected Balance is reduced either on a proportionate
basis or by the total withdrawal amount, whichever results in
the lower Remaining Protected Balance amount.
To determine the proportionate reduction, the Remaining
Protected Balance immediately before the withdrawal is reduced
by the Protected Payment Amount multiplied by 1 less the ratio
determined above. Numerically, after the proportionate
reduction, the new Remaining Protected Balance is $190,223
((Remaining Protected Balance immediately before the
withdrawal – Protected Payment Amount) ×
(1-ratio); ($210,000 – $10,500) × (1-4.65%);
$199,500 × 95.35% = $190,223).
To determine the total withdrawal amount reduction, the
Remaining Protected Balance immediately before the withdrawal is
reduced by the total withdrawal amount. Numerically, after the
Remaining Protected Balance is reduced by the total withdrawal
amount, the new Remaining Protected Balance is $190,000
(Remaining Protected Balance immediately before the
withdrawal – total withdrawal amount;
$210,000 – $20,000 = $190,000).
101
Therefore, since $190,000 (total withdrawal amount method) is
less than $190,223 (proportionate method) the new Remaining
Protected Balance is $190,000.
The Protected Payment Amount immediately after the withdrawal is
equal to $0 (5% of the Protected Payment Base after the
withdrawal (5% of $200,235 = $10,011), less cumulative
withdrawals during that Contract Year ($20,000), but not less
than zero).
Because at Year 4 Contract Anniversary, the Protected Payment
Base was less than the Contract Value on that Contract
Anniversary (see balances at Year 4 Contract
Anniversary – Prior to Automatic Reset), an
automatic reset occurred which resets the Protected Payment Base
and Remaining Protected Balance to an amount equal to 100% of
the Contract Value (see balances at Year 4 Contract
Anniversary – After Automatic Reset). The
Protected Payment Amount is equal to $10,750 (5% of the reset
Protected Payment Base).
Example #5 –
RMD Withdrawals.
This is an example of the effect of cumulative RMD Withdrawals
during the Contract Year that exceed the Protected Payment
Amount established for that Contract Year and its effect on the
Protected Payment Base and Remaining Protected Balance. The
Annual RMD Amount is based on the entire interest of your
Contract as of the previous year-end.
This table assumes quarterly withdrawals of only the Annual RMD
Amount during the Contract Year. The calculated Annual RMD
amount for the Calendar Year is $7,500 and the Contract
Anniversary is May 1 of each year.
Annual
Protected
Protected
Remaining
Activity
RMD
Non-RMD
RMD
Payment
Payment
Protected
Date
Withdrawal
Withdrawal
Amount
Base
Amount
Balance
05/01/2006
$100,000
$5,000
$100,000
Contract
Anniversary
01/01/2007
$7,500
03/15/2007
$1,875
$100,000
$3,125
$98,125
05/01/2007
$100,000
$5,000
$98,125
Contract
Anniversary
06/15/2007
$1,875
$100,000
$3,125
$96,250
09/15/2007
$1,875
$100,000
$1,250
$94,375
12/15/2007
$1,875
$100,000
$0
$92,500
01/01/2008
$8,000
03/15/2008
$2,000
$100,000
$0
$90,500
05/01/2008
$100,000
$5,000
$90,500
Contract
Anniversary
Since the RMD Amount for 2008 increases to $8,000, the quarterly
withdrawals of the RMD Amount increase to $2,000, as shown by
the RMD withdrawal on March 15, 2008. Because all
withdrawals during the Contract Year were RMD Withdrawals, there
is no adjustment to the Protected Payment Base for exceeding the
Protected Payment Amount. The only effect is a reduction in the
Remaining Protected Balance equal to the amount of each
withdrawal. In addition, each contract year the Protected
Payment Amount is reduced by the amount of each withdrawal until
the Protected Payment Amount is zero.
This chart assumes quarterly withdrawals of the Annual RMD
Amount and other non-RMD Withdrawals during the Contract Year.
The calculated Annual RMD amount and Contract Anniversary are
the same as above.
Annual
Protected
Protected
Remaining
Activity
RMD
Non-RMD
RMD
Payment
Payment
Protected
Date
Withdrawal
Withdrawal
Amount
Base
Amount
Balance
05/01/2006
$0
$100,000
$5,000
$100,000
Contract
Anniversary
01/01/2007
$7,500
03/15/2007
$1,875
$100,000
$3,125
$98,125
04/01/2007
$2,000
$100,000
$1,125
$96,125
05/01/2007
$100,000
$5,000
$96,125
Contract
Anniversary
06/15/2007
$1,875
$100,000
$3,125
$94,250
09/15/2007
$1,875
$100,000
$1,250
$92,375
11/15/2007
$4,000
$96,900
$0
$88,300
102
On 3/15/07
there was an RMD Withdrawal of $1,875 and on
4/1/07 a
non-RMD Withdrawal of $2,000. Because the total withdrawals
during the Contract Year
(5/1/06
through
4/30/07) did
not exceed the Protected Payment Amount of $5,000 there was no
adjustment to the Protected Payment Base. The only effect is a
reduction in the Remaining Protected Balance and the Protected
Payment Amount equal to the amount of each withdrawal. On
5/1/07, the
Protected Payment Amount was re-calculated (5% of the Protected
Payment Base) as of that Contract Anniversary.
On 11/15/07,
there was a non-RMD Withdrawal ($4,000) that caused the
cumulative withdrawals during the Contract Year ($7,750) to
exceed the Protected Payment Amount ($5,000). As the withdrawal
exceeded the Protected Payment Amount immediately prior to the
withdrawal ($1,250), and assuming the Contract Value was $90,000
immediately prior to the withdrawal, the Protected Payment Base
is reduced to $96,900 and the Remaining Protected Balance is
reduced to $88,300. The Protected Payment Base and Remaining
Protected Balance will be reduced based on the following
calculation:
First, determine the excess withdrawal amount. The excess
withdrawal amount is the total withdrawal amount less the
Protected Payment Amount. Numerically, the excess withdrawal
amount is $2,750 (total withdrawal amount − Protected
Payment Amount; $4,000 − $1,250 = $2,750).
Second, determine the ratio for the proportionate reduction. The
ratio is the excess withdrawal amount determined above divided
by (Contract Value − Protected Payment Amount).
Numerically, the ratio is 3.10% ($2,750
¸
($90,000 − $1,250); $2,750
¸
$88,750 = 0.0310 or 3.10%).
Third, determine the new Protected Payment Base. The Protected
Payment Base will be reduced on a proportionate basis. The
Protected Payment Base is multiplied by 1 less the ratio
determined above. Numerically, the new Protected Payment Base is
$96,900 (Protected Payment Base × (1-ratio); $100,000
× (1-3.10%); $100,000 × 96.90% = $96,900).
Fourth, determine the new Remaining Protected Balance. The
Remaining Protected Balance is reduced either on a proportionate
basis or by the total withdrawal amount, whichever results in
the lower Remaining Protected Balance amount.
To determine the proportionate reduction, the Remaining
Protected Balance is reduced by the Protected Payment Amount
multiplied by 1 less the ratio determined above. Numerically,
after the proportionate reduction, the Remaining Protected
Balance is $88,300 ((Remaining Protected Balance −
Protected Payment Amount) × (1-ratio);
($92,375 − $1,250)
× (1-3.10%);
$91,125 × 96.90% = $88,300).
To determine the total withdrawal amount reduction, the
Remaining Protected Balance is reduced by the total withdrawal
amount. Numerically, after the Remaining Protected Balance is
reduced by the total withdrawal amount, the Remaining Protected
Balance is $88,375 (Remaining Protected Balance −
total withdrawal amount; $92,375 − $4,000 = $88,375).
Therefore, since $88,300 (proportionate method) is less than
$88,375 (total withdrawal amount method) the new Remaining
Protected Balance is $88,300.
Example #6 –
Lifetime Income.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
No subsequent Purchase Payments are received.
•
Owner is age 65 or older when the first withdrawal was
taken.
•
Withdrawals, each equal to 5% of the Protected Payment Base are
taken each Contract Year.
•
No Automatic Reset or Owner-Elected Reset is assumed during the
life of the Rider.
103
Protected
Protected
Remaining
Contract
End of Year
Payment
Payment
Protected
Year
Withdrawal
Contract Value
Base
Amount
Balance
1
$5,000
$96,489
$100,000
$5,000
$95,000
2
$5,000
$94,384
$100,000
$5,000
$90,000
3
$5,000
$92,215
$100,000
$5,000
$85,000
4
$5,000
$89,982
$100,000
$5,000
$80,000
5
$5,000
$87,681
$100,000
$5,000
$75,000
6
$5,000
$85,311
$100,000
$5,000
$70,000
7
$5,000
$82,871
$100,000
$5,000
$65,000
8
$5,000
$80,357
$100,000
$5,000
$60,000
9
$5,000
$77,768
$100,000
$5,000
$55,000
10
$5,000
$75,101
$100,000
$5,000
$50,000
11
$5,000
$72,354
$100,000
$5,000
$45,000
12
$5,000
$69,524
$100,000
$5,000
$40,000
13
$5,000
$66,610
$100,000
$5,000
$35,000
14
$5,000
$63,608
$100,000
$5,000
$30,000
15
$5,000
$60,517
$100,000
$5,000
$25,000
16
$5,000
$57,332
$100,000
$5,000
$20,000
17
$5,000
$54,052
$100,000
$5,000
$15,000
18
$5,000
$50,674
$100,000
$5,000
$10,000
19
$5,000
$47,194
$100,000
$5,000
$5,000
20
$5,000
$43,610
$100,000
$5,000
$0
21
$5,000
$39,918
$100,000
$5,000
$0
22
$5,000
$36,115
$100,000
$5,000
$0
23
$5,000
$32,199
$100,000
$5,000
$0
24
$5,000
$28,165
$100,000
$5,000
$0
25
$5,000
$24,010
$100,000
$5,000
$0
26
$5,000
$19,730
$100,000
$5,000
$0
27
$5,000
$15,322
$100,000
$5,000
$0
28
$5,000
$10,782
$100,000
$5,000
$0
29
$5,000
$6,105
$100,000
$5,000
$0
30
$5,000
$1,288
$100,000
$5,000
$0
31
$5,000
$0
$100,000
$5,000
$0
32
$5,000
$0
$100,000
$5,000
$0
33
$5,000
$0
$100,000
$5,000
$0
34
$5,000
$0
$100,000
$5,000
$0
On the Rider Effective Date, the initial values are set as
follows:
•
Protected Payment Base = Initial Purchase Payment = $100,000
Protected Payment Amount = 5% of Protected Payment Base = $5,000
Because the amount of each withdrawal does not exceed the
Protected Payment Amount immediately prior to the withdrawal
($5,000): (a) the Protected Payment Base remains unchanged;
and (b) the Remaining Protected Balance is reduced by the
amount of each withdrawal.
Since a withdrawal occurred during Contract Year 1, no annual
credit will be applied. Since it was assumed that the Owner was
age 65 or older when the first withdrawal was taken,
withdrawals of 5% of the Protected Payment Base will continue to
be paid each year (even after the Contract Value and Remaining
Protected Balance have been reduced to zero) until the day of
the first death of an Owner or the date of death of the sole
surviving Annuitant (death of any Annuitant for Non-Natural
Owners), whichever occurs first.
The examples provided are based on certain hypothetical
assumptions and are for example purposes only. Where Contract
Value is reflected, the examples do not assume any specific
return percentage. The examples have been provided to assist in
understanding the benefits provided by this Rider and to
demonstrate how Purchase Payments received and withdrawals made
from the Contract prior to the Annuity Date affect the values
and benefits under this Rider over an extended period of time.
There may be minor differences in the calculations due to
rounding. These examples are not intended to serve as
projections of future investment returns nor are they a
reflection of how your Contract will actually perform.
Example #1 – Setting
of Initial Values.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
Beginning
Protected
Protected
Remaining
of Contract
Purchase
Contract Value
Payment
Payment
Protected
Year
Payment
Withdrawal
after Activity
Base
Amount
Balance
1
$100,000
$100,000
$100,000
$4,000
$100,000
On the Rider Effective Date, the initial values are set as
follows:
•
Protected Payment Base = Initial Purchase
Payment = $100,000
Protected Payment Amount = 4% of Protected Payment
Base = $4,000
Example #2 – Subsequent
Purchase Payments.
The values shown below are based on the following assumptions:
•
Rider purchased at Contract issue by a 64-year old.
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
A subsequent Purchase Payment of $100,000 is received during
Contract Year 1.
•
No withdrawals taken.
•
Automatic Reset at Beginning of contract Year 2.
Beginning
Protected
Protected
Remaining
of Contract
Purchase
Contract Value
Payment
Payment
Protected
Year
Payment
Withdrawal
after Activity
Base
Amount
Balance
1
$100,000
$100,000
$100,000
$4,000
$100,000
Activity
$100,000
$200,000
$200,000
$8,000
$200,000
2
(Prior to Automatic Reset)
$207,000
$200,000
$8,000
$200,000
2
(After Automatic Reset)
$207,000
$207,000
$8,280
$207,000
Immediately after the $100,000 subsequent Purchase Payment
during Contract Year 1, the Protected Payment Base and
Remaining Protected Balance are increased by the Purchase
Payment amount to $200,000 ($100,000 + $100,000). The Protected
Payment Amount after the Purchase Payment is equal to $8,000 (4%
of the Protected Payment Base after the Purchase Payment).
An automatic reset takes place at the beginning of Contract
Year 2, since the Contract Value ($207,000) is higher than
the Protected Payment Base ($200,000). This resets the Protected
Payment Base and Remaining Protected Balance to $207,000 and the
Protected Payment Amount to $8,280 (4% × $207,000). Also,
the Protected Payment Amount will now be paid for life.
In addition to Purchase Payments, the Contract Value is further
subject to increases and/or decreases during each Contract Year
as a result of charges, fees and other deductions, and increases
and/or decreases in the investment performance of the Variable
Account.
105
Example #3 – Withdrawals
Not Exceeding Protected Payment Amount.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
A subsequent Purchase Payment of $100,000 is received during
Contract Year 1.
•
A withdrawal equal to or less than the Protected Payment Amount
is taken during Contract Year 2.
•
Automatic Resets at Beginning of Contract Years 2 and 3.
Beginning
Protected
Protected
Remaining
of Contract
Purchase
Contract Value
Payment
Payment
Protected
Year
Payment
Withdrawal
after Activity
Base
Amount
Balance
1
$100,000
$100,000
$100,000
$4,000
$100,000
Activity
$100,000
$200,000
$200,000
$8,000
$200,000
2
(Prior to Automatic Reset)
$207,000
$200,000
$8,000
$200,000
2
(After Automatic Reset)
$207,000
$207,000
$8,280
$207,000
Activity
$5,000
$216,490
$207,000
$3,280
$202,000
3
(Prior to Automatic Reset)
$216,490
$207,000
$8,280
$202,000
3
(After Automatic Reset)
$216,490
$216,490
$8,660
$216,490
For an explanation of the values and activities at the start of
and during Contract Year 1, refer to Examples #1
and #2.
As the withdrawal during Contract Year 2 did not exceed
the Protected Payment Amount immediately prior to the withdrawal
($8,280):
•
the Protected Payment Base remains unchanged; and
•
the Remaining Protected Balance is reduced by the amount of the
withdrawal to $202,000 ($207,000 – $5,000) and
the Protected Payment Amount is reduced by the amount of the
withdrawal to $3,280 ($8,280 -$5,000).
Because at the Beginning of Contract Year 3, the Protected
Payment Base was less than the Contract Value on that Contract
Anniversary (see balances at Beginning of Contract Year
3 – Prior to Automatic Reset), an automatic
reset occurred which resets the Protected Payment Base and
Remaining Protected Balance to an amount equal to 100% of the
Contract Value (see balances at Beginning of Contract Year
3 – After Automatic Reset). As a result, the
Protected Payment Amount is equal to $8,660 (4% of the reset
Protected Payment Base).
Example #4 –
Withdrawals Exceeding Protected Payment Amount.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
A subsequent Purchase Payment of $100,000 is received during
Contract Year 1.
•
A withdrawal greater than the Protected Payment Amount is taken
during Contract Year 2.
•
Automatic Resets at Beginning of Contract Years 2 and 3.
Beginning
Contract
Protected
Protected
Remaining
of Contract
Purchase
Value after
Payment
Payment
Protected
Year
Payment
Withdrawal
Activity
Base
Amount
Balance
1
$100,000
$100,000
$100,000
$4,000
$100,000
Activity
$100,000
$200,000
$200,000
$8,000
$200,000
2
(Prior to Automatic Reset)
$207,000
$200,000
$8,000
$200,000
2
(After Automatic Reset)
$207,000
$207,000
$8,280
$207,000
Activity
$25,000
$196,490
$190,750
$0
$182,000
3
(Prior to Automatic Reset)
$196,490
$190,750
$7,630
$182,000
3
(After Automatic Reset)
$196,490
$196,490
$7,860
$196,490
For an explanation of the values and activities at the start of
and during Contract Year 1, refer to Examples #1
and #2.
Because the $25,000 withdrawal during Contract Year 2
exceeds the Protected Payment Amount immediately prior to
the withdrawal ($25,000 > $8,280), the Protected
Payment Base and Remaining Protected Balance immediately after
the withdrawal are reduced.
The Values shown below are based on the following assumptions
immediately before the excess withdrawal:
No withdrawals were taken prior to the excess withdrawal
A withdrawal of $25,000 was taken, which exceeds the Protected
Payment Amount of $8,280 for the Contract Year. The Protected
Payment Base and Remaining Protected Balance will be reduced
based on the following calculation:
First, determine the excess withdrawal amount. The excess
withdrawal amount is the total withdrawal amount less the
Protected Payment Amount. Numerically, the excess withdrawal
amount is $16,720 (total withdrawal amount – Protected
Payment Amount; $25,000 – $8,280 = $16,720).
Second, determine the ratio for the proportionate reduction. The
ratio is the excess withdrawal amount determined above divided
by (Contract Value – Protected Payment Amount). The
Contract Value prior to the withdrawal was $221,490, which
equals the $196,490 after the withdrawal plus the $25,000
withdrawal amount. Numerically, the ratio is 7.85%
($16,720 ¸
($221,490 – $8,280);
$16,720 ¸
$213,210 = 0.0785 or 7.85%).
Third, determine the new Protected Payment Base. The Protected
Payment Base will be reduced on a proportionate basis. The
Protected Payment Base is multiplied by 1 less the ratio
determined above. Numerically, the new Protected Payment Base is
$190,750 (Protected Payment Base × (1-ratio);
$207,000 × (1-7.85%); $207,000 ×
92.15% = $190,750).
Fourth, determine the new Remaining Protected Balance. The
Remaining Protected Balance is reduced either on a proportionate
basis or by the total withdrawal amount, whichever results in
the lower Remaining Protected Balance amount.
To determine the proportionate reduction, the Remaining
Protected Balance immediately before the withdrawal is reduced
by the Protected Payment Amount multiplied by 1 less the ratio
determined above. Numerically, after the proportionate
reduction, the new Remaining Protected Balance is $183,120
((Remaining Protected Balance immediately before the
withdrawal – Protected Payment Amount) ×
(1-ratio); ($207,000 – $8,280) × (1-7.85%);
$198,720 × 92.15% = $183,120).
To determine the total withdrawal amount reduction, the
Remaining Protected Balance immediately before the withdrawal is
reduced by the total withdrawal amount. Numerically, after the
Remaining Protected Balance is reduced by the total withdrawal
amount, the new Remaining Protected Balance is $182,000
(Remaining Protected Balance immediately before the
withdrawal – total withdrawal amount;
$207,000 – $25,000 = $182,000).
Therefore, since $182,000 (total withdrawal amount method) is
less than $183,120 (proportionate method) the new Remaining
Protected Balance is $182,000.
The Protected Payment Amount immediately after the withdrawal is
equal to $0 (4% of the Protected Payment Base after the
withdrawal (4% of $190,750 = $7,630), less cumulative
withdrawals during that Contract Year ($25,000), but not less
than zero).
Because at the Beginning of Contract Year 3, the Protected
Payment Base was less than the Contract Value on that Contract
Anniversary (see balances at Beginning of Contract
Year 3 – Prior to Automatic Reset), an
Automatic Reset occurred which resets the Protected Payment Base
and Remaining Protected Balance to an amount equal to 100% of
the Contract Value (see balances at Beginning of Contract
Year 3 – After Automatic Reset).
Example #5 –
RMD Withdrawals.
This is an example of the effect of cumulative RMD Withdrawals
during the Contract Year that exceed the Protected Payment
Amount established for that Contract Year and its effect on the
Protected Payment Base and Remaining Protected Balance. The
Annual RMD Amount is based on the entire interest of your
Contract as of the previous year-end.
107
This table assumes quarterly withdrawals of only the Annual RMD
Amount during the Contract Year. The calculated Annual RMD
amount for the Calendar Year is $7,500 and the Contract
Anniversary is May 1 of each year.
Annual
Protected
Protected
Remaining
Activity
RMD
Non-RMD
RMD
Payment
Payment
Protected
Date
Withdrawal
Withdrawal
Amount
Base
Amount
Balance
05/01/2006
$100,000
$4,000
$100,000
Contract
Anniversary
01/01/2007
$7,500
03/15/2007
$1,875
$100,000
$2,125
$98,125
05/01/2007
$100,000
$4,000
$98,125
Contract
Anniversary
06/15/2007
$1,875
$100,000
$2,125
$96,250
09/15/2007
$1,875
$100,000
$250
$94,375
12/15/2007
$1,875
$100,000
$0
$92,500
01/01/2008
$8,000
03/15/2008
$2,000
$100,000
$0
$90,500
05/01/2008
$100,000
$4,000
$90,500
Contract
Anniversary
Since the RMD Amount for 2008 increases to $8,000, the quarterly
withdrawals of the RMD Amount increase to $2,000, as shown by
the RMD withdrawal on March 15, 2008. Because all
withdrawals during the Contract Year were RMD Withdrawals, there
is no adjustment to the Protected Payment Base for exceeding the
Protected Payment Amount. The only effect is a reduction in the
Remaining Protected Balance equal to the amount of each
withdrawal. In addition, each contract year the Protected
Payment Amount is reduced by the amount of each withdrawal until
the Protected Payment Amount is zero.
This chart assumes quarterly withdrawals of the Annual RMD
Amount and other non-RMD Withdrawals during the Contract Year.
The calculated Annual RMD amount and Contract Anniversary are
the same as above.
Annual
Protected
Protected
Remaining
Activity
RMD
Non-RMD
RMD
Payment
Payment
Protected
Date
Withdrawal
Withdrawal
Amount
Base
Amount
Balance
05/01/2006
$0
$100,000
$4,000
$100,000
Contract
Anniversary
01/01/2007
$7,500
03/15/2007
$1,875
$100,000
$2,125
$98,125
04/01/2007
$2,000
$100,000
$125
$96,125
05/01/2007
$100,000
$4,000
$96,125
Contract
Anniversary
06/15/2007
$1,875
$100,000
$2,125
$94,250
09/15/2007
$1,875
$100,000
$250
$92,375
11/15/2007
$4,000
$95,820
$0
$88,274
On 3/15/07
there was an RMD Withdrawal of $1,875 and on
4/1/07 a
non-RMD Withdrawal of $2,000. Because the total withdrawals
during the Contract Year
(5/1/06
through
4/30/07) did
not exceed the Protected Payment Amount of $4,000 there was no
adjustment to the Protected Payment Base. The only effect is a
reduction in the Remaining Protected Balance and the Protected
Payment Amount equal to the amount of each withdrawal. On
5/1/07, the
Protected Payment Amount was re-calculated (4% of the Protected
Payment Base) as of that Contract Anniversary.
On 11/15/07,
there was a non-RMD Withdrawal ($4,000) that caused the
cumulative withdrawals during the Contract Year ($7,750) to
exceed the Protected Payment Amount ($4,000). As the withdrawal
exceeded the Protected Payment Amount immediately prior to the
withdrawal ($250), and assuming the Contract Value was $90,000
immediately prior to the withdrawal, the Protected Payment Base
is reduced to $95,820 and the Remaining Protected Balance is
reduced to $88,274.
The Values shown below are based on the following assumptions
immediately before the excess withdrawal:
•
Contract Value = $90,000
•
Protected Payment Base = $100,000
•
Remaining Protected Balance = $92,375
108
•
Protected Payment Amount = $250
A withdrawal of $4,000 was taken, which exceeds the Protected
Payment Amount of $250. The Protected Payment Base and Remaining
Protected Balance will be reduced based on the following
calculation:
First, determine the excess withdrawal amount. The excess
withdrawal amount is the total withdrawal amount less the
Protected Payment Amount. Numerically, the excess withdrawal
amount is $3,750 (total withdrawal amount – Protected
Payment Amount; $4,000 – $250 = $3,750).
Second, determine the ratio for the proportionate reduction. The
ratio is the excess withdrawal amount determined above divided
by (Contract Value – Protected Payment Amount).
Numerically, the ratio is 4.18%
($3,750 ¸
($90,000 – $250);
$3,750 ¸
$89,750 = 0.0418 or 4.18%).
Third, determine the new Protected Payment Base. The Protected
Payment Base will be reduced on a proportionate basis. The
Protected Payment Base is multiplied by 1 less the ratio
determined above. Numerically, the new Protected Payment Base is
$95,820 (Protected Payment Base × (1-ratio);
$100,000 × (1-4.18%); $100,000 ×
95.82% = $95,820).
Fourth, determine the new Remaining Protected Balance. The
Remaining Protected Balance is reduced either on a proportionate
basis or by the total withdrawal amount, whichever results in
the lower Remaining Protected Balance amount.
To determine the proportionate reduction, the Remaining
Protected Balance is reduced by the Protected Payment Amount
multiplied by 1 less the ratio determined above. Numerically,
after the proportionate reduction, the Remaining Protected
Balance is $88,274 ((Remaining Protected Balance –
Protected Payment Amount) × (1-ratio);
($92,375 – $250) × (1-4.18%);
$92,125 × 95.82% = $88,274).
To determine the total withdrawal amount reduction, the
Remaining Protected Balance is reduced by the total withdrawal
amount. Numerically, after the Remaining Protected Balance is
reduced by the total withdrawal amount, the Remaining Protected
Balance is $88,375 (Remaining Protected Balance –
total withdrawal amount; $92,375 – $4,000 =
$88,375).
Therefore, since $88,274 (proportionate method) is less than
$88,375 (total withdrawal amount method) the new Remaining
Protected Balance is $88,274.
Example #6 – Lifetime
Income.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
No subsequent Purchase Payments are received.
•
Owner is age 65 or older when the first withdrawal was
taken.
•
Withdrawals, each equal to 4% of the Protected Payment Base are
taken each Contract Year.
•
No Automatic Reset or Owner-Elected Reset is assumed during the
life of the Rider.
109
Protected
Protected
Remaining
Contract
End of Year
Payment
Payment
Protected
Year
Withdrawal
Contract Value
Base
Amount
Balance
1
$4,000
$96,489
$100,000
$4,000
$96,000
2
$4,000
$94,384
$100,000
$4,000
$92,000
3
$4,000
$92,215
$100,000
$4,000
$88,000
4
$4,000
$89,982
$100,000
$4,000
$84,000
5
$4,000
$87,681
$100,000
$4,000
$80,000
6
$4,000
$85,311
$100,000
$4,000
$76,000
7
$4,000
$82,871
$100,000
$4,000
$72,000
8
$4,000
$80,357
$100,000
$4,000
$68,000
9
$4,000
$77,768
$100,000
$4,000
$64,000
10
$4,000
$75,101
$100,000
$4,000
$60,000
11
$4,000
$72,354
$100,000
$4,000
$56,000
12
$4,000
$69,524
$100,000
$4,000
$52,000
13
$4,000
$66,610
$100,000
$4,000
$48,000
14
$4,000
$63,608
$100,000
$4,000
$44,000
15
$4,000
$60,517
$100,000
$4,000
$40,000
16
$4,000
$57,332
$100,000
$4,000
$36,000
17
$4,000
$54,052
$100,000
$4,000
$32,000
18
$4,000
$50,674
$100,000
$4,000
$28,000
19
$4,000
$47,194
$100,000
$4,000
$24,000
20
$4,000
$43,610
$100,000
$4,000
$20,000
21
$4,000
$39,918
$100,000
$4,000
$16,000
22
$4,000
$36,115
$100,000
$4,000
$12,000
23
$4,000
$32,199
$100,000
$4,000
$8,000
24
$4,000
$28,165
$100,000
$4,000
$4,000
25
$4,000
$24,010
$100,000
$4,000
$0
26
$4,000
$19,730
$100,000
$4,000
$0
27
$4,000
$15,322
$100,000
$4,000
$0
28
$4,000
$10,782
$100,000
$4,000
$0
29
$4,000
$6,105
$100,000
$4,000
$0
30
$4,000
$1,288
$100,000
$4,000
$0
31
$4,000
$0
$100,000
$4,000
$0
32
$4,000
$0
$100,000
$4,000
$0
33
$4,000
$0
$100,000
$4,000
$0
34
$4,000
$0
$100,000
$4,000
$0
On the Rider Effective Date, the initial values are set as
follows:
•
Protected Payment Base = Initial Purchase
Payment = $100,000
Protected Payment Amount = 4% of Protected Payment
Base = $4,000
Because the amount of each withdrawal does not exceed the
Protected Payment Amount immediately prior to the withdrawal
($4,000): (a) the Protected Payment Base remains unchanged;
and (b) the Remaining Protected Balance is reduced by the
amount of each withdrawal.
Since it was assumed that the Owner was age 65 or older
when the first withdrawal was taken, withdrawals of 4% of the
Protected Payment Base will continue to be paid each year (even
after the Contract Value and Remaining Protected Balance have
been reduced to zero) until the day of the first death of an
Owner or the date of death of the sole surviving Annuitant
(death of any Annuitant for Non-Natural Owners), whichever
occurs first.
The examples provided are based on certain hypothetical
assumptions and are for example purposes only. Where Contract
Value is reflected, the examples do not assume any specific
return percentage. The examples have been provided to assist in
understanding the benefits provided by this Rider and to
demonstrate how Purchase Payments received and withdrawals made
from the Contract prior to the Annuity Date affect the values
and benefits under this Rider over an extended period of time.
There may be minor differences in the calculations due to
rounding. These examples are not intended to serve as
projections of future investment returns nor are they a
reflection of how your Contract will actually perform.
Example #1 –
Setting of Initial Values.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
Beginning
Contract
Protected
Protected
Remaining
of Contract
Purchase
Value after
Payment
Payment
Protected
Year
Payment
Withdrawal
Activity
Base
Amount
Balance
1
$100,000
$100,000
$100,000
$7,000
$100,000
On the Rider Effective Date, the initial values are set as
follows:
•
Protected Payment Base = Initial Purchase Payment = $100,000
Protected Payment Amount = 7% of Protected Payment Base = $7,000
Example #2 – Subsequent
Purchase Payments.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
A subsequent Purchase Payment of $20,000 is received during
Contract Year 1.
•
No withdrawals taken.
Beginning
Contract
Protected
Protected
Remaining
of Contract
Purchase
Value after
Payment
Payment
Protected
Year
Payment
Withdrawal
Activity
Base
Amount
Balance
1
$100,000
$100,000
$100,000
$7,000
$100,000
Activity
$20,000
$122,000
$120,000
$7,000
$120,000
2
(Prior to Automatic Step-Up)
$122,000
$120,000
$8,400
$120,000
2
(After Automatic Step-Up)
$122,000
$122,000
$8,540
$122,000
Immediately after the $20,000 subsequent Purchase Payment during
Contract Year 1, the Protected Payment Base and Remaining
Protected Balance are increased by the Purchase Payment amount
to $120,000 ($100,000 + $20,000). The Protected Payment Amount
after the Purchase Payment remains at $7,000 until the Protected
Payment Amount is determined at the Beginning of Contract Year 2.
Because at the Beginning of Contract Year 2, the Protected
Payment Base was less than the Contract Value on that Contract
Anniversary (see balances at Beginning of Contract Year
2 – Prior to Automatic Step-Up), an Automatic Step-Up
occurred which changes the Protected Payment Base and Remaining
Protected Balance to an amount equal to 100% of the Contract
Value (see balances at the Beginning of Contract Year
2 – After Automatic Step-Up). As a result, the
Protected Payment Amount is equal to $8,540 (7% of the
Stepped-Up Protected Payment Base).
In addition to Purchase Payments, the Contract Value is further
subject to increases
and/or
decreases during each Contract Year as a result of additional
amounts credited, charges, fees and other deductions, and
increases
and/or
decreases in the investment performance of the Variable Account.
111
Example #3 –
Withdrawals Not Exceeding Protected Payment Amount.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
A subsequent Purchase Payment of $20,000 is received during
Contract Year 1.
•
Automatic Step-Up at the Beginning of Contract Year 2.
•
A withdrawal equal to or less than the Protected Payment Amount
is taken during Contract Year 2.
Beginning
Protected
Protected
Remaining
of Contract
Purchase
Contract Value
Payment
Payment
Protected
Year
Payment
Withdrawal
after Activity
Base
Amount
Balance
1
$100,000
$100,000
$100,000
$7,000
$100,000
Activity
$20,000
$122,000
$120,000
$7,000
$120,000
2
(Prior to Automatic Step-Up)
$122,000
$120,000
$8,400
$120,000
2
(After Automatic Step-Up)
$122,000
$122,000
$8,540
$122,000
Activity
$8,540
$116,000
$122,000
$8,540
$113,460
3
$116,000
$122,000
$8,540
$113,460
For an explanation of the values and activities at the start of
and during Contract Year 1, refer to Examples #1 and
#2.
As the withdrawal during Contract Year 2 did not exceed
the Protected Payment Amount immediately prior to the withdrawal
($8,540):
•
the Protected Payment Base remains unchanged; and
•
the Remaining Protected Balance is reduced by the amount of the
withdrawal to $113,460 ($122,000 – $8,540).
Example #4 –
Withdrawals Exceeding Protected Payment Amount.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
A subsequent Purchase Payment of $100,000 is received during
Contract Year 1.
•
A withdrawal greater than the Protected Payment Amount is taken
during Contract Year 2.
•
Automatic Step-Up at Beginning of Contract Year 2
and 4.
Beginning
Contract
Protected
Protected
Remaining
of Contract
Purchase
Value after
Payment
Payment
Protected
Year
Payment
Withdrawal
Activity
Base
Amount
Balance
1
$100,000
$100,000
$100,000
$7,000
$100,000
Activity
$100,000
$200,000
$200,000
$7,000
$200,000
2
(Prior to Automatic Step-Up)
$207,000
$200,000
$14,000
$200,000
2
(After Automatic Step-Up)
$207,000
$207,000
$14,490
$207,000
Activity
$15,000
$206,490
$206,503
$14,490
$192,000
3
$206,490
$206,503
$14,455
$192,000
4
(Prior to Automatic Step-Up)
$220,944
$206,503
$14,455
$192,000
4
(After Automatic Step-Up)
$220,944
$220,944
$15,466
$220,944
For an explanation of the values and activities at the start of
and during Contract Year 1, refer to Examples #1
and #2.
Because the $15,000 withdrawal during Contract Year 2
exceeds the Protected Payment Amount immediately prior to
the withdrawal ($15,000 > $14,490), the Protected
Payment Base and Remaining Protected Balance immediately after
the withdrawal are reduced.
The Values shown below are based on the following assumptions
immediately before the excess withdrawal:
No withdrawals were taken prior to the excess withdrawal
112
A withdrawal of $15,000 was taken, which exceeds the Protected
Payment Amount of $14,490 for the Contract Year. The Protected
Payment Base and Remaining Protected Balance will be reduced
based on the following calculation:
First, determine the excess withdrawal amount. The excess
withdrawal amount is the total withdrawal amount less the
Protected Payment Amount. Numerically, the excess withdrawal
amount is $510 (total withdrawal amount – Protected
Payment Amount; $15,000 – $14,490 = $510).
Second, determine the ratio for the proportionate reduction. The
ratio is the excess withdrawal amount determined above divided
by (Contract Value – Protected Payment Amount). The
Contract Value prior to the withdrawal was $221,490, which
equals the $206,490 after the withdrawal plus the $15,000
withdrawal amount. Numerically, the ratio is 0.24%
($510 ¸
($221,490 – $14,490);
$510 ¸
$207,000 = 0.0024 or 0.24%).
Third, determine the new Protected Payment Base. The Protected
Payment Base will be reduced on a proportionate basis. The
Protected Payment Base is multiplied by 1 less the ratio
determined above. Numerically, the new Protected Payment Base is
$206,503 (Protected Payment Base × (1-ratio);
$207,000 × (1-0.24%); $207,000 ×
99.76% = $206,503).
Fourth, determine the new Remaining Protected Balance. The
Remaining Protected Balance is reduced either on a proportionate
basis or by the total withdrawal amount, whichever results in
the lower Remaining Protected Balance amount.
To determine the proportionate reduction, the Remaining
Protected Balance immediately before the withdrawal is reduced
by the Protected Payment Amount multiplied by 1 less the ratio
determined above. Numerically, after the proportionate
reduction, the new Remaining Protected Balance is $192,047
(Remaining Protected Balance immediately before the
withdrawal – Protected Payment Amount) ×
(1-ratio); ($207,000 – $14,490) × (1-0.24%);
$192,510 × 99.76% = $192,047).
To determine the total withdrawal amount reduction, the
Remaining Protected Balance immediately before the withdrawal is
reduced by the total withdrawal amount. Numerically, after the
Remaining Protected Balance is reduced by the total withdrawal
amount, the new Remaining Protected Balance is $192,000
(Remaining Protected Balance immediately before the
withdrawal – total withdrawal amount;
$207,000 – $15,000 = $192,000).
Therefore, since $192,000 (total withdrawal amount method) is
less than $192,047 (proportionate method) the new Remaining
Protected Balance is $192,000.
The Protected Payment Amount immediately after the withdrawal is
equal to $14,490, but at the Beginning on Contract Year 3, it is
adjusted to $14,455 (7% of the Protected Payment Base (7% of
$206,503 = $14,455).
Because at the Beginning of Contract Year 4, the Protected
Payment Base was less than the Contract Value on that Contract
Anniversary (see balances at Beginning of Contract
Year 4 – Prior to Automatic Step-Up), an
automatic step-up occurred which step-ups the Protected Payment
Base and Remaining Protected Balance to an amount equal to 100%
of the Contract Value (see balances at Beginning of Contract
Year 4 – After Automatic Step-Up).
Example #5 –
RMD Withdrawals.
This is an example of the effect of cumulative RMD Withdrawals
during the Contract Year that exceed the Protected Payment
Amount established for that Contract Year and its effect on the
Protected Payment Base and Remaining Protected Balance. The
Annual RMD Amount is based on the entire interest of your
Contract as of the previous year-end.
113
This table assumes quarterly withdrawals of only the Annual RMD
Amount during the Contract Year. The calculated Annual RMD
amount for the Calendar Year is $7,500 and the Contract
Anniversary is May 1 of each year.
Annual
Protected
Protected
Remaining
Activity
RMD
Non-RMD
RMD
Payment
Payment
Protected
Date
Withdrawal
Withdrawal
Amount
Base
Amount
Balance
05/01/2006
Contract
Anniversary
$100,000
$7,000
$100,000
01/01/2007
$7,500
03/15/2007
$1,875
$100,000
$7,000
$98,125
05/01/2007
Contract
Anniversary
$100,000
$7,000
$98,125
06/15/2007
$1,875
$100,000
$7,000
$96,250
09/15/2007
$1,875
$100,000
$7,000
$94,375
12/15/2007
$1,875
$100,000
$7,000
$92,500
01/01/2008
$8,000
03/15/2008
$2,000
$100,000
$7,000
$90,500
05/01/2008
Contract
Anniversary
$100,000
$7,000
$90,500
Since the RMD Amount for 2008 increases to $8,000, the quarterly
withdrawals of the RMD Amount increase to $2,000, as shown by
the RMD withdrawal on March 15, 2008. Because all
withdrawals during the Contract Year were RMD Withdrawals, there
is no adjustment to the Protected Payment Base for exceeding the
Protected Payment Amount. The only effect is a reduction in the
Remaining Protected Balance equal to the amount of each
withdrawal.
This chart assumes quarterly withdrawals of the Annual RMD
Amount and other non-RMD Withdrawals during the Contract Year.
The calculated Annual RMD amount and Contract Anniversary are
the same as above.
Annual
Protected
Protected
Remaining
Activity
RMD
Non-RMD
RMD
Payment
Payment
Protected
Date
Withdrawal
Withdrawal
Amount
Base
Amount
Balance
05/01/2006
Contract
Anniversary
$100,000
$7,000
$100,000
01/01/2007
$7,500
03/15/2007
$1,875
$100,000
$7,000
$98,125
04/01/2007
$2,000
$100,000
$7,000
$96,125
05/01/2007
Contract
Anniversary
$100,000
$7,000
$96,125
06/15/2007
$1,875
$100,000
$7,000
$94,250
09/15/2007
$1,875
$100,000
$7,000
$92,375
11/15/2007
$4,000
$99,140
$7,000
$88,358
On 3/15/07
there was an RMD Withdrawal of $1,875 and on
4/1/07 a
non-RMD Withdrawal of $2,000. Because the total withdrawals
during the Contract Year
(5/1/06
through
4/30/07) did
not exceed the Protected Payment Amount of $7,000 there was no
adjustment to the Protected Payment Base. The only effect is a
reduction in the Remaining Protected Balance and the Protected
Payment Amount equal to the amount of each withdrawal. On
5/1/07, the
Protected Payment Amount was re-calculated (7% of the Protected
Payment Base) as of that Contract Anniversary.
On 11/15/07,
there was a non-RMD Withdrawal ($4,000) that caused the
cumulative withdrawals during the Contract Year ($7,750) to
exceed the Protected Payment Amount ($7,000). As the withdrawal
exceeded the Protected Payment Amount and assuming the Contract
Value was $90,000 immediately prior to the withdrawal, the
Protected Payment Base is reduced to $99,140 and the Remaining
Protected Balance is reduced to $88,358.
The Values shown below are based on the following assumptions
immediately before the excess withdrawal:
•
Contract Value = $90,000
•
Protected Payment Base = $100,000
•
Remaining Protected Balance = $92,375
•
Protected Payment Amount less withdrawals already taken =
$7,000 – $3,750 = $3,250
114
A withdrawal of $4,000 was taken, which exceeds the Protected
Payment Amount for the Contract Year. The Protected Payment Base
and Remaining Protected Balance will be reduced based on the
following calculation:
First, determine the excess withdrawal amount. The excess
withdrawal amount is the total withdrawal amount less the
Protected Payment Amount less withdrawals already taken.
Numerically, the excess withdrawal amount is $750 (total
withdrawal amount – Protected Payment Amount less
withdrawals already taken; $4,000 –
($7,000 – $3,750) = $750).
Second, determine the ratio for the proportionate reduction. The
ratio is the excess withdrawal amount determined above divided
by (Contract Value – Protected Payment Amount).
Numerically, the ratio is 0.86%
($750 ¸
($90,000 – $3,250);
$750 ¸
$86,750 = 0.0086 or 0.86%).
Third, determine the new Protected Payment Base. The Protected
Payment Base will be reduced on a proportionate basis. The
Protected Payment Base is multiplied by 1 less the ratio
determined above. Numerically, the new Protected Payment Base is
$99,140 (Protected Payment Base × (1-ratio);
$100,000 × (1-0.86%); $100,000 ×
99.14% = $99,140).
Fourth, determine the new Remaining Protected Balance. The
Remaining Protected Balance is reduced either on a proportionate
basis or by the total withdrawal amount, whichever results in
the lower Remaining Protected Balance amount.
To determine the proportionate reduction, the Remaining
Protected Balance is reduced by the Protected Payment Amount
multiplied by 1 less the ratio determined above. Numerically,
after the proportionate reduction, the Remaining Protected
Balance is $88,358 (Remaining Protected Balance –
Protected Payment Amount) × (1-ratio);
($92,375 – $3,250) × (1-0.86%);
$89,125 × 99.14% = $88,358).
To determine the total withdrawal amount reduction, the
Remaining Protected Balance is reduced by the total withdrawal
amount. Numerically, after the Remaining Protected Balance is
reduced by the total withdrawal amount, the Remaining Protected
Balance is $88,375 (Remaining Protected Balance –
total withdrawal amount; $92,375 – $4,000 =
$88,375).
Therefore, since $88,358 (proportionate method) is less than
$88,375 (total withdrawal amount method) the new Remaining
Protected Balance is $88,358.
The examples provided are based on certain hypothetical
assumptions and are for example purposes only. Where Contract
Value is reflected, the examples do not assume any specific
return percentage. They have been provided to assist in
understanding the benefits provided by this Rider and to
demonstrate how Purchase Payments and withdrawals made from the
Contract Prior to the end of a
10-Year Term
effect the values and benefits under this Rider. There may be
minor differences in the calculations due to rounding. These
examples are not intended to serve as projections of future
investment returns nor are they a reflection of how your
Contract will actually perform.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
A subsequent Purchase Payment of $20,000 is received in Contract
Year 1 and $10,000 is received in Contract Year 4.
•
A withdrawal of $10,000 is taken during Contract Year 7.
Beginning
Purchase
Guaranteed
Amount
of Contract
Payments
Withdrawal
Contract
Protection
added to the
Year
Received
Amount
Value
Amount
Contract Value
1
$100,000
$100,000
$100,000
Activity
$20,000
$118,119
$120,000
2
$117,374
$120,000
3
$114,439
$120,000
4
$111,578
$120,000
Activity
$10,000
$119,480
$120,000
5
$118,726
$120,000
6
$124,662
$120,000
Step-Up
(New 10-
Year Term
Begins)
$124,662
$124,662
7
$121,546
$124,662
Activity
$10,000
$109,259
$114,209
8
$108,570
$114,209
9
$105,856
$114,209
10
$103,209
$114,209
11
$100,629
$114,209
12
$98,114
$114,209
13
$95,661
$114,209
14
$93,269
$114,209
15
$90,937
$114,209
Values at
End of
15th Year
$88,664
$114,209
$114,209
$0
$25,545
The Guaranteed Protection Amount is equal to
(a) + (b) − (c) as indicated below:
(a)
is the Contract Value at the start of the Term,
(b)
is the amount of each subsequent Purchase Payment received
during the first year of the Term, and
(c)
is a pro rata adjustment for withdrawals made from the Contract
during the Term. The adjustment for each withdrawal is
calculated by multiplying the Guaranteed Protection Amount prior
to the withdrawal by the ratio of the amount of the withdrawal,
including any applicable withdrawal charges, premium taxes,
and/or other taxes, to the Contract Value immediately prior to
the withdrawal.
On the Rider Effective Date, the initial values are set as
follows:
During Contract Year 1, an additional Purchase Payment of
$20,000 was made. Since this Purchase Payment was made during
the first Contract Year, the Guaranteed Protection Amount will
be increased by $20,000 to $120,000.
($100,000 + $20,000 – 0 = $120,000)
116
During Contract Year 4, an additional Purchase Payment of
$10,000 was made. However, this Purchase Payment will not
increase the Guaranteed Protection Amount because it was not
made during the first Contract Year (or first year of the
10-Year
Term).
On the
6th Contract
Anniversary, there was an optional Step-Up elected. The Step-Up
will reset the Guaranteed Protection Amount equal to the
Contract Value ($124,662) as of that Contract Anniversary.
During Contract Year 7, a withdrawal of $10,000 was made.
This withdrawal will reduce the Guaranteed Protection Amount on
a pro rata basis and will result in a new Guaranteed Protection
Amount. The pro rata adjustment is $10,453 and was determined by
calculating the ratio of the withdrawal to the Contract Value
immediately before the withdrawal
($10,000/$119,259 = 0.08385) multiplied by the
Guaranteed Protection Amount prior to the withdrawal
($124,662*0.08385 = $10,453). The new Guaranteed
Protection Amount
(a) + (b) − (c) = $114,209
($124,662 + 0 − $10,453 = 114,209).
At the end of Contract Year 15 (end of the
10-Year
Term) the Contract Value ($88,664) is less than the Guaranteed
Protection Amount ($114,209). Therefore, $25,545
($114,209 − $88,664 = $25,545) is
added to the Contract Value and the Rider terminates.
The examples provided are based on certain hypothetical
assumptions and are for example purposes only. Where Contract
Value is reflected, the examples do not assume any specific
return percentage. They have been provided to assist in
understanding the benefits provided by the Guaranteed Income
Advantage Plus (“GIA Plus”) Rider, and to demonstrate
how Purchase Payments received and withdrawals made from the
Contract prior to the Annuity Date affect the values and
benefits under this Rider over an extended period of time. There
may be minor differences in the calculations due to rounding.
These examples are not intended to serve as projections of
future investment returns nor are they a reflection of how your
Contract will actually perform.
Example #1 – The initial values on the Rider
Effective Date based on an Initial Purchase Payment of $100,000.
The Initial Purchase Payment is assumed to be the Contract Value
if the Rider Effective Date is on a Contract Anniversary.
Remaining
Contract
GIA Plus
Dollar
Beginning
Purchase
Value
Guaranteed
GIA Plus
GIA Plus
Withdrawal
Amount of
of Contract
Payments
Withdrawal
after
Income
Step-Up
Withdrawal
Amt. (GWA)
Prior Year’s
Year
Received
Amount
Activity
Base (GIB)
Value
Base (GWB)
(5% of GWB)
GWA
1
$100,000
$100,000
$100,000
$100,000
$100,000
$5,000
N/A
Example #2 – Subsequent Purchase Payment received
during the first Contract Year and its effect on the values and
balances under this Rider. This example assumes that no
withdrawals have been made.
Remaining
Contract
GIA Plus
Dollar
Beginning
Purchase
Value
Guaranteed
GIA Plus
GIA Plus
Withdrawal
Amount of
of Contract
Payments
Withdrawal
after
Income
Step-Up
Withdrawal
Amt. (GWA)
Prior Year’s
Year
Received
Amount
Activity
Base (GIB)
Value
Base (GWB)
(5% of GWB)
GWA
1
$100,000
$100,000
$100,000
$100,000
$100,000
$5,000
N/A
Activity
$100,000
$200,742
$201,237
$200,000
2
$205,242
$208,717
$205,242
$200,000
$10,000
$5,000
In addition to Purchase Payments, the Contract Value is
further subject to increases and/or decreases during a Contract
Year as a result of additional amounts credited, charges, fees
and other deductions, and increases and/or decreases in the
investment performance of the Variable Account.
The Guaranteed Income Base prior to receipt of the
Purchase Payment is assumed to have accumulated to $101,237.
This amount is derived by multiplying each day’s Guaranteed
Income Base by the daily factor of 1.000133680. As a result of
the subsequent Purchase Payment, the Guaranteed Income Base is
increased to $201,237 ($101,237 + $100,000). The Guaranteed
Income Base will assume to accumulate to $208,717 at the next
Contract Anniversary, by multiplying each day’s Guaranteed
Income Base immediately after receipt of the subsequent Purchase
Payment by the daily factor of 1.000133680.
The GIA Plus Step-Up Value prior to receipt of the
Purchase Payment is $100,000. As a result of the subsequent
Purchase Payment, the GIA Plus Step-Up Value is increased to
$200,000 ($100,000 + $100,000). On the Contract
Anniversary at the beginning of Contract Year 2, the
Contract Value ($205,242) is greater than the GIA Plus Step-Up
Value immediately prior to that Contract Anniversary ($200,000).
As a result, the GIA Plus Step-Up Value as of that Contract
Anniversary is equal to the Contract Value on that Contract
Anniversary ($205,242).
The GIA Plus Withdrawal Base on the Contract Anniversary
at the beginning of Contract Year 2 is equal to the GIA Plus
Withdrawal Base on the Rider Effective Date ($100,000) plus
cumulative Purchase Payments received after the Rider Effective
Date ($100,000). As a result of the subsequent Purchase Payment,
the GIA Plus Withdrawal Base on the Contract Anniversary at the
beginning of Contract Year 2 is equal to $200,000
($100,000 + $100,000).
The GIA Plus Withdrawal Amount for Contract Year 2 is
determined on the Contract Anniversary at the beginning of
Contract Year 2, and is equal to 5% of the GIA Plus
Withdrawal Base on that Contract Anniversary (5% of $200,000).
As a result of the subsequent Purchase Payment, the GIA Plus
Withdrawal Amount for Contract Year 2 is equal to $10,000.
Since no withdrawals were made during Contract Year 1, the
GIA Plus Withdrawal Amount for Contract Year 1 ($5,000)
becomes the remaining dollar amount of the prior Contract
Year’s GIA Plus Withdrawal Amount for Contract Year 2.
Example #3 – Cumulative withdrawals during
Contract Year 2 exceeding the sum of: (a) the GIA Plus
Withdrawal Amount for Contract Year 2; and (b) the
remaining dollar amount of the prior Contract Year’s GIA
Plus Withdrawal Amount for Contract Year 2. The withdrawal
is assumed to result in a 10% reduction in the Contract Value.
118
Remaining
Contract
GIA Plus
Dollar
Beginning
Purchase
Value
Guaranteed
GIA Plus
GIA Plus
Withdrawal
Amount of
of Contract
Payments
Withdrawal
after
Income
Step-Up
Withdrawal
Amt. (GWA)
Prior Year’s
Year
Received
Amount
Activity
Base (GIB)
Value
Base (GWB)
(5% of GWB)
GWA
1
$100,000
$100,000
$100,000
$100,000
$100,000
$5,000
N/A
Activity
$100,000
$200,742
$201,237
$200,000
2
$205,242
$208,717
$205,242
$200,000
$10,000
$5,000
Activity
$20,830
$187,468
$192,471
$184,717
-$15,830
= $0
-$5,000
= $0
3
$190,259
$197,237
$190,259
$200,000
$10,000
$0
Since the $20,830 withdrawal exceeded the sum of: (a) the
GIA Plus Withdrawal Amount for Contract Year 2; and (b) the
remaining dollar amount of the prior Contract’s Year’s
GIA Plus Withdrawal Amount for Contract Year 2, the
remaining dollar amount of the prior Contract Year’s GIA
Plus Withdrawal Amount for Contract Year 3 is zero. Withdrawals
are first applied to the remaining dollar amount of the prior
Contract Year’s GIA Plus Withdrawal Amount, if any, until
exhausted, then to the GIA Plus Withdrawal Amount for the
current Contract Year, until exhausted.
The GIA Plus Withdrawal Amount for Contract Year 3 is
determined on the Contract Anniversary at the beginning of
Contract Year 3, and is equal to 5% of the GIA Plus
Withdrawal Base on that Contract Anniversary (5% of $200,000).
As a result, the GIA Plus Withdrawal Amount for Contract Year 3
is equal to $10,000. The GIA Plus Withdrawal Amount for any
Contract Year will not be less than zero.
Immediately after the withdrawal, the Guaranteed Income Base
and the GIA Plus Step-Up Value are reduced by the
percentage decrease (10%) in Contract Value as a result of the
withdrawal.
Since no subsequent Purchase Payments were received during
Contract Year 2, the GIA Plus Withdrawal Base at the
beginning of Contract Year 3 remains unchanged.
Example #4 – Cumulative withdrawals during
Contract Year 3 not exceeding the sum of: (a) the GIA Plus
Withdrawal Amount for Contract Year 3; and (b) the
remaining dollar value of the prior Contract Year’s GIA
Plus Withdrawal Amount for Contract Year 3.
Remaining
Contract
GIA Plus
Dollar
Beginning
Purchase
Value
Guaranteed
GIA Plus
GIA Plus
Withdrawal
Amount of
of Contract
Payments
Withdrawal
after
Income
Step-Up
Withdrawal
Amt. (GWA)
Prior Year’s
Year
Received
Amount
Activity
Base (GIB)
Value
Base (GWB)
(5% of GWB)
GWA
1
$100,000
$100,000
$100,000
$100,000
$100,000
$5,000
N/A
Activity
$100,000
$200,742
$201,237
$200,000
2
$205,242
$208,717
$205,242
$200,000
$10,000
$5,000
Activity
$20,830
$187,468
$192,471
$184,717
-$15,830
= $0
-$5,000
= $0
3
$190,259
$197,237
$190,259
$200,000
$10,000
$0
Activity
$8,000
$185,092
$193,743
$182,376
-$8,000
= $2,000
-$0
= $0
4
$187,848
$199,099
$187,848
$200,000
$10,000
$2,000
Because cumulative withdrawals for Contract Year 3 did not
exceed the sum of: (a) the GIA Plus Withdrawal Amount for
Contract Year 3; and (b) the remaining dollar amount
of the prior Contract Year’s GIA Plus Withdrawal Amount for
Contract Year 3, the Guaranteed Income Base on the
Contract Anniversary at the beginning of Contract Year 4 is
calculated as follows:
Guaranteed Income Base on the Contract Anniversary at the
beginning of Contract Year 3:
$197,237
Increased at an annual rate of 5% to the Contract Anniversary at
the beginning of Contract Year 4:
+ $9,862
Reduced by the amount equal to the amount withdrawn in Contract
Year 3:
− $8,000
Guaranteed Income Base on the Contract Anniversary at the
beginning of Contract Year 4:
$199,099
119
Since no subsequent Purchase Payments were received during
Contract Year 3, the GIA Plus Withdrawal Base at the
beginning of Contract Year 4 remains unchanged.
The GIA Plus Withdrawal Amount for Contract Year 4
is determined on the Contract Anniversary at the beginning of
Contract Year 4, and is equal to 5% of the GIA Plus
Withdrawal Base on that Contract Anniversary (5% of $200,000).
As a result, the GIA Plus Withdrawal Amount for Contract Year 4
is equal to $10,000.
Because cumulative withdrawals for Contract Year 3 did not
exceed the sum of: (a) the GIA Plus Withdrawal Amount for
Contract Year 3; and (b) the remaining dollar value of
the prior Contract Year’s GIA Plus Withdrawal Amount for
Contract Year 3; the dollar amount of the GIA Plus
Withdrawal Amount for Contact Year 3 remaining ($2,000)
becomes the remaining dollar amount of the prior Contract
Year’s GIA Plus Withdrawal Amount for Contract Year 4.
Example #5 – Rider values on each Contract
Anniversary based on an Initial Purchase Payment of $100,000
paid on the Contract Date. The values further assume that no
subsequent Purchase Payments are received and no
withdrawals are taken during the first ten
(10) Contract Years after the Rider Effective Date. The
Initial Purchase Payment is assumed to be the Contract Value if
the Rider is effective on a Contract Anniversary.
GIA Plus
Beginning
GIA Plus
GIA Plus
Withdrawal
Remaining Dollar
of Contract
Contract Value
Guaranteed
Step-Up
Withdrawal
Amt. (GWA)
Amount of
Year
after Activity
Income Base (GIB)
Value
Base (GWB)
(5% of GWB)
Prior Year’s GWA
1
$100,000
$100,000
$100,000
$100,000
$5,000
N/A
2
$103,000
$105,000
$103,000
$100,000
$5,000
$5,000
3
$106,090
$110,250
$106,090
$100,000
$5,000
$5,000
4
$109,273
$115,763
$109,273
$100,000
$5,000
$5,000
5
$112,551
$121,551
$112,551
$100,000
$5,000
$5,000
6
$115,927
$127,628
$115,927
$100,000
$5,000
$5,000
7
$112,450
$134,010
$115,927
$100,000
$5,000
$5,000
8
$109,076
$140,710
$115,927
$100,000
$5,000
$5,000
9
$105,804
$147,746
$115,927
$100,000
$5,000
$5,000
10
$102,630
$155,133
$115,927
$100,000
$5,000
$5,000
11
$99,551
$162,889
$115,927
$100,000
$5,000
$5,000
Example #6 – Rider values on each Contract
Anniversary based on an Initial Purchase Payment of $100,000
paid on the Contract Date. The values further assume that no
subsequent Purchase Payments are received and withdrawals of
$5,000 are taken each Contract Year for the first ten
(10) Contract Years after the Rider Effective Date. The
Initial Purchase Payment is assumed to be the Contract Value if
the Rider is effective on a Contract Anniversary.
GIA Plus
Beginning
GIA Plus
GIA Plus
Withdrawal
Remaining Dollar
of Contract
Contract Value
Guaranteed
Step-Up
Withdrawal
Amt. (GWA)
Amount of
Year
after Activity
Income Base (GIB)
Value
Base (GWB)
(5% of GWB)
Prior Year’s GWA
1
$100,000
$100,000
$100,000
$100,000
$5,000
N/A
2
$97,926
$100,000
$97,926
$100,000
$5,000
$0
3
$95,789
$100,000
$95,789
$100,000
$5,000
$0
4
$93,588
$100,000
$93,588
$100,000
$5,000
$0
5
$91,321
$100,000
$91,321
$100,000
$5,000
$0
6
$88,986
$100,000
$88,986
$100,000
$5,000
$0
7
$81,392
$100,000
$83,910
$100,000
$5,000
$0
8
$74,026
$100,000
$78,676
$100,000
$5,000
$0
9
$66,881
$100,000
$73,280
$100,000
$5,000
$0
10
$59,950
$100,000
$67,718
$100,000
$5,000
$0
11
$53,227
$100,000
$61,983
$100,000
$5,000
$0
Should the Contract annuitize immediately after the Rider has
been in effect for at least ten (10) years and the GIA Plus
Annuity Option has been elected to provide such payments, the
net amount applied on the Annuity Date as a single premium to
provide the payments is equal to the greater of:
(a)
the Guaranteed Income Base; or
(b)
the GIA Plus Step-Up Value; less any:
(c)
applicable withdrawal charges resulting from the conversion to
the GIA Plus Annuity Option;
120
(d)
applicable annual charges for expenses related to other optional
benefit riders attached to the Contract that are in effect as of
the Annuity Date; and
(e)
charges for premium taxes and/or other taxes.
Under Example #5, the net amount applied on the
Annuity Date (the Contract Anniversary at the beginning of
Contract Year 11) is equal to the Guaranteed Income Base
($162,889), as it is greater than the GIA Plus Step-Up Value
($115,927) as of the Annuity Date, less the amounts in
(c), (d) and (e) above, if any.
Under Example #6, the net amount applied on the
Annuity Date (the Contract Anniversary at the beginning of
Contract Year 11) is equal to the Guaranteed Income
Base ($100,000), as it is greater than the GIA Plus Step-Up
Value ($61,983) as of the Annuity Date, less the amounts
in (c), (d) and (e) above, if any.
The examples provided are based on certain hypothetical
assumptions and are for example purposes only. Where Contract
Value is reflected, the examples do not assume any specific
return percentage. They have been provided to assist in
understanding the death benefit amount under the Contract and
the optional Stepped-Up Death Benefit Rider and to demonstrate
how Purchase Payments and withdrawals made from the Contract may
effect the values and benefits. There may be minor differences
in the calculations due to rounding. These examples are not
intended to reflect what your actual death benefit proceeds will
be or serve as projections of future investment returns nor are
they a reflection of how your Contract will actually perform.
Death
Benefit Amount
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
A subsequent Purchase Payment of $25,000 is received in Contract
Year 3.
•
A withdrawal of $35,000 is taken during Contract Year 6.
•
A withdrawal of $10,000 is taken during Contract Year 11.
Beginning
Purchase
Return of
of Contract
Payments
Withdrawal
Purchase
Year
Received
Amount
Contract
Value1
Payments1
1
$100,000
$100,000
$100,000
2
$103,000
$100,000
3
$106,090
$100,000
Activity
$25,000
$133,468
$125,000
4
$134,458
$125,000
5
$138,492
$125,000
6
$142,647
$125,000
Activity
$35,000
$110,844
$95,000
7
$111,666
$95,000
8
$103,850
$95,000
9
$96,580
$95,000
10
$89,820
$95,000
11
$10,000
$73,530
$83,629
12
$68,383
$83,629
13
$63,596
$83,629
14
Death
Occurs
$59,144
$83,629
1
The greater of the Contract Value or the adjusted Return of
Purchase Payments represents the Death Benefit Amount.
On the Rider effective date, the initial values are set as
follows:
•
Return of Purchase Payment = Initial Purchase
Payment = $100,000
•
Contract Value = Initial Purchase
Payment = $100,000
During Contract Year 3, an additional Purchase Payment of
$25,000 was made. The Return of Purchase Payment amount
increased to $125,000. The Contract Value increased to $133,468.
During Contract Year 6, a withdrawal of $35,000 was made.
This withdrawal reduced the Return of Purchase Payment amount on
a pro rata basis to $95,000 and decreased the Contract Value to
$110,844. Numerically, the new Return of Purchase Payment amount
is calculated as follows:
First, determine the ratio for the proportionate reduction. The
ratio is the withdrawal amount divided by the Contract Value
prior to the withdrawal ($145,844, which equals the $110,844
Contract Value after the withdrawal plus the $35,000 withdrawal
amount). Numerically, the ratio is 24.00%
($35,000 ¸
$145,844 = 0.2400 or 24.00%).
Second, determine the new Return of Purchase Payment amount. The
Return of Purchase Payment amount prior to the withdrawal is
multiplied by 1 less the ratio determined above. Numerically,
the new Return of Purchase Payment amount is $95,000 (Return of
Purchase Payment amount prior to the withdrawal ×
(1-ratio);
$125,000 ×
(1-24.00%);
$125,000 × 76.00% = $95,000).
122
During Contract Year 11, a withdrawal of $10,000 was made.
This withdrawal reduced the Return of Purchase Payment amount on
a pro rata basis to $83,629 and decreased the Contract Value to
$73,530. Numerically, the new Return of Purchase Payment amount
is calculated as follows:
First, determine the ratio for the proportionate reduction. The
ratio is the withdrawal amount divided by the Contract Value
prior to the withdrawal ($83,530, which equals the $73,530
Contract Value after the withdrawal plus the $10,000 withdrawal
amount). Numerically, the ratio is 11.97%
($10,000 ¸
$83,530 = 0.1197 or 11.97%).
Second, determine the new Return of Purchase Payment amount. The
Return of Purchase Payment amount prior to the withdrawal is
multiplied by 1 less the ratio determined above. Numerically,
the new Return of Purchase Payment amount is $83,629 (Return of
Purchase Payment prior to the withdrawal × (1-ratio);
$95,000 × (1-11.97%); $95,000 × 88.03% = $83,629).
During Contract Year 14, death occurs. The Death Benefit
Amount will be the Return of Purchase Payments reduced by an
amount for each withdrawal ($83,629) because that amount is
greater than the Contract Value ($59,144).
Using the table above, if death occurred in Contract
Year 7, the Death Benefit Amount would be the Contract
Value ($111,666) because that amount is greater than the Return
of Purchase Payment (reduced by an amount for withdrawals) of
$95,000.
Stepped-Up
Death Benefit Rider
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
A subsequent Purchase Payment of $25,000 is received in Contract
Year 3.
•
A withdrawal of $35,000 is taken during Contract Year 6.
•
Annual
Step-Ups
occur on each of the first seven Contract Anniversaries.
Guaranteed
Minimum
Beginning
Purchase
Return of
(Stepped-Up)
of Contract
Payments
Withdrawal
Contract
Purchase
Death Benefit
Year
Received
Amount
Value1
Payments1
Amount
1
$100,000
$100,000
$100,000
$100,000
2
$103,000
$100,000
$103,000
3
$106,090
$100,000
$106,090
Activity
$25,000
$133,468
$125,000
$131,090
4
$134,458
$125,000
$134,458
5
$138,492
$125,000
$138,492
6
$142,647
$125,000
$142,647
Activity
$35,000
$110,844
$95,000
$108,412
7
$111,666
$95,000
$111,666
8
$103,850
$95,000
$111,666
9
$96,580
$95,000
$111,666
Death
Occurs
$89,820
$95,000
$111,666
1
The greater of the Contract Value or the adjusted Return of
Purchase Payments represents the Death Benefit Amount.
On the Rider effective date, the initial values are set as
follows:
•
Return of Purchase Payment = Initial Purchase
Payment = $100,000
Contract Value = Initial Purchase
Payment = $100,000
During Contract Year 3, an additional Purchase Payment of
$25,000 was made. This results in an increase in the Return of
Purchase Payment amount to $125,000. The Contract Value
increased to $133,468 and the Guaranteed Minimum (Stepped-Up)
Death Benefit Amount increased to $131,090.
During Contract Year 6, a withdrawal of $35,000 was made.
This withdrawal reduced the Return of Purchase Payment amount on
a pro rata basis to $95,000 and decreased the Contract Value to
$110,844. In addition, the Guaranteed Minimum (Stepped-Up) Death
Benefit Amount was reduced on a pro rata basis to $108,412.
Numerically, the new Return of Purchase Payment and Guaranteed
Minimum (Stepped-Up) Death Benefit Amount is calculated as
follows:
First, determine the ratio for the proportionate reduction. The
ratio is the withdrawal amount divided by the Contract Value
prior to the withdrawal ($145,844, which equals the $110,844
Contract Value after the withdrawal plus the $35,000 withdrawal
amount). Numerically, the ratio is 24.00%
($35,000 ¸
$145,844 = 0.2400 or 24.00%)
123
Second, determine the new Return of Purchase Payment amount. The
Return of Purchase Payment amount prior to the withdrawal is
multiplied by 1 less the ratio determined above. Numerically,
the new Return of Purchase Payment amount is $95,000 (Return of
Purchase Payment amount prior to the withdrawal ×
(1-ratio);
$125,000 ×
(1-24.00%);
$125,000 × 76.00% = $95,000).
Third, determine the new Guaranteed Minimum (Stepped-Up) Death
Benefit Amount. The Guaranteed Minimum (Stepped-Up) Death
Benefit Amount prior to the withdrawal is multiplied by 1 less
the ratio determined above. Numerically, the new Guaranteed
Minimum (Stepped-Up) Death Benefit Amount is $108,412
(Guaranteed Minimum (Stepped-Up) Death Benefit Amount prior to
the withdrawal ×
(1-ratio);
$142,647 ×
(1-24.00%);
$142,647 × 76.00% = $108,412).
During Contract Year 9, death occurs. The death benefit
proceeds are the greater of the Death Benefit Amount (Contract
Value or Return of Purchase Payments adjusted for withdrawals)
or the Guaranteed Minimum (Stepped-Up) Death Benefit Amount. The
Death Benefit Amount is $95,000 because the Return of Purchase
Payment Amount ($95,000) is greater than the Contract Value
($89,820). The death benefit proceeds are equal to the
Guaranteed Minimum (Stepped-Up) Death Benefit Amount of $111,666
because it is greater than the Death Benefit Amount (Return of
Purchase Payments of $95,000).
The examples provided are based on certain hypothetical
assumptions and are for example purposes only. Where Contract
Value is reflected, the examples do not assume any specific
return percentage. They have been provided to assist in
understanding the benefits provided by this Rider and to
demonstrate how Purchase Payments and withdrawals effect the
values and benefits under this Rider. There may be minor
differences in the calculations due to rounding. These
examples are not intended to serve as projections of future
investment returns nor are they a reflection of how your
Contract will actually perform.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider effective Date = Contract Date
•
A subsequent Purchase Payment of $20,000 is received during
Contract Year 3.
•
A withdrawal of $20,000 is taken during Contract Year 7.
•
A withdrawal of $10,000 is taken during Contract Year 8.
Adjustment to
Beginning
Purchase
Remaining
Remaining
of Contract
Payments
Withdrawal
Contract
Purchase
Purchase
Year
Received
Amount
Value
Earnings1
Payments
Payments
40%
EEG2
25%
EEG3
1
$100,000
$100,000
$0
$100,000
—
$0
$0
2
$103,000
$3,000
$100,000
—
$1,200
$750
3
$106,090
$6,090
$100,000
—
$2,436
$1,523
Activity
$20,000
$128,468
$8,468
$120,000
—
$3,387
$2,117
4
$129,421
$9,421
$120,000
—
$3,768
$2,355
5
$133,304
$13,304
$120,000
—
$5,321
$3,326
6
$137,303
$17,303
$120,000
—
$6,921
$4,326
7
$141,422
$21,422
$120,000
—
$8,569
$5,355
Activity
$20,000
$124,592
$4,592
$120,000
—
$1,837
$1,148
8
$125,516
$5,516
$120,000
—
$2,206
$1,379
Activity
$10,000
$118,330
$0
$118,330
$1,670
$0
$0
9
$119,208
$878
$118,330
—
$351
$219
Death at
the
beginning
of year 10
$126,360
$8,030
$118,330
—
$3,212
$2,008
1
For Rider purposes, Earnings are equal to the Contract Value
less Remaining Purchase Payments.
2
40% EEG amount is applicable if the
oldest Annuitant was age 69 or younger on the Rider
Effective Date.
3
25% EEG amount is applicable if the oldest Annuitant was
age 70 to 75 on the Rider Effective Date.
On the Rider effective date, the initial values are set as
follows:
During Contract Year 3, an additional Purchase Payment of
$20,000 was made. As a result, the Remaining Purchase Payments
increased to $120,000
($100,000 + $20,000 = $120,000). The
Contract Value increased to $128,468.
During Contract Year 7, a withdrawal of $20,000 was made.
This will cause an adjustment to the Earnings amount on a dollar
for dollar basis that results in a balance of $4,592. The $4,592
is the result of taking the Contract Value after the withdrawal
less the Remaining Purchase Payments
($124,592 – $120,000 = $4,592). Since
there are Earnings remaining after the withdrawal, there is no
adjustment to the Remaining Purchase Payments.
During Contract Year 8, a withdrawal of $10,000 was made.
Assuming the Earnings at the time of the withdrawal were $8,330,
the withdrawal exceeds the Earnings. Since the $10,000
withdrawal exceeded the Earnings, an adjustment to the Remaining
Purchase Payments will occur. The Remaining Purchase Payments
will be reduced by $1,670 which is the difference between the
amount of the withdrawal less the Earnings at the time of the
withdrawal ($10,000 – $8,330 = $1,670).
The Earnings will be reduced to zero.
During Contract Year 10 death occurs. The EEG amount added to
the death benefit is based on the age of the oldest Annuitant on
the Rider Effective Date and the lesser of the Earnings and
Remaining Purchase Payments adjusted for withdrawals.
125
Assuming the oldest Annuitant was 69 or younger on the Rider
Effective Date, the EEG amount added to the death benefit would
be $3,212. $3,212 represents 40% of the Earnings
($8,030 × 40% = $3,212) which is less
than 40% of the Remaining Purchase Payments adjusted for
withdrawals ($118,330 × 40% = $47,332).
Assuming the oldest Annuitant was 70 to 75 on the Rider
Effective Date, the EEG amount added to the death benefit would
be $2,008. $2,008 represents 25% of the Earnings
($8,030 × 25% = $2,008) which is less
than 25% of the Remaining Purchase Payments adjusted for
withdrawals ($118,330 × 25% = $29,583).
The Pacific Voyages variable annuity Contract is offered by Pacific Life Insurance Company, 700 Newport Center Drive. P.O. Box 9000, Newport Beach, California92660.
If you have any questions about the Contract, please ask your financial professional or contact us.
You will find more information about the Pacific Voyages variable annuity contract and Separate Account A in the Statement of Additional Information (SAI) dated May 1, 2010. The SAI has been filed with the SEC and is considered to be part of this Prospectus because it is incorporated by reference. In this Prospectus, you will find the table of contents for the SAI on page 92. You can get a copy of the SAI at no charge by calling or writing to us, or by contacting the SEC. The SEC may charge you a fee for this information.
How to Contact Us
Call or write to us at: Pacific Life Insurance Company P.O. Box 2378 Omaha, Nebraska68103-2378
Contract Owners: 1-800-722-4448 Financial Professionals: 1-800-722-2333 6 a.m. through 5 p.m. Pacific time
Send Purchase Payments, other payments and application forms to the following address:
By overnight delivery service Pacific Life Insurance Company1299 Farnam Street, 6th Floor, AMF Omaha, Nebraska68102
How to Contact the SEC
Commission’s Public Reference Section
100 F Street, NE
Washington, D.C. 20549
1-202-551-8090
Website: www.sec.gov
e-mail: publicinfo@sec.gov
FINRA Public Disclosure Program
The Financial Industry Regulatory Authority (FINRA) provides
investor protection education through its website and printed
materials. The FINRA regulation website address is
www.finra.org. An investor brochure that includes information
describing the Public Disclosure program may be obtained from
FINRA. The FINRA Public Disclosure hotline number is
(800) 289-9999.
FINRA does not charge a fee for the Public Disclosure program
services.
Pacific Voyages (the “Contract”) is a variable annuity
contract offered by Pacific Life Insurance Company
(“Pacific Life”).
This Statement of Additional Information (“SAI”) is
not a Prospectus and should be read in conjunction with the
Contract’s Prospectus, dated May 1, 2010, and any
supplement thereto, which is available without charge upon
written or telephone request to Pacific Life. Terms used in this
SAI have the same meanings as in the Prospectus, and some
additional terms are defined particularly for this SAI. This SAI
is incorporated by reference into the Contract’s Prospectus.
From time to time, our reports or other communications to
current or prospective Contract Owners or our advertising or
other promotional material may quote the performance (yield and
total return) of a Subaccount. Quoted results are based on past
performance and reflect the performance of all assets held in
that Subaccount for the stated time period. Quoted results
are neither an estimate nor a guarantee of future investment
performance, and do not represent the actual experience of
amounts invested by any particular Contract Owner.
Total
Returns
A Subaccount may advertise its “average annual total
return” over various periods of time. “Total
return” represents the average percentage change in value
of an investment in the Subaccount from the beginning of a
measuring period to the end of that measuring period.
“Annualized” total return assumes that the total
return achieved for the measuring period is achieved for each
full year period. “Average annual” total return is
computed in accordance with a standard method prescribed by the
SEC, and is also referred to as “standardized return.”
Average
Annual Total Return
To calculate a Subaccount’s average annual total return for
a specific measuring period, we first take a hypothetical $1,000
investment in that Subaccount, at its applicable Subaccount Unit
Value (the “initial payment”) and we compute the
ending redeemable value of that initial payment at the end of
the measuring period based on the investment experience of that
Subaccount (“full withdrawal value”). The full
withdrawal value reflects the effect of all recurring fees and
charges applicable to a Contract Owner under the Contract,
including the Risk Charge, the asset-based Administrative Fee
and the deduction of the applicable withdrawal charge, but does
not reflect any charges for applicable premium taxes and/or any
other taxes, any optional Rider charge, any non-recurring fees
or charges, or any increase in the Risk Charge for an optional
Death Benefit Rider. The Annual Fee is also taken into account,
assuming an average Contract Value of $45,000. The redeemable
value is then divided by the initial payment and this quotient
is raised to the 365/N power (N represents the number
of days in the measuring period), and 1 is subtracted from
this result. Average annual total return is expressed as a
percentage.
T = (ERV/P)(365/N)
− 1
where
T
=
average annual total return
ERV
=
ending redeemable value
P
=
hypothetical initial payment of $1,000
N
=
number of days
Average annual total return figures will be given for recent
1-,
3-,
5- and
10-year
periods (if applicable), and may be given for other periods as
well (such as from commencement of the Subaccount’s
operations, or on a year-by-year basis).
When considering “average” total return figures for
periods longer than one year, it is important to note that the
relevant Subaccount’s annual total return for any one year
in the period might have been greater or less than the average
for the entire period.
Aggregate
Total Return
A Subaccount may use “aggregate” total return figures
along with its “average annual” total return figures
for various periods; these figures represent the cumulative
change in value of an investment in the Subaccount for a
specific period. Aggregate total returns may be shown by means
of schedules, charts or graphs and may indicate subtotals of the
various components of total return. The SEC has not prescribed
standard formulas for calculating aggregate total return.
Total returns may also be shown for the same periods that do not
take into account the withdrawal charge or the Annual Fee.
1
Non-Standardized
Total Returns
We may also calculate non-standardized total returns which may
or may not reflect any Annual Fee, withdrawal charges, increases
in Risk Charge for an optional Death Benefit Rider, charges for
premium taxes and/or any other taxes, any charge for an optional
Rider, or any non-recurring fees or charges.
Standardized return figures will always accompany any
non-standardized returns shown.
Yields
Cash
Management Subaccount
The “yield” (also called “current yield”) of
the Cash Management Subaccount is computed in accordance with a
standard method prescribed by the SEC. The net change in the
Subaccount’s Unit Value during a seven-day period is
divided by the Unit Value at the beginning of the period to
obtain a base rate of return. The current yield is generated
when the base rate is “annualized” by multiplying it
by the fraction
365/7;
that is, the base rate of return is assumed to be generated each
week over a 365-day period and is shown as a percentage of the
investment. The “effective yield” of the Cash
Management Subaccount is calculated similarly but, when
annualized, the base rate of return is assumed to be reinvested.
The effective yield will be slightly higher than the current
yield because of the compounding effect of this assumed
reinvestment.
The formula for effective yield is: [(Base Period Return +
1) (To the power of
365/7)]
− 1.
Realized capital gains or losses and unrealized appreciation or
depreciation of the assets of the underlying Cash Management
Portfolio are not included in the yield calculation. Current
yield and effective yield do not reflect the deduction of
charges for any applicable premium taxes and/or any other taxes,
any increase in the Risk Charge for an optional Death Benefit
Rider, any charges for an optional Rider or any non-recurring
fees or charges, but do reflect a deduction for the Annual Fee,
the Risk Charge, and the asset-based Administrative Fee and
assume an average Contract Value of $45,000.
Other
Subaccounts
“Yield” of the other Subaccounts is computed in
accordance with a different standard method prescribed by the
SEC. The net investment income (investment income less expenses)
per Subaccount Unit earned during a specified one-month or
30-day period is divided by the Subaccount Unit Value on the
last day of the specified period. This result is then annualized
(that is, the yield is assumed to be generated each month or
each 30-day
period for a year), according to the following formula, which
assumes semi-annual compounding:
YIELD = 2[(
a – b
cd
+ 1)6
− 1]
where:
a
=
net investment income earned during the period by the Portfolio
attributable to the Subaccount.
b
=
expenses accrued for the period (net of reimbursements).
c
=
the average daily number of Subaccount Units outstanding during
the period that were entitled to receive dividends.
d
=
the Unit Value of the Subaccount Units on the last day of the
period.
The yield of each Subaccount reflects the deduction of all
recurring fees and charges applicable to the Subaccount, such as
the Risk Charge, the asset-based Administrative Fee and the
Annual Fee (assuming an average Contract Value of $45,000), but
does not reflect any withdrawal charge, charge for applicable
premium taxes and/or any other taxes, increase in the Risk
Charge for an optional Death Benefit Rider, any charges for an
optional Rider, or any non-recurring fees or charges.
The Subaccounts’ yields will vary from time to time
depending upon market conditions, the composition of each
Portfolio and operating expenses of the Fund allocated to each
Portfolio. Consequently, any given performance quotation should
not be considered representative of the Subaccount’s
performance in the future. Yield should also be considered
relative to changes in Subaccount Unit Values and to the
relative risks associated with the investment policies and
objectives of the various Portfolios. In addition, because
performance will fluctuate, it may not provide a
2
basis for comparing the yield of a Subaccount with certain bank
deposits or other investments that pay a fixed yield or return
for a stated period of time.
Performance
Comparisons and Benchmarks
In advertisements and sales literature, we may compare the
performance of some or all of the Subaccounts to the performance
of other variable annuity issuers in general and to the
performance of particular types of variable annuities investing
in mutual funds, or series of mutual funds, with investment
objectives similar to each of the Subaccounts. This performance
may be presented as averages or rankings compiled by Lipper
Analytical Services, Inc. (“Lipper”), or Morningstar,
Inc. (“Morningstar”), which are independent services
that monitor and rank the performance of variable annuity
issuers and mutual funds in each of the major categories of
investment objectives on an industry-wide basis. Lipper’s
rankings include variable life issuers as well as variable
annuity issuers. The performance analyses prepared by Lipper and
Morningstar rank such issuers on the basis of total return,
assuming reinvestment of dividends and distributions, but do not
take sales charges, redemption fees or certain expense
deductions at the separate account level into consideration. In
addition, Morningstar prepares risk adjusted rankings, which
consider the effects of market risk on total return performance.
We may also compare the performance of the Subaccounts with
performance information included in other publications and
services that monitor the performance of insurance company
separate accounts or other investment vehicles. These other
services or publications may be general interest business
publications such as The Wall Street Journal, Barron’s,
Business Week, Forbes, Fortune, and Money.
In addition, our reports and communications to Contract Owners,
advertisements, or sales literature may compare a
Subaccount’s performance to various benchmarks that measure
the performance of a pertinent group of securities widely
regarded by investors as being representative of the securities
markets in general or as being representative of a particular
type of security. We may also compare the performance of the
Subaccounts with that of other appropriate indices of investment
securities and averages for peer universes of funds or data
developed by us derived from such indices or averages. Unmanaged
indices generally assume the reinvestment of dividends or
interest but do not generally reflect deductions for investment
management or administrative costs and expenses.
Tax
Deferred Accumulation
In reports or other communications to you or in advertising or
sales materials, we may also describe the effects of
tax-deferred compounding on the Separate Account’s
investment returns or upon returns in general. These effects may
be illustrated in charts or graphs and may include comparisons
at various points in time of returns under the Contract or in
general on a tax-deferred basis with the returns on a taxable
basis. Different tax rates may be assumed.
In general, individuals who own annuity contracts are not taxed
on increases in the value under the annuity contract until some
form of distribution is made from the contract. Thus, the
annuity contract will benefit from tax deferral during the
accumulation period, which generally will have the effect of
permitting an investment in an annuity contract to grow more
rapidly than a comparable investment under which increases in
value are taxed on a current basis. The following chart
illustrates this benefit by comparing accumulation under a
variable annuity contract with accumulations from an investment
on which gains are taxed on a current ordinary income basis.
The chart shows accumulations on an single Purchase Payment of
$10,000, assuming hypothetical annual returns of 0%, 4% and 8%,
compounded annually, and a tax rate of 33%. The values shown for
the taxable investment do not include any deduction for
management fees or other expenses but assume that taxes are
deducted annually from investment returns. The values shown for
the variable annuity do not reflect the deduction of contractual
expenses such as the Risk Charge (equal to an annual rate of
1.00% of average daily account value), the Administrative Fee
(equal to an annual rate of 0.15% of average daily account
value), the Annual Fee (equal to $40 per year if your Net
Contract Value is less than $50,000), any increase in the Risk
Charge for an optional Death Benefit Rider (equal to a maximum
annual rate of 0.20% of average daily Account Value), other
optional Rider charges (equal to a maximum annual rate of 1.75%
of the Protected Payment Base), a charge for premium taxes
and/or other taxes, any applicable withdrawal charge, or any
underlying Fund expenses.
Generally, the withdrawal charge is equal to 7% of the amount
withdrawn attributable to Purchase Payments that are one year
old, 7% of the amount withdrawn attributable to Purchase
Payments that are two years old, 6% of the amount withdrawn
attributable to Purchase Payments that are three years old, 5%
of the amount withdrawn attributable to
3
Purchase Payments that are four years old, 3% of the amount
withdrawn attributable to Purchase Payments that are five years
old, and 1% of the amount withdrawn attributable to Purchase
Payments that are six years old. The age of Purchase Payments is
considered 1 year old in the Contract Year we receive it
and increases by one year on the beginning of the day preceding
each Contract Anniversary. There is no withdrawal charge on
withdrawals of your Earnings, on amounts attributed to Purchase
Payments at least 7 years old, or to the extent that total
withdrawals that are free of charge during the Contract Year do
not exceed 10% of the sum of your remaining Purchase Payments at
the beginning of the Contract Year that have been held under
your Contract for less than seven years plus additional Purchase
Payments applied to your Contract during that Contract Year. If
these expenses and fees were taken into account, they would
reduce the investment return shown for both the taxable
investment and the hypothetical variable annuity contract. In
addition, these values assume that you do not surrender the
Contract or make any withdrawals until the end of the period
shown. The chart assumes a full withdrawal, at the end of the
period shown, of all Contract Value and the payment of taxes at
the 33% rate on the amount in excess of the Purchase Payment.
The rates of return illustrated are hypothetical and are not an
estimate or guarantee of performance. Actual tax rates may vary
for different assets (e.g. capital gains and qualifying dividend
income) and taxpayers from that illustrated. Withdrawals by and
distributions to Contract Owners who have not reached age
591/2 may
be subject to a tax penalty of 10%.
Pacific Select Distributors, Inc., our subsidiary, acts as the
distributor of the Contracts and offers the Contracts on a
continuous basis. PSD is located at 700 Newport Center Drive,
Newport Beach, California92660. PSD is registered as a
broker-dealer with the SEC and is a member of FINRA. We pay PSD
for acting as distributor under a Distribution Agreement. We and
PSD enter into selling agreements with broker-dealers whose
financial professionals are authorized by state insurance
departments to solicit applications for the Contracts. The
aggregate amount of underwriting commissions paid to PSD for
2009, 2008 and 2007 with regard to this Contract was
$70,979,668, $119,193,257 and $100,121,116, of which $0 was
retained.
PSD or an affiliate pays various sales compensation to
broker-dealers that solicit applications for the Contracts. PSD
or an affiliate also may provide reimbursement for other
expenses associated with the promotion and solicitation of
applications for the Contracts. Your financial professional
typically receives a portion of the compensation that is payable
to his or her broker-dealer in connection with the Contract,
depending on the agreement between your financial professional
and his or her firm. Pacific Life is not involved in determining
that compensation arrangement, which may present its own
incentives or conflicts. You may ask your financial professional
how he/she will personally be compensated for the transaction.
Under certain circumstances where PSD pays lower initial
commissions, certain broker-dealers that solicit applications
for Contracts may be paid an ongoing persistency trail
commission (sometimes called a residual). The mix of Purchase
Payment-based versus trail commissions varies depending upon our
agreement with the selling broker-dealer and the commission
option selected by your financial professional or broker-dealer.
Certain broker-dealers may also be paid an amount under a
persistency program which will be based on assets under
management and duration of contracts. The amount under the
persistency program for a financial professional is not expected
to exceed .25% of their total assets under management.
In addition to the Purchase Payment-based, trail commissions and
persistency program described above, we and/or an affiliate may
pay additional cash compensation from our own resources in
connection with the promotion and solicitation of applications
for the Contracts by some, but not all, broker-dealers. The
range of additional cash compensation based on Purchase Payments
generally does not exceed 0.40% and trailing compensation based
on Account Value generally does not exceed 0.10% on an annual
basis. Such additional compensation may give Pacific Life
greater access to financial professionals of the broker-dealers
that receive such compensation. While this greater access
provides the opportunity for training and other educational
programs so that your financial professional may serve you
better, this additional compensation also may afford Pacific
Life a “preferred” status at the recipient
broker-dealer and provide some other marketing benefit such as
website placement, access to financial professional lists, extra
marketing assistance or other heightened visibility and access
to the broker-dealer’s sales force that may otherwise
influence the way that the broker-dealer and the financial
professional market the Contracts.
As of December 31, 2009, the following firms have
arrangements in effect with the Distributor pursuant to which
the firm is entitled to receive a revenue sharing payment:
AMCORE Investments Inc., American Portfolios Financial Services
Inc., AmTrust Investment Services Inc., Askar Corporation,
Bancwest Investment Services Inc., Banc of America Investment
Services Inc., C C O Investment Services Corp, Capital
Investment Brokerage Inc., Capital Investment Group Inc.,
C U N A Brokerage Services Inc.,
C U S O Financial Services LP, Centaurus
Financial, Inc., Chevy Chase Financial Services Corp., Citigroup
Global Markets Inc., Colonial Brokerage Inc., Commonwealth
Financial Network, B B V A Compass Investment
Solutions Inc., Essex National Securities Inc., F S C
Securities Corporation, Fifth Third Securities Inc., Financial
Network Investment Corp., First Allied Securities Inc., First
Heartland Capital Inc., First Tennessee Brokerage Inc., Geneos
Wealth Management Inc., Great American Advisors Inc.,
I N G Financial Partners Inc., Infinex Investments
Inc., Invest Financial Corporation, Investacorp Inc., Investment
Centers of America Inc., Investment Professionals Inc.,
J J B Hilliard, W L Lyons Inc., Jacques
Financial L L C, Janney Montgomery Scott Inc., Key
Investment Services L L C, L P L Financial
Corp., Lincoln Financial Advisors Corp., Lincoln Financial
Securities Corp., M & T Securities Inc.,
M Holdings Securities Inc., M M L Investors
Services Inc., Merrill Lynch, Pierce, Fenner & Smith,
Morgan Keegan & Company Inc., Morgan
Stanley & Co. Incorporated, Multi-Financial Securities
Corp., Mutual Of Omaha
5
Investor Services Inc., NF P Securities Inc., National
Planning Corporation, NEXT Financial Group Inc., P N C
Investments L L C, Park Avenue Securities LLC.,
Primevest Financial Services Inc., ProEquities Inc.,
R B C Capital Markets Corporation, Raymond
James & Associates Inc., Raymond James Financial
Services Inc., Robert W Baird & Company Inc., Royal
Alliance Associates Inc., S I I Investments Inc.,
Sagepoint Financial Inc., Securian Financial Services Inc.,
Securities America, Sigma Financial Corp., Signator Investors
Inc., Sorrento Pacific Financial L L C, Sterne Agee
Financial Services Inc., Sterne, Agee & Leach Inc.,
Stifel Nicolaus & Company Inc., Suntrust Investment
Services Inc., Tower Square Securities Inc., Transamerica
Financial Advisors Inc., Triad Advisors Inc., U B S
Financial Services Inc., U S Bancorp Investments Inc.,
Unionbanc Investment Services L L C, United
Planners’ Financial Services of America, V S R
Financial Services Inc., Vision Investment Services Inc.,
Securities Financial Network L L C, Wachovia
Securities L L C, Walnut Street Securities, Wells
Fargo Investments LLC, Wescom Financial Services
L L C, Woodbury Financial Services Inc., Zions Direct
Inc.
We or our affiliates may also pay override payments, expense
allowances and reimbursements, bonuses, wholesaler fees, and
training and marketing allowances. Such payments may offset the
broker-dealer’s expenses in connection with activities that
it is required to perform, such as educating personnel and
maintaining records. Financial professionals may also receive
non-cash compensation such as expense-paid educational or
training seminars involving travel within and outside the U.S.
or promotional merchandise.
All of the compensation described in this section, and other
compensation or benefits provided by us or our affiliates, may
be more or less than the overall compensation on similar or
other products and may influence your financial professional or
broker-dealer to present this Contract over other investment
options. You may ask your financial professional about these
potential conflicts of interests and how he/she and his/her
broker-dealer are compensated for selling the Contract.
Portfolio Managers of the underlying Portfolios available under
this Contract may from time to time bear all or a portion of the
expenses of conferences or meetings sponsored by Pacific Life or
PSD that are attended by, among others, representatives of PSD,
who would receive information and/or training regarding the
Fund’s Portfolios and their management by the Portfolio
Managers in addition to information respecting the variable
annuity and/or life insurance products issued by Pacific Life
and its affiliates. Other persons may also attend all or a
portion of any such conferences or meetings, including
directors, officers and employees of Pacific Life, officers and
trustees of Pacific Select Fund, and spouses/guests of the
foregoing. The Pacific Select Fund Board of Trustees may hold
meetings concurrently with such a conference or meeting. The
Pacific Select Fund pays for the expenses of the meetings of its
Board of Trustees, including the pro rata share of expenses for
attendance by the Trustees at the concurrent conferences or
meetings sponsored by Pacific Life or PSD. Additional expenses
and promotional items may be paid for by Pacific Life and/or
Portfolio Managers. PSD serves as the Pacific Select Fund
Distributor.
The Unit Value of the Subaccount Units in each Variable
Investment Option is computed at the close of the New York
Stock Exchange, which is usually 4:00 p.m. Eastern time on
each Business Day. The initial Unit Value of each Subaccount was
$10 on the Business Day the Subaccount began operations. At the
end of each Business Day, the Unit Value for a Subaccount is
equal to:
Y × Z
where
(Y)
=
the Unit Value for that Subaccount as of the end of the
preceding Business Day; and
(Z)
=
the Net Investment Factor for that Subaccount for the period (a
“valuation period”) between that Business Day and the
immediately preceding Business Day.
The “Net Investment Factor” for a Subaccount for any
valuation period is equal to:
(A
¸
B) − C
where
(A)
=
the “per share value of the assets” of that Subaccount
as of the end of that valuation period, which is equal to: a+b+c
where
(a)
=
the net asset value per share of the corresponding Portfolio
shares held by that Subaccount as of the end of that valuation
period;
(b)
=
the per share amount of any dividend or capital gain
distributions made by the Fund for that Portfolio during that
valuation period; and
(c)
=
any per share charge (a negative number) or credit (a
positive number) for any income taxes or other amounts set aside
during that valuation period as a reserve for any income and/or
any other taxes which we determine to have resulted from the
operations of the Subaccount or Contract, and/or any taxes
attributable, directly or indirectly, to Investments;
(B)
=
the net asset value per share of the corresponding Portfolio
shares held by the Subaccount as of the end of the preceding
valuation period; and
(C)
=
a factor that assesses against the Subaccount net assets for
each calendar day in the valuation period, the basic Risk Charge
plus any applicable increase in the Risk Charge and the
Administrative Fee (see the CHARGES, FEES AND DEDUCTIONS
section in the Prospectus).
As explained in the Prospectus, the Annual Fee, if applicable,
will be charged proportionately against your Investment Options.
Assessments against your Variable Investment Options are
assessed against your Variable Account Value through the
automatic debit of Subaccount Units; the Annual Fee decreases
the number of Subaccount Units attributed to your Contract but
does not alter the Unit Value for any Subaccount.
Variable
Annuity Payment Amounts
The following steps show how we determine the amount of each
variable annuity payment under your Contract.
First:
Pay Applicable Premium Taxes
When you convert your Net Contract Value into annuity payments,
you must pay any applicable charge for premium taxes and/or
other taxes on your Contract Value (unless applicable law
requires those taxes to be paid at a later time). We assess this
charge by reducing your Account Value proportionately, relative
to your Account Value in each Subaccount and in any fixed
option, in an amount equal to the aggregate amount of the
charges. The remaining amount of your available Net Contract
Value may be used to provide variable annuity payments.
Alternatively, your remaining available Net Contract Value may
be used to provide fixed annuity payments, or it may be divided
to provide both fixed and variable annuity payments. You may
also choose to withdraw some or all of your remaining Net
Contract Value, less any applicable Annual Fees, any charge for
an optional Rider, and/or withdrawal charge, and any charges for
premium taxes and/or other taxes without converting this amount
into annuity payments.
7
Second:
The First Variable Payment
We begin by referring to your Contract’s Option Table for
your Annuity Option (the “Annuity Option Table”). The
Annuity Option Table allows us to calculate the dollar amount of
the first variable annuity payment under your Contract, based on
the amount applied toward the variable annuity. The number that
the Annuity Option Table yields will be based on the
Annuitant’s age (and, in certain cases, sex) and assumes a
5% rate of return, as described in more detail below.
Example: Assume a man is 65 years of age
at his Annuity Date and has selected a lifetime annuity with
monthly payments guaranteed for 10 years. According to the
Annuity Option Table, this man should receive an initial monthly
payment of $5.79 for every $1,000 of his Contract Value (reduced
by applicable charges) that he will be using to provide variable
payments. Therefore, if his Contract Value after deducting
applicable fees and charges is $100,000 on his Annuity Date and
he applies this entire amount toward his variable annuity, his
first monthly payment will be $579.00.
You may choose any other Annuity Option Table that assumes a
different rate of return which we offer at the time your Annuity
Option is effective.
Third:
Subaccount Annuity Units
For each Subaccount, we use the amount of the first variable
annuity payment under your Contract attributed to each
Subaccount to determine the number of Subaccount Annuity Units
that will form the basis of subsequent payment amounts. First,
we use the Annuity Option Table to determine the amount of that
first variable payment for each Subaccount. Then, for each
Subaccount, we divide that amount of the first variable annuity
payment by the value of one Subaccount Annuity Unit (the
“Subaccount Annuity Unit Value”) as of the end of the
Annuity Date to obtain the number of Subaccount Annuity Units
for that particular Subaccount. The number of Subaccount Annuity
Units used to calculate subsequent payments under your Contract
will not change unless exchanges of Annuity Units are made, (or
if the Joint and Survivor Annuity Option is elected and the
Primary Annuitant dies first) but the value of those Annuity
Units will change daily, as described below.
Fourth:
The Subsequent Variable Payments
The amount of each subsequent variable annuity payment will be
the sum of the amounts payable based on each Subaccount. The
amount payable based on each Subaccount is equal to the number
of Subaccount Annuity Units for that Subaccount multiplied by
their Subaccount Annuity Unit Value at the end of the Business
Day in each payment period you elected that corresponds to the
Annuity Date.
Each Subaccount’s Subaccount Annuity Unit Value, like its
Subaccount Unit Value, changes each day to reflect the net
investment results of the underlying investment vehicle, as well
as the assessment of the Risk Charge at an annual rate of 1.00%
and the Administrative Fee at an annual rate of 0.15%. In
addition, the calculation of Subaccount Annuity Unit Value
incorporates an additional factor; as discussed in more detail
below, this additional factor adjusts Subaccount Annuity Unit
Values to correct for the Option Table’s implicit assumed
annual investment return on amounts applied but not yet used to
furnish annuity benefits. Any increase in your Risk Charge for
an optional death benefit rider is not charged on and after the
Annuity Date.
Different Subaccounts may be selected for your Contract before
and after your Annuity Date, subject to any restrictions we may
establish. Currently, you may exchange Subaccount Annuity Units
in any Subaccount for Subaccount Annuity Units in any other
Subaccount(s) up to four times in any twelve month period after
your Annuity Date. The number of Subaccount Annuity Units in any
Subaccount may change due to such exchanges. Exchanges following
your Annuity Date will be made by exchanging Subaccount Annuity
Units of equivalent aggregate value, based on their relative
Subaccount Annuity Unit Values.
Understanding
the “Assumed Investment Return” Factors
The Annuity Option Table incorporates a number of implicit
assumptions in determining the amount of your first variable
annuity payment. As noted above, the numbers in the Annuity
Option Table reflect certain actuarial assumptions based on the
Annuitant’s age, and, in some cases, the Annuitant’s
sex. In addition, these numbers assume
8
that the amount of your Contract Value that you convert to a
variable annuity will have a positive net investment return of
5% each year during the payout of your annuity; thus 5% is
referred to as an “assumed investment return.”
The Subaccount Annuity Unit Value for a Subaccount will increase
only to the extent that the investment performance of that
Subaccount exceeds the Risk Charge, the Administrative Fee, and
the assumed investment return. The Subaccount Annuity Unit Value
for any Subaccount will generally be less than the Subaccount
Unit Value for that same Subaccount, and the difference will be
the amount of the assumed investment return factor.
Example: Assume the net investment performance of a
Subaccount is at a rate of 5.00% per year (after deduction of
the 1.00% Risk Charge and the 0.15% Administrative Fee). The
Subaccount Unit Value for that Subaccount would increase at a
rate of 5.00% per year, but the Subaccount Annuity Unit Value
would not increase (or decrease) at all. The net investment
factor for that 5% return [1.05] is then divided by the factor
for the 5% assumed investment return [1.05] and 1 is subtracted
from the result to determine the adjusted rate of change in
Subaccount Annuity Unit Value:
1.05
1.05
= 1; 1 − 1 = 0; 0 × 100% = 0%.
If the net investment performance of a Subaccount’s assets
is at a rate less than 5.00% per year, the Subaccount Annuity
Unit Value will decrease, even if the Subaccount Unit Value is
increasing.
Example: Assume the net investment performance of a
Subaccount is at a rate of 2.60% per year (after deduction of
the 1.00% Risk Charge and the 0.15% Administrative Fee). The
Subaccount Unit Value for that Subaccount would increase at a
rate of 2.60% per year, but the Subaccount Annuity Unit Value
would decrease at a rate of 2.29% per year. The net
investment factor for that 2.6% return [1.026] is then divided
by the factor for the 5% assumed investment return [1.05] and 1
is subtracted from the result to determine the adjusted rate of
change in Subaccount Annuity Unit Value:
The assumed investment return will always cause increases in
Subaccount Annuity Unit Values to be somewhat less than if the
assumption had not been made, will cause decreases in Subaccount
Annuity Unit Values to be somewhat greater than if the
assumption had not been made, and will (as shown in the example
above) sometimes cause a decrease in Subaccount Annuity Unit
Values to take place when an increase would have occurred if the
assumption had not been made. If we had assumed a higher
investment return in our Annuity Option tables, it would produce
annuities with larger first payments, but the increases in
subaccount annuity payments would be smaller and the decreases
in subsequent annuity payments would be greater; a lower assumed
investment return would produce annuities with smaller first
payments, and the increases in subsequent annuity payments would
be greater and the decreases in subsequent annuity payments
would be smaller.
If variable payments are elected under Annuity Options 2
and 4, you may redeem all remaining guaranteed variable payments
after the Annuity Date. Also, under Option 4, partial
redemptions of remaining guaranteed variable payments after the
Annuity Date are available. If you elect to redeem all
remaining guaranteed variable payments in a single sum, we will
not make any additional variable annuity payments during the
Annuitant’s lifetime or the remaining guaranteed period
after the redemption. The amount available upon full
redemption would be the present value of any remaining
guaranteed variable payments at the assumed investment return.
Any applicable withdrawal charge will be deducted from the
present value as if you made a full withdrawal, or if
applicable, a partial withdrawal. For purposes of calculating
the withdrawal charge and Free Withdrawal amount, it will be
assumed that the Contract was never converted to provide annuity
payments and any prior variable annuity payments in that
Contract Year will be treated as if they were partial
withdrawals from the Contract (see the CHARGES, FEES AND
DEDUCTIONS—Withdrawal Charge section in the
Prospectus). For example, assume that a Contract was issued with
a single investment of $10,000 and in Contract Year 4 the
Owner elects to receive variable annuity payments under Annuity
Option 4. In Contract Year 5, the Owner elects to make
a partial redemption of $5,000. The withdrawal charge as a
percentage of the Purchase Payments with an age of 5 years
is 3%. Assuming the Free Withdrawal amount
9
immediately prior to the partial redemption is $300, the
withdrawal charge for the partial redemption will be $141
(($5,000 − $300) * 3%). No withdrawal charge
will be imposed on a redemption if:
•
the Annuity Option is elected as the form of payments of death
benefit proceeds, or
•
the Annuitant dies before the period certain has ended and the
Beneficiary requests a redemption of the variable annuity
payments.
The variable payment amount we use in calculating the present
value is determined by summing an amount for each Subaccount,
which we calculate by multiplying your Subaccount Annuity Units
by the Annuity Unit Value next computed after we receive your
redemption request. This variable payment amount is then
discounted at the assumed investment return from each future
Annuity Payment date that falls within the payment guaranteed
period. The sum of these discounted remaining variable payment
amounts is the present value of remaining guaranteed variable
payments.
If you elect to redeem all remaining guaranteed variable
payments in a single sum, we will not make any additional
variable annuity payments during the remaining guaranteed period
after the redemption.
If you elect to redeem a portion of the remaining guaranteed
variable payments in a single sum, we will reduce the number of
Annuity Units for each Subaccount by the same percentage as the
partial redemption value bears to the amount available upon a
full redemption.
Redemption of remaining guaranteed variable payments will not
affect the amount of any fixed annuity payments.
Corresponding
Dates
If any transaction or event under your Contract is scheduled to
occur on a “corresponding date” that does not exist in
a given calendar period, the transaction or event will be deemed
to occur on the following Business Day. In addition, as stated
in the Prospectus, any event scheduled to occur on a day that is
not a Business Day will occur on the next succeeding Business
Day.
Example: If your Contract is issued on
February 29 in year 1 (a leap year), your Contract
Anniversary in years 2, 3 and 4 will be on March 1.
Example: If your Annuity Date is July 31 and
you select monthly annuity payments, the payments received will
be based on valuations made on July 31, August 31,
October 1 (for September), October 31, December 1
(for November), December 31, January 31, March 1
(for February), March 31, May 1 (for April),
May 31 and July 1 (for June).
Age and
Sex of Annuitant
The Contracts generally provide for sex-distinct annuity income
factors in the case of life annuities. Statistically, females
tend to have longer life expectancies than males; consequently,
if the amount of annuity payments is based on life expectancy,
they will ordinarily be higher if an annuitant is male than if
an annuitant is female. Certain states’ regulations
prohibit sex-distinct annuity income factors, and Contracts
issued in those states will use unisex factors. In addition,
Contracts issued in connection with Qualified Plans are required
to use unisex factors.
We may require proof of your Annuitant’s age and sex before
or after commencing annuity payments. If the age or sex (or
both) of your Annuitant are incorrectly stated in your Contract,
we will correct the amount payable to equal the amount that the
annuitized portion of the Contract Value under that Contract
would have purchased for your Annuitant’s correct age and
sex. If we make the correction after annuity payments have
started, and we have made overpayments based on the incorrect
information, we will deduct the amount of the overpayment, with
interest at 3% a year, from any payments due then or later; if
we have made underpayments, we will add the amount, with
interest at 3% a year, of the underpayments to the next payment
we make after we receive proof of the correct age and/or sex.
Additionally, we may require proof of the Annuitant’s or
Owner’s age before any payments associated with the Death
Benefit provisions of your Contract are made. If the age or sex
of the Annuitant is incorrectly stated in your Contract, we will
base any payment associated with the Death Benefit provisions on
your Contract on the Annuitant’s or Owner’s correct
age or sex.
10
Systematic
Transfer Programs
The fixed option(s) are not available in connection with
portfolio rebalancing. If you are using the earnings sweep, you
may also use portfolio rebalancing only if you selected the Cash
Management Subaccount. You may not use dollar cost averaging,
DCA Plus, and the earnings sweep at the same time. Only
portfolio rebalancing is available after you annuitize. The
systematic transfer options are subject to the same requirements
and restrictions as non-systematic transfers. In addition, no
fixed option(s) may be used as the target Investment Option
under any systematic transfer program.
Dollar
Cost Averaging
When you request dollar cost averaging, you are authorizing us
to make periodic reallocations of your Contract Value without
waiting for any further instruction from you. You may request to
begin or stop dollar cost averaging at any time prior to your
Annuity Date; the effective date of your request will be the day
we receive notice from you in a form satisfactory to us. Your
request may specify the date on which you want your first
transfer to be made. Your first transfer may not be made until
30 days after your Contract Date, and if you specify an
earlier date, your first transfer will be delayed until one
calendar month after the date you specify. If you request dollar
cost averaging on your application for your Contract and you
fail to specify a date for your first transfer, your first
transfer will be made one period after your Contract Date (that
is, if you specify monthly transfers, the first transfer will
occur 30 days after your Contract Date; quarterly
transfers, 90 days after your Contract Date; semi-annual
transfers, 180 days after your Contract Date; and if you
specify annual transfers, the first transfer will occur on your
Contract Anniversary). If you stop dollar cost averaging, you
must wait 30 days before you may begin this option again.
Currently, we are not enforcing the 30 day waiting period
but we reserve the right to enforce such waiting period in the
future.
Your request to begin dollar cost averaging must specify the
Investment Option you wish to transfer money from (your
“source account”). You may choose any one Investment
Option as your source account. The Account Value of your source
account must be at least $5,000 for you to begin dollar cost
averaging. Currently, we are not enforcing the minimum Account
Value but we reserve the right to enforce such minimum amounts
in the future.
Your request to begin dollar cost averaging must also specify
the amount and frequency of your transfers. You may choose
monthly, quarterly, semiannual or annual transfers. The amount
of your transfers may be specified as a dollar amount or a
percentage of your source Account Value; however, each transfer
must be at least $250. Currently, we are not enforcing the
minimum transfer amount but we reserve the right to enforce such
minimum amounts in the future. Dollar cost averaging transfers
are not subject to the same requirements and limitations as
other transfers.
Finally, your request must specify the Variable Investment
Option(s) you wish to transfer amounts to (your
“target account(s)”). If you select more than one
target account, your dollar cost averaging request must specify
how transferred amounts should be allocated among the target
accounts. Your source account may not also be a target account.
Your dollar cost averaging transfers will continue until the
earlier of:
•
your request to stop dollar cost averaging is effective, or
•
your source Account Value is zero, or
•
your Annuity Date.
If, as a result of a dollar cost averaging transfer, your source
Account Value falls below any minimum Account Value we may
establish, we have the right, at our option, to transfer that
remaining Account Value to your target account(s) on a
proportionate basis relative to your most recent allocation
instructions. We may change, terminate or suspend the dollar
cost averaging option at any time.
Portfolio
Rebalancing
Portfolio rebalancing allows you to maintain the percentage of
your Contract Value allocated to each Variable Investment Option
at a pre-set level prior to annuitization.
11
For example, you could specify that 30% of your Contract Value
should be in the Equity Index Subaccount, 40% in the Managed
Bond Subaccount, and 30% in the Growth LT Subaccount.
Over time, the variations in each Subaccount’s investment
results will shift this balance of these Subaccount Value
allocations. If you elect the portfolio rebalancing feature, we
will automatically transfer your Subaccount Value back to the
percentages you specify.
You may choose to have rebalances made quarterly, semi-annually
or annually. Only portfolio rebalancing is available after you
annuitize.
Procedures for selecting portfolio rebalancing are generally the
same as those discussed in detail above for selecting dollar
cost averaging: You may make your request at any time prior to
your Annuity Date and it will be effective when we receive it in
a form satisfactory to us. If you stop portfolio rebalancing,
you must wait 30 days to begin again. Currently, we are not
enforcing the 30-day waiting period but we reserve the right to
enforce such waiting period in the future. If you specify a date
fewer than 30 days after your Contract Date, your first
rebalance will be delayed one month, and if you request
rebalancing on your application but do not specify a date for
the first rebalance, it will occur one period after your
Contract Date, as described above under Dollar Cost Averaging.
We may change, terminate or suspend the portfolio rebalancing
feature at any time.
Earnings
Sweep
An earnings sweep automatically transfers the earnings
attributable to the Cash Management Subaccount (the “sweep
option”) to one or more other Variable Investment Options
(your “target option(s)”). The Account Value of your
sweep option will be required to be at least $5,000 when you
elect the earnings sweep. Currently, we are not enforcing the
minimum Account Value but we reserve the right to enforce such
minimum amounts in the future.
You may choose to have earnings sweeps occur monthly, quarterly,
semi-annually or annually until you annuitize. At each earnings
sweep, we will automatically transfer your accumulated earnings
attributable to your sweep option for the previous period
proportionately to your target option(s). That is, if you select
a monthly earnings sweep, we will transfer the sweep option
earnings from the preceding month; if you select a semi-annual
earnings sweep, we will transfer the sweep option earnings
accumulated over the preceding 6 months. Earnings sweep
transfers are not subject to the same requirements and
limitations as other transfers.
To determine the earnings, we take the change in the sweep
option’s Account Value during the sweep period, add any
withdrawals or transfers out of the sweep option Account that
occurred during the sweep period, and subtract any allocations
to the sweep option Account during the sweep period. The result
of this calculation represents the “total earnings”
for the sweep period.
If, during the sweep period, you withdraw or transfer amounts
from the sweep option Account, we assume that earnings are
withdrawn or transferred before any other Account Value.
Therefore, your “total earnings” for the sweep period
will be reduced by any amounts withdrawn or transferred during
the sweep option period. The remaining earnings are eligible for
the sweep transfer.
Procedures for selecting the earnings sweep are generally the
same as those discussed in detail above for selecting dollar
cost averaging and portfolio rebalancing: You may make your
request at any time and it will be effective when we receive it
in a form satisfactory to us. If you stop the earnings sweep,
you must wait 30 days to begin again. Currently, we are not
enforcing the 30-day waiting period but we reserve the right to
enforce such waiting period in the future. If you specify a date
fewer than 30 days after your Contract Date, your first
earnings sweep will be delayed one month, and if you request the
earnings sweep on your application but do not specify a date for
the first sweep, it will occur one period after your Contract
Date, as described above under Dollar Cost Averaging.
If, as a result of an earnings sweep transfer, your source
Account Value falls below $500, we have the right, at our
option, to transfer that remaining Account Value to your target
account(s) on a proportionate basis relative to your most recent
allocation instructions. We may change, terminate or suspend the
earnings sweep option at any time.
12
Pre-Authorized
Withdrawals
You may specify a dollar amount for your pre-authorized
withdrawals, or you may specify a percentage of your Contract
Value or an Account Value. You may direct us to make your
pre-authorized withdrawals from one or more specific Investment
Options. If you do not give us these specific instructions,
amounts will be deducted proportionately from your Account Value
in each Investment Option.
Procedures for selecting pre-authorized withdrawals are
generally the same as those discussed in detail above for
selecting dollar cost averaging, portfolio rebalancing, and
earnings sweeps: You may make your request at any time and it
will be effective when we receive it in a form satisfactory to
us. If you stop the pre-authorized withdrawals, you must wait
30 days to begin again. Currently, we are not enforcing the
30-day waiting period but we reserve the right to enforce such
waiting period in the future.
If your pre-authorized withdrawals cause your Account Value in
any Investment Option to fall below $500, we have the right, at
our option, to transfer that remaining Account Value to your
other Investment Options on a proportionate basis relative to
your most recent allocation instructions. If your pre-authorized
withdrawals cause your Contract Value to fall below $1,000, we
may, at our option, terminate your Contract and send you the
remaining withdrawal proceeds.
Pre-authorized withdrawals are subject to the same withdrawal
charges as are other withdrawals, and each withdrawal is subject
to any applicable charge for premium taxes and/or other taxes,
to federal income tax on its taxable portion, and, if you have
not reached age
591/2,
may be subject to a 10% federal tax penalty.
Joint
Annuitants on Qualified Contracts
On your Annuity Date, if your Contract was issued in connection
with a Qualified Plan subject to Title I of the Employee
Retirement Income Security Act of 1974 (“ERISA”), and
you change your marital status after your Contract Date, you may
be permitted to add a Joint Annuitant and to change your Joint
Annuitant. Generally speaking, you may be permitted to add a new
spouse as a Joint Annuitant, and you may be permitted to remove
a Joint Annuitant who is no longer your spouse.
More on
Federal Tax Issues
Section 817(h) of the Code provides that the investments
underlying a variable annuity must satisfy certain
diversification requirements. Details on these diversification
requirements appear in the Pacific Select Fund SAI. We believe
the underlying Variable Investment Options for the Contract meet
these requirements. On March 7, 2008, the Treasury Department
issued Final Regulations under Section 817(h). These Final
Regulations do not provide guidance concerning the extent to
which you may direct your investments to particular divisions of
a separate account. Such guidance may be included in regulations
or revenue rulings under Section 817(d) relating to the
definition of a variable contract. We reserve the right to make
such changes as we deem necessary or appropriate to ensure that
your Contract continues to qualify as an annuity for tax
purposes. Any such changes will apply uniformly to affected
Contract Owners and will be made with such notice to affected
Contract Owners as is feasible under the circumstances.
For a variable life insurance contract or a variable annuity
contract to qualify for tax deferral, assets in the separate
accounts supporting the contract must be considered to be owned
by the insurance company and not by the contract owner. Under
current U.S. tax law, if a contract owner has excessive control
over the investments made by a separate account, or the
underlying fund, the contract owner will be taxed currently on
income and gains from the account or fund. In other words, in
such a case of “investor control” the contract owner
would not derive the tax benefits normally associated with
variable life insurance or variable annuities.
Generally, according to the IRS, there are two ways that
impermissible investor control may exist. The first relates to
the design of the contract or the relationship between the
contract and a separate account or underlying fund. For example,
at various times, the IRS has focused on, among other factors,
the number and type of investment choices available pursuant to
a given variable contract, whether the contract offers access to
funds that are available to the general public, the number of
transfers that a contract owner may make from one investment
option to another, and the degree to which a contract owner may
select or control particular investments.
13
With respect to this first aspect of investor control, we
believe that the design of our contracts and the relationship
between our contracts and the Portfolios satisfy the current
view of the IRS on this subject, such that the investor control
doctrine should not apply. However, because of some uncertainty
with respect to this subject and because the IRS may issue
further guidance on this subject, we reserve the right to make
such changes as we deem necessary or appropriate to reduce the
risk that your contract might not qualify as a life insurance
contract or as an annuity for tax purposes.
The second way that impermissible investor control might exist
concerns your actions. Under the IRS pronouncements, you may not
select or control particular investments, other than choosing
among broad investment choices such as selecting a particular
Portfolio. You may not select or direct the purchase or sale of
a particular investment of a Separate Account, a Subaccount (or
Variable Investment Option), or a Portfolio. All investment
decisions concerning the Separate Accounts and the Subaccounts
must be made by us, and all investment decisions concerning the
underlying Portfolios must be made by the portfolio manager for
such Portfolio in his or her sole and absolute discretion, and
not by the contract owner. Furthermore, under the IRS
pronouncements, you may not enter into an agreement or
arrangement with a portfolio manager of a Portfolio or
communicate directly or indirectly with such a portfolio manager
or any related investment officers concerning the selection,
quality, or rate of return of any specific investment or group
of investments held by a Portfolio, and you may not enter into
any such agreement or arrangement or have any such communication
with us or PLFA.
Finally, the IRS may issue additional guidance on the investor
control doctrine, which might further restrict your actions or
features of the variable contract. Such guidance could be
applied retroactively. If any of the rules outlined above are
not complied with, the IRS may seek to tax you currently on
income and gains from a Portfolio such that you would not derive
the tax benefits normally associated with variable life
insurance or variable annuities. Although highly unlikely, such
an event may have an adverse impact on the fund and other
variable contracts. We urge you to consult your own tax adviser
with respect to the application of the investor control doctrine.
Loans
Certain Owners of Qualified Contracts may borrow against their
Contracts. Otherwise loans from us are not permitted. You may
request a loan from us, using your Contract Value as your only
security if your Qualified Contract is:
•
not subject to Title 1 of ERISA,
•
issued under Section 403(b) of the Code, and
•
permits loans under its terms (a “Loan Eligible Plan”).
You will be charged interest on your Contract Debt at a fixed
annual rate equal to 5%. The amount held in the Loan Account to
secure your loan will earn a return equal to an annual rate of
3%. This loan rate may vary by state.
Interest charges accrue on your Contract Debt daily, beginning
on the effective date of your loan. Interest earned on the Loan
Account Value accrue daily beginning on the day following the
effective date of the loan, and those earnings will be
transferred once a year to your Investment Options in accordance
with your most recent allocation instructions.
We may change these loan provisions to reflect changes in the
Code or interpretations thereof.
Tax and
Legal Matters
The tax and ERISA rules relating to Contract loans are complex
and in many cases unclear. For these reasons, and because the
rules vary depending on the individual circumstances, these
loans are processed by your Plan Administrator. We urge you
to consult with a qualified tax adviser prior to effecting any
loan transaction under your Contract.
Generally, interest paid on your loan under a 403(b)
tax-sheltered annuity will be considered non-deductible
“personal interest” under Section 163(h) of the
Code, to the extent the loan comes from and is secured by your
pre-tax contributions, even if the proceeds of your loan are
used to acquire your principal residence.
14
Loan
Procedures
Your loan request must be submitted on our Non-ERISA TSA
Application and Loan Agreement Form. You may submit a loan
request 30 days after your Contract Date and before your
Annuity Date. However, before requesting a new loan, you must
wait 30 days after the last payment of a previous loan. If
approved, your loan will usually be effective as of the end of
the Business Day on which we receive all necessary documentation
in proper form. We will normally forward proceeds of your loan
to you within 7 calendar days after the effective date of
your loan.
In order to secure your loan, on the effective date of your
loan, we will transfer an amount equal to the principal amount
of your loan into an account called the “Loan
Account.” The Loan Account is held under the General
Account. To make this transfer, we will transfer amounts
proportionately from your Investment Options based on your
Account Value in each Investment Option.
As your loan is repaid, a portion, corresponding to the amount
of the repayment of any amount then held as security for your
loan, will be transferred from the Loan Account back into your
Investment Options relative to your most recent allocation
instructions.
A transfer from the Loan Account back into your Investment
Options following a loan repayment is not considered a transfer
under the transfer limitations as stated in the HOW YOUR
PURCHASE PAYMENTS ARE ALLOCATED – Transfers and
Market-timing Restrictions section in the Prospectus.
Loan
Terms
You may have only one loan outstanding at any time. The minimum
loan amount is $1,000, subject to certain state limitations.
Your Contract Debt at the effective date of your loan may not
exceed the lesser of:
•
50% of the amount available for withdrawal under this Contract
(see the WITHDRAWALS – Optional
Withdrawals – Amount Available for
Withdrawal in the Prospectus), or
•
$50,000 less your highest outstanding Contract Debt during the
12-month period immediately preceding the effective date of your
loan.
You should refer to the terms of your particular Loan Eligible
Plan for any additional loan restrictions. If you have other
loans outstanding pursuant to other Loan Eligible Plans, the
amount you may borrow may be further restricted. We are not
responsible for making any determination (including loan amounts
permitted) or any interpretation with respect to your Loan
Eligible Plan.
If you purchase any optional living benefit rider (including any
and all previous, current, and future versions), there may be
adverse consequences to taking a loan while an optional living
benefit rider is in effect. If you have an existing loan on your
Contract, you should carefully consider whether an optional
living benefit rider is appropriate for you.
Repayment
Terms
Your loan, including principal and accrued interest, generally
must be repaid in quarterly installments. An installment will be
due in each quarter on the date corresponding to the effective
date of your loan, beginning with the first such date following
the effective date of your loan. See the Qualified
Contracts – Loans section in the Prospectus.
Example: On May 1, we receive your loan
request, and your loan is effective. Your first quarterly
payment will be due on August 1.
Adverse tax consequences may result if you fail to meet the
repayment requirements for your loan. You must repay principal
and interest of any loan in substantially equal payments over
the term of the loan. Generally, the term of the loan will be
5 years from the effective date of the loan. However, if
you have certified to us that your loan proceeds are to be used
to acquire a principal residence for yourself, you may request a
loan term of 30 years. In either case, however, you must
repay your loan prior to your Annuity Date. If you elect to
annuitize (or withdraw) your Net Contract Value while you have
an outstanding loan, we will deduct any Contract Debt from your
Contract Value at the time of the annuitization (or withdrawal)
to repay the Contract Debt.
15
You may prepay your entire loan at any time. If you do so, we
will bill you for any unpaid interest that has accrued through
the date of payoff. Your loan will be considered repaid only
when the interest due has been paid. Subject to any necessary
approval of state insurance authorities, while you have Contract
Debt outstanding, we will treat all payments you send us as
Investments unless you specifically indicate that your payment
is a loan repayment or include your loan payment notice with
your payment. To the extent allowed by law, any loan repayments
in excess of the amount then due will be applied to the
principal balance of your loan. Such repayments will not change
the due dates or the periodic repayment amount due for future
periods. If a loan repayment is in excess of the principal
balance of your loan, any excess repayment will be refunded to
you. Repayments we receive that are less than the amount then
due will be returned to you, unless otherwise required by law.
If we have not received your full payment by its due date, we
will declare the entire remaining loan balance in default. At
that time, we will send written notification of the amount
needed to bring the loan back to a current status. You will have
60 days from the date on which the loan was declared in
default (the “grace period”) to make the required
payment.
If the required payment is not received by the end of the grace
period, the defaulted loan balance plus accrued interest and any
withdrawal charge will be withdrawn from your Contract Value,
if amounts under your Contract are eligible for
distribution. In order for an amount to be eligible for
distribution from a TSA funded by salary reductions you must
meet one of five triggering events. The triggering events are:
•
attainment of age
591/2,
•
severance from employment,
•
death,
•
disability, and
•
financial hardship (with respect to contributions only, not
income or earnings on these contributions).
If those amounts are not eligible for distribution, the
defaulted loan balance plus accrued interest and any withdrawal
charge will be considered a Deemed Distribution and will be
withdrawn when such Contract Values become eligible. In either
case, the Distribution or the Deemed Distribution will be
considered a currently taxable event, and may be subject
to federal tax withholding, the withdrawal charge and may be
subject to a 10% federal tax penalty.
If there is a Deemed Distribution under your Contract and to the
extent allowed by law, any future withdrawals will first be
applied as repayment of the defaulted Contract Debt, including
accrued interest and charges for applicable taxes. Any amounts
withdrawn and applied as repayment of Contract Debt will first
be withdrawn from your Loan Account, and then from your
Investment Options on a proportionate basis relative to the
Account Value in each Investment Option. If you have an
outstanding loan that is in default, the defaulted Contract Debt
will be considered a withdrawal for the purpose of calculating
any Death Benefit Amount and/or Guaranteed Minimum Death Benefit.
The terms of any such loan are intended to qualify for the
exception in Code Section 72(p)(2) so that the distribution
of the loan proceeds will not constitute a distribution that is
taxable to you. To that end, these loan provisions will be
interpreted to ensure and maintain such tax qualification,
despite any other provisions to the contrary. Subject to any
regulatory approval, we reserve the right to amend your Contract
to reflect any clarifications that may be needed or are
appropriate to maintain such tax qualification or to conform any
terms of our loan arrangement with you to any applicable changes
in the tax qualification requirements. We will send you a copy
of any such amendment. If you refuse such an amendment, it may
result in adverse tax consequences to you.
Safekeeping
of Assets
We are responsible for the safekeeping of the assets of the
Separate Account. These assets are held separate and apart from
the assets of our General Account and our other separate
accounts.
Some optional riders allow for owner elected
Resets/Step-Ups.
If you elect to
Reset/Step-Up,
your election must be received, in a form satisfactory to us, at
our Service Center within 60 days after the Contract Anniversary
(“60 day period”) on which the
Reset/Step-Up
is effective. We may, at our sole discretion, allow
Resets/Step-Ups
after the 60 day period. We reserve the right to refuse a
Reset/Step-Up
request after the 60 day period regardless of whether we
may have allowed you or others to
Reset/Step-Up
in the past. Each Contract Anniversary starts a new 60 day
period in which a
Reset/Step-Up
may be elected.
Taking a withdrawal before a certain age or a withdrawal that is
greater than the allowed annual withdrawal amount under a
particular Rider, may result in adverse consequences such as a
reduction in Rider benefits or the failure to receive lifetime
withdrawals under a Rider.
There may be adverse consequences to taking a loan while an
optional Rider is in effect. If you have an existing loan on
your Contract, you should carefully consider whether an optional
Rider is appropriate for you.
Investment Allocation Requirements
At initial purchase and during the entire time that you own an
optional living benefit Rider, you must allocate your entire
Contract Value to an asset allocation program or Investment
Options we make available for these Riders. You may allocate
your Contract Value according to the following requirements:
•
100% to one allowable Asset Allocation Model, OR
•
100% among allowable Investment Options.
You may also use the DCA Plus program to transfer amounts to an
Asset Allocation Model or among the Investment Options listed
below. Currently, the allowable Asset Allocation Models and
Investment Options are as follows:
Franklin Templeton VIP Founding Funds Allocation Fund
Custom Model
GE Investments Total Return Fund
Pacific Dynamix – Conservative Growth
Pacific Dynamix – Moderate Growth
Pacific Dynamix – Growth
PIMCO Global Multi-Asset Portfolio
Van Kampen LIT Global Tactical Asset Allocation Portfolio
1
Portfolio Optimization Model E will
no longer be an allowable Asset Allocation Model for any
optional living benefit rider with a Rider Effective Date on or
after January 1, 2009.
You may transfer your entire Contract Value between an allowable
Asset Allocation Model and allowable Investment Options, between
allowable Asset Allocation Models or between allowable
Investment Options, subject to certain transfer limitations. See
the HOW YOUR PURCHASE PAYMENTS ARE ALLOCATED –
Transfers and Market-timing Restrictions section of the
Prospectus. Keep in mind that you must allocate your
entire Contract Value to either one allowable
Asset Allocation Model or among the allowable Investment
Options. If you do not allocate your entire Purchase
Payment or Contract Value according to the requirements above,
your Rider will terminate.
17
Allowable Asset Allocation Models – Portfolio
Optimization. You may transfer your entire
Contract Value to a different Portfolio Optimization Model
without affecting your Rider. However, if you change the
allocation percentages within the Portfolio Optimization Model
you have selected, including allocating any subsequent Purchase
Payments inconsistent with your Model’s target allocations,
you will no longer be participating in the Portfolio
Optimization program and your Rider will terminate. See the
HOW YOUR PURCHASE PAYMENTS ARE ALLOCATED –
Portfolio Optimization section of the Prospectus for
information about the program.
Allowable Asset Allocation Models – Custom
Model. You may also make transfers between the
Investment Options available under the Custom Model program as
long as you follow the Custom Model parameters. However, if you
make transfers, subsequent Purchase Payments or change the
allocation percentages within your Custom Model and they do not
comply with the Custom Model parameters, you will no longer be
participating in the Custom Model program and your Rider will
terminate. See the HOW YOUR PURCHASE PAYMENTS ARE
ALLOCATED – Custom Model section of the Prospectus
for information about the program.
Allowable Investment Options. You may allocate
your entire Contract Value among any of the allowable Investment
Options listed in the table above.
By adding an optional living benefit Rider to your Contract, you
agree to the above referenced investment allocation requirements
for the entire period that you own a Rider. These requirements
may limit the number of Investment Options that are otherwise
available to you under your Contract. We reserve the right to
add, remove or change allowable asset allocation programs or
allowable Investment Options at any time. We may make such a
change due to a fund reorganization, fund substitution, or when
we believe a change is necessary to protect our ability to
provide the guarantees under these riders. If such a change is
required, we will provide you with reasonable notice (generally
90 calendar days unless we are required to give less notice)
prior to the effective date of such change to allow you to
reallocate your Contract Value to maintain your rider benefits.
If you do not reallocate your Contract Value your rider will
terminate.
We will send you written notice in the event any transaction
made by you will involuntarily cause the Rider to terminate for
failure to allocate your entire Contract Value to an asset
allocation program or Investment Options we make available for
these Riders. However, you will have 10 Business Days after the
date of our written notice (“10 day period”), to
instruct us to take appropriate corrective action to continue
participation in an allowable asset allocation program or
allowable Investment Options to continue the Rider.
Flexible
Lifetime Income Plus Rider (Single)
Purchasing
the Rider
This Rider is no longer available for purchase.
Rider
Terms
Annual RMD Amount – The amount required to be
distributed each Calendar Year for purposes of satisfying the
minimum distribution requirements of Code Section 401(a)(9)
(“Section 401(a)(9)”) and related Code provisions
in effect as of the Rider Effective Date.
Protected Payment Amount – The maximum amount
that can be withdrawn under this Rider without reducing the
Protected Payment Base.
If the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner) is
age 591/2
or older when the first withdrawal was taken or the most recent
reset, whichever is later, the Protected Payment Amount on any
day after the Rider Effective Date is equal to the withdrawal
percentage multiplied by the Protected Payment Base as of that
day, less cumulative withdrawals during the Contract Year.
18
If the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner) is younger than
age 591/2
when the first withdrawal was taken or the most recent reset,
whichever is later, the Protected Payment Amount on any day
after the Rider Effective Date is equal to the lesser of:
•
the withdrawal percentage multiplied by the Protected Payment
Base as of that day, less cumulative withdrawals during that
Contract Year, or
•
the Remaining Protected Balance as of that day.
The Protected Payment Amount will never be less than zero. The
initial Protected Payment Amount on the Rider Effective Date is
equal to the applicable withdrawal percentage (based on the
Owner’s age at the time of purchase) multiplied by the
Protected Payment Base.
Protected Payment Base – An amount used to
determine the Protected Payment Amount. The Protected Payment
Base will never be less than zero and will remain unchanged
except as otherwise described under the provisions of this
Rider. The initial Protected Payment Base is equal to the
initial Purchase Payment, if the Rider Effective Date is on the
Contract Date, or the Contract Value, if the Rider Effective
Date is on a Contract Anniversary.
Remaining Protected Balance – The amount
available for future withdrawals made under this Rider. The
Remaining Protected Balance will never be less than zero. The
initial Remaining Protected Base is equal to the initial
Purchase Payment, if the Rider Effective Date is on the Contract
Date, or the Contract Value, if the Rider Effective Date is on a
Contract Anniversary.
Annual Credit – An amount added to the
Protected Payment Base and Remaining Protected Balance.
Reset Date – Any Contract Anniversary after the
Rider Effective Date on which an Automatic Reset or an
Owner-Elected Reset occurs.
Rider Effective Date – The date the guarantees
and charges for the Rider become effective. If the Rider is
purchased within 60 days of the Contract Date, the Rider
Effective Date is the Contract Date. If the Rider is purchased
within 60 days of a Contract Anniversary, the Rider Effective
Date is the date of that Contract Anniversary.
How the
Rider Works
On any day, this Rider guarantees you can withdraw up to the
Protected Payment Amount each contract year, regardless of
market performance, until the Rider terminates. Lifetime
withdrawals up to the Protected Payment Amount may continue
after the Remaining Protected Balance is reduced to
zero (0) if the oldest Owner (or youngest Annuitant, in the
case of a Non-Natural Owner) was
age 591/2
or older when the first withdrawal was taken after the Rider
Effective Date or the most recent Reset Date, whichever is
later. If a withdrawal was taken before age
591/2
and there was no subsequent Reset, the Rider will terminate once
the Remaining Protected Balance is reduced to zero (0).
This Rider also provides for an amount (an “Annual
Credit”) to be added to the Protected Payment Base and
Remaining Protected Balance. Once the Rider is purchased, you
cannot request a termination of the Rider (see the
Termination subsection of this Rider for more
information).
In addition, beginning with the first
(1st)
anniversary of the Rider Effective Date or most recent Reset
Date, whichever is later, the Rider provides for Automatic
Annual Resets or Owner-Elected Resets of the Protected Payment
Base and Remaining Protected Balance to an amount equal to 100%
of the Contract Value.
If applicable, an Annual Credit is added to the Protected
Payment Base and Remaining Protected Balance prior to any
Automatic Reset. If the Contract Value as of that Contract
Anniversary is greater than the Protected Payment Base (which
includes the Annual Credit amount), then the Protected Payment
Base and Remaining Protected Balance will be automatically reset
to equal the Contract Value.
The Protected Payment Base and Remaining Protected Balance may
change over time. The addition of an Annual Credit will increase
the Protected Payment Base and the Remaining Protected Balance
by the amount of the Annual Credit. An Automatic Reset or
Owner-Elected Reset will increase or decrease the Protected
Payment Base and Remaining Protected Balance depending on the
Contract Value on the Reset Date. A withdrawal that is less than
or equal to the Protected Payment Amount will reduce the
Remaining Protected Balance by the amount of the withdrawal and
will not change the Protected Payment Base. If a withdrawal is
greater than Protected Payment
19
Amount and the Contract Value is less than the Protected Payment
Base, both the Protected Payment Base and Remaining Protected
Balance will be reduced by an amount that is greater than the
excess amount withdrawn. For withdrawals that are greater than
the Protected Payment Amount, see the Withdrawal of Protected
Payment Amount subsection.
For purposes of this Rider, the term “withdrawal”
includes any applicable withdrawal charges. Amounts withdrawn
under this Rider will reduce the Contract Value by the amount
withdrawn and will be subject to the same conditions,
limitations, restrictions and all other fees, charges and
deductions, if applicable, as withdrawals otherwise made under
the provisions of the Contract. Withdrawals under this Rider are
not annuity payouts. Annuity payouts generally receive a more
favorable tax treatment than other withdrawals.
If your Contract is a Qualified Contract, including a TSA/403(b)
Contract, you are subject to restrictions on withdrawals you may
take prior to a triggering event (e.g. reaching age
591/2,
separation from service, disability) and you should consult your
tax or legal advisor prior to purchasing this optional
guarantee, the primary benefit of which is guaranteeing
withdrawals. For additional information regarding withdrawals
and triggering events, see FEDERAL TAX ISSUES –
IRAs and Qualified Plans.
Withdrawal
Percentage
The withdrawal percentage is determined according to the table
below based on the oldest Owner’s age (or youngest
Annuitant in the case of a Non-Natural Owner) at Rider Effective
Date or the most recent Reset Date, whichever is later. The
withdrawal percentages are as follows:
Age
Withdrawal Percentage
Before
591/2
5.0
%
591/2 - 74
5.0
%
75 and older
6.0
%
If you purchase the Rider before you reach 75 years of age,
a Reset is required to receive the higher withdrawal percentage
once you are 75 years of age.
Withdrawal
of Protected Payment Amount
While this Rider is in effect, you may withdraw up to the
Protected Payment Amount each Contract Year, regardless of
market performance, until the Rider terminates. Any portion of
the Protected Payment Amount not withdrawn during a Contract
Year may not be carried over to the next Contract Year.
If a withdrawal does not exceed the Protected Payment Amount
immediately prior to that withdrawal, the Protected Payment Base
will remain unchanged. The Remaining Protected Balance will
decrease by the withdrawal amount immediately following the
withdrawal.
Withdrawals Exceeding the Protected Payment
Amount. If a withdrawal (except an RMD
withdrawal) exceeds the Protected Payment Amount immediately
prior to that withdrawal, we will (immediately following the
excess withdrawal) reduce the Protected Payment Base on a
proportionate basis for the amount in excess of the Protected
Payment Amount. We will reduce the Remaining Protected Balance
either on a proportionate basis or by the total withdrawal
amount, whichever results in the lower Remaining Protected
Balance amount. (See example 4 in APPENDIX A: FLEXIBLE
LIFETIME INCOME PLUS RIDER (SINGLE AND JOINT) SAMPLE
CALCULATIONS for a numerical example of the adjustments to
the Protected Payment Base, Remaining Protected Balance and
Protected Payment Amount as a result of an excess withdrawal.)
If a withdrawal is greater than the Protected Payment Amount and
the Contract Value is less than the Protected Payment Base, both
the Protected Payment Base and Remaining Protected Balance will
be reduced by an amount that is greater than the excess amount
withdrawn.
The amount available for withdrawal under the Contract must be
sufficient to support any withdrawal that would otherwise exceed
the Protected Payment Amount.
For information regarding taxation of withdrawals, see
FEDERAL TAX ISSUES.
20
Required
Minimum Distributions
No adjustment will be made to the Protected Payment Base as a
result of a withdrawal that exceeds the Protected Payment Amount
immediately prior to the withdrawal, provided:
•
such withdrawal (an “RMD Withdrawal”) is for purposes
of satisfying the minimum distribution requirements of
Section 401(a)(9) and related Code provisions in effect at
that time,
•
you have authorized us to calculate and make periodic
distribution of the Annual RMD Amount for the Calendar Year
required based on the payment frequency you have chosen,
•
the Annual RMD Amount is based on this Contract only, and
•
only RMD withdrawals are made from the Contract during the
Contract Year.
Immediately following an RMD Withdrawal, the Remaining Protected
Balance will decrease by the RMD Withdrawal amount.
See FEDERAL TAX ISSUES – Qualified
Contracts – General Rules – Required
Minimum Distributions.
Depletion
of Contract Value
If a withdrawal (including an RMD withdrawal) does not exceed
the Protected Payment Amount immediately prior to the withdrawal
and reduces the Contract Value to zero, the following will apply:
•
if the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner):
•
was younger than
age 591/2
when the first withdrawal was taken under the Rider, after the
Rider Effective Date or the most recent Reset Date, whichever is
later, the Protected Payment Amount will be paid each year until
the Remaining Protected Balance is reduced to zero, or
•
was
age 591/2
or older when the first withdrawal was taken under the Rider
after the Rider Effective Date or the most recent Reset Date,
whichever is later, the Protected Payment Amount will be paid
each year until the day of the first death of an Owner or the
date of death of the sole surviving Annuitant.
•
the Protected Payment Amount will be paid under a series of
pre-authorized withdrawals under a payment frequency as elected
by the Owner, but no less frequently than annually,
•
no additional Purchase Payments will be accepted under the
Contract,
•
any Remaining Protected Balance will not be available for
payment in a lump sum and will not be applied to provide
payments under an Annuity Option, and
•
the Contract will cease to provide any death benefit.
If the Owner or sole surviving Annuitant dies and the Contract
Value is zero as of the date of death, there is no death
benefit, however, any Remaining Protected Balance will be paid
to the Beneficiary under a series of pre-authorized withdrawals
and payment frequency (at least annually) then in effect at the
time of the Owner’s or sole surviving Annuitant’s
death. If, however, the Remaining Protected Balance would be
paid over a period that exceeds the life expectancy of the
Beneficiary, the pre-authorized withdrawal amount will be
adjusted so that the withdrawal payments will be paid over a
period that does not exceed the Beneficiary’s life
expectancy.
Depletion
of Remaining Protected Balance
If a withdrawal (including an RMD Withdrawal) reduced the
Remaining Protected Balance to zero and Contract Value remains,
the following will apply:
If the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner):
•
was younger than
age 591/2
when the first withdrawal was taken under the Rider after the
Rider Effective Date or the most recent Reset Date, whichever is
later, this Rider will terminate, or
21
•
was
age 591/2
or older when the first withdrawal was taken under the Rider
after the Rider Effective Date or the most recent Reset Date,
whichever is later, you may elect to withdraw up to the
Protected Payment Amount each year until the day of the first
death of an Owner or the date of death of the sole surviving
Annuitant. If an Automatic or Owner-Elected Reset occurs, the
Remaining Protected Balance will be reinstated to an amount
equal to the Contract Value as of that Contract Anniversary.
Before your Remaining Protected Balance is zero, if you took
your first withdrawal before
age 591/2
and you would like to be eligible for lifetime payments under
the Rider, an Automatic or Owner-Elected Reset must occur and
your first withdrawal after that Reset must be taken on or
after
age 591/2.
See the Reset of Protected Payment Base and Remaining
Protected Balance subsection of this Rider. If you are
younger than
age 591/2
when the Remaining Protected Balance is zero and Contract Value
remains, the Rider will terminate and there is no opportunity
for a Reset.
If a withdrawal (except an RMD withdrawal) made from the
Contract exceeds the Protected Payment Amount, the withdrawal
will be treated as an excess withdrawal and the Protected
Payment Base will be reduced according to the Withdrawals
Exceeding the Protected Payment Amount subsection.
Any death benefit proceeds to be paid to the Beneficiary from
remaining Contract Value will be paid according to the Death
Benefit provisions of the Contract.
Annual
Credit
On each Contract Anniversary after the Rider Effective Date, an
Annual Credit will be added to the Protected Payment Base and
Remaining Protected Balance, as of that Contract Anniversary, if:
•
no withdrawals have occurred after the Rider Effective Date or
the most recent Reset Date, whichever is later, and
•
that Contract Anniversary is within the first 10 Contract
Anniversaries, measured from the Rider Effective Date or the
most recent Reset Date, whichever is later.
The Annual Credit is equal to 5% (7% if your Rider Effective
Date is before January 1, 2009) of the total of:
•
the Remaining Protected Balance on the Rider Effective Date or
the most recent Reset Date, whichever is later, and
•
the cumulative Purchase Payments received after the Rider
Effective Date or most recent Reset Date, whichever is later,
as of the Contract Anniversary on which the Annual Credit is
added.
Once a withdrawal has occurred, including an RMD Withdrawal,
no Annual Credit will be added to the Protected Payment Base and
Remaining Protected Balance on any Contract Anniversary
following the withdrawal, unless an Automatic Reset or Owner
Elected Reset occurs. If such a Reset occurs, your eligibility
for the Annual Credit will be reinstated as of the Reset
Date.
The Annual Credit is not added to your Contract Value.
Reset of
Protected Payment Base and Remaining Protected Balance
Regardless of which reset option is used, on and after each
Reset Date, the provisions of this Rider shall apply in the same
manner as they applied when the Rider was originally issued.
Eligibility for any Annual Credit, the limitations and
restrictions on Purchase Payments and withdrawals, the deduction
of annual charges and any future reset options available on and
after the Reset Date, will again apply and will be measured from
that Reset Date. A reset occurs when the Protected Payment Base
and Remaining Protected Balance are changed to an amount equal
to the Contract Value as of the Reset Date.
Automatic Reset. On each Contract Anniversary while
this Rider is in effect and before the Annuity Date and after
any annual credit is applied, we will automatically reset the
Protected Payment Base and Remaining Protected Balance to an
amount equal to 100% of the Contract Value, if the Protected
Payment Base, after any Annual Credit is applied,
22
is less than the Contract Value on that Contract Anniversary.
The annual charge percentage may change as a result of any
Automatic Reset (see CHARGES, FEES AND DEDUCTIONS –
Optional Rider Charges).
Automatic Reset – Opt-Out Election. Within
60 days after a Contract Anniversary on which an Automatic
Reset is effective, you have the option to reinstate the
Protected Payment Base, Remaining Protected Balance, Protected
Payment Amount and annual charge percentage to their respective
amounts immediately before the Automatic Reset. Any future
Automatic Resets will continue in accordance with the
Automatic Reset paragraph above.
If you elect this option, your opt-out election must be
received, in a form satisfactory to us, at our Service Center
within the same 60 day period after the Contract
Anniversary on which the reset is effective.
Automatic Reset – Future
Participation. You may elect not to participate in
future Automatic Resets at any time. Your election must be
received, in a form satisfactory to us, at our Service Center,
while this Rider is in effect and before the Annuity Date. Such
election will be effective for future Contract Anniversaries.
If you previously elected not to participate in Automatic
Resets, you may re-elect to participate in future Automatic
Resets at any time. Your election to resume participation must
be received, in a form satisfactory to us, at our Service Center
while this Rider is in effect and before the Annuity Date. Such
election will be effective for future Contract Anniversaries as
described in the Automatic Reset paragraph above.
Owner-Elected Resets (Non-Automatic). You may, on
any Contract Anniversary, elect to reset the Remaining Protected
Balance and Protected Payment Base to an amount equal to 100% of
the Contract Value. An Owner-Elected Reset may be elected while
Automatic Resets are in effect. The annual charge percentage may
change as a result of this Reset.
If you elect this option, your election must be received, in a
form satisfactory to us, at our Service Center within
60 days after the Contract Anniversary on which the reset
is effective. The reset will be based on the Contract Value as
of that Contract Anniversary. Your election of this option
may result in a reduction in the Protected Payment Base,
Remaining Protected Balance, Protected Payment Amount and any
Annual Credit that may be applied. Generally, the reduction
will occur when your Contract Value is less than the Protected
Payment Base as of the Contract Anniversary you elected the
reset. You are strongly advised to work with your investment
professional prior to electing an Owner-Elected Reset. We
will provide you with written confirmation of your election.
Subsequent
Purchase Payments
If we receive additional Purchase Payments after the Rider
Effective Date, we will increase the Protected Payment Base and
Remaining Protected Balance by the amount of the Purchase
Payments. However, for purposes of this Rider, we reserve the
right to restrict additional Purchase Payments that result in a
total of all Purchase Payments received on or after the later of
the first
(1st)
Contract Anniversary or most recent Reset Date to exceed
$100,000 without our prior approval. This provision only applies
if the Contract to which this Rider is attached, permits
Purchase Payments after the first
(1st)
Contract Anniversary, measured from the Contract Date.
Annuitization
If you annuitize the Contract at the maximum Annuity Date
specified in your Contract and this Rider is still in effect at
the time of your election and a Life Only annuity option is
chosen, the annuity payments will be equal to the greater of:
•
the Life Only annual payment amount based on the terms of your
Contract, or
•
the Protected Payment Amount in effect at the maximum Annuity
Date.
If you annuitize the Contract at any time prior to the maximum
Annuity Date specified in your Contract, your annuity payments
will be determined in accordance with the terms of your
Contract. The Protected Payment Base, Remaining Protected
Balance and Protected Payment Amount under this Rider will not
be used in determining any annuity payments. Work with your
financial professional to determine if you should annuitize your
Contract before the maximum Annuity Date or stay in the
accumulation phase and continue to take withdrawals under the
Rider.
The annuity payments described in this subsection are available
to you even if your first withdrawal was taken prior to age
591/2
and no Resets have occurred.
23
Continuation
of Rider if Surviving Spouse Continues Contract
If the Remaining Protected Balance is zero when the Owner dies,
this Rider will terminate. If the Owner dies while this Rider is
in effect and if the surviving spouse of the deceased Owner
elects to continue the Contract in accordance with its terms,
the surviving spouse may continue to take withdrawals of the
Protected Payment Amount under this Rider, until the Remaining
Protected Balance is reduced to zero.
The surviving spouse may elect any of the reset options
available under this Rider for subsequent Contract
Anniversaries. If an election to reset is made, whether by an
Automatic Reset or an Owner-Elected Reset, then the provisions
of this Rider will continue in full force and in effect for the
surviving spouse. The withdrawal percentage will be determined
based on the age of the surviving spouse and the new withdrawal
percentage may be higher or lower than what the withdrawal
percentage was prior to death. In addition, if the surviving
spouse is
591/2
when a reset occurs, the surviving spouse may take withdrawals
of the Protected Payment Amount (based on the new Protected
Payment Base and withdrawal percentage) for life.
The surviving spouse may elect to receive any death benefit
proceeds instead of continuing the Contract and Rider (see
DEATH BENEFITS AND OPTIONAL DEATH BENEFIT
RIDERS – Death Benefits).
Termination
You cannot request a termination of the Rider. Except as
otherwise provided below, the Rider will automatically terminate
on the earliest of:
•
the day any portion of the Contract Value is no longer allocated
according to the Investment Allocation Requirements,
•
the day the Remaining Protected Balance is reduced to zero if
the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner), was younger than
591/2
when the first withdrawal was taken under the Rider after the
Rider Effective Date or the most recent Reset Date, whichever is
later,
•
the date of the first death of an Owner or the date of death of
the sole surviving Annuitant (except as provided under the
Continuation of Rider if Surviving Spouse Continues
Contract subsection),
•
for Contracts with a Non-Natural Owner, the date of the first
death of an Annuitant, including Primary, Joint and Contingent
Annuitants,
•
the day the Contract is terminated in accordance with the
provisions of the Contract,
•
the day we are notified of a change in ownership of the Contract
to a non-spouse Owner if the Contract is Non-Qualified
(excluding changes in ownership to or from certain trusts),
•
the day you exchange this Rider for another withdrawal benefit
Rider,
•
the Annuity Date (see the Annuitization subsection for
additional information), or
•
the day the Contract Value is reduced to zero as a result of a
withdrawal (except an RMD withdrawal) that exceeds the Protected
Payment Amount.
The Rider will not terminate the day the Remaining Protected
Balance is reduced to zero if the oldest Owner (or youngest
Annuitant, in the case of a Non-Natural Owner) was
age 591/2
or older when the first withdrawal was taken under the Rider
after the Rider Effective Date or the most recent Reset Date,
whichever is later.
The Rider and the Contract will not terminate the day the
Contract Value is zero and you begin taking pre-authorized
withdrawals of the Protected Payment Amount. In this case, the
Rider and the Contract will terminate:
•
the day the Remaining Protected Balance is reduced to zero if
the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner), was younger than
591/2
when the first withdrawal was taken under the Rider after the
Rider Effective Date or the most recent Reset Date, whichever is
later, or
24
•
the date of the first death of an Owner or the date of death of
the sole surviving Annuitant if the oldest Owner (or youngest
Annuitant, in the case of a Non-Natural Owner) was
age 591/2
or older when the first withdrawal was taken under the Rider
after the Rider Effective Date or the most recent Reset Date,
whichever is later.
Sample
Calculations
Hypothetical sample calculations are in the attached APPENDIX
A: FLEXIBLE LIFETIME INCOME PLUS RIDER (SINGLE AND JOINT) SAMPLE
CALCULATIONS. The examples are based on certain hypothetical
assumptions and are for example purposes only. These examples
are not intended to serve as projections of future investment
returns.
Flexible
Lifetime Income Plus Rider (Joint)
Purchasing
the Rider
This Rider is no longer available for purchase.
Rider
Terms
Annual RMD Amount – The amount required to be
distributed each Calendar Year for purposes of satisfying the
minimum distribution requirements of Code Section 401(a)(9)
(“Section 401(a)(9)”) and related Code provisions
in effect as of the Rider Effective Date.
Designated Lives (each a “Designated
Life”) – Designated Lives must be natural
persons who are each other’s spouses on the Rider Effective
Date. Designated Lives will remain unchanged while this Rider is
in effect.
To be eligible for lifetime benefits, a Designated Life must:
•
be the Owner (or the Annuitant, in the case of a custodial owned
IRA or TSA),
•
remain the Spouse of the other Designated Life and be the first
in line of succession, as determined under the Contract, for
payment of any death benefit.
Protected Payment Amount – The maximum amount
that can be withdrawn under this Rider without reducing the
Protected Payment Base. The Protected Payment Amount on any day
after the Rider Effective Date is equal to the withdrawal
percentage multiplied by the Protected Payment Base as of that
day, less cumulative withdrawals during that Contract Year. The
Protected Payment Amount will never be less than zero. The
initial Protected Payment Amount on the Rider Effective Date is
equal to the applicable withdrawal percentage (based on the
youngest Designated Life’s age at the time of purchase)
multiplied by the Protected Payment Base.
Protected Payment Base – An amount used to
determine the Protected Payment Amount. The Protected Payment
Base will never be less than zero and will remain unchanged
except as otherwise described under the provisions of this
Rider. The initial Protected Payment Base is equal to the
initial Purchase Payment, if the Rider Effective Date is on the
Contract Date, or the Contract Value, if the Rider Effective
Date is on a Contract Anniversary.
Remaining Protected Balance – The amount
available for future withdrawals made under this Rider. The
Remaining Protected Balance will never be less than zero. The
initial Remaining Protected Balance is equal to the initial
Purchase Payment, if the Rider Effective Date is on the Contract
Date, or the Contract Value, if the Rider Effective Date is on a
Contract Anniversary.
Annual Credit – An amount added to the
Protected Payment Base and Remaining Protected Balance.
Reset Date – Any Contract Anniversary after the
Rider Effective Date on which an Automatic Reset or an
Owner-Elected Reset occurs.
Rider Effective Date – The date the guarantees
and charges for the Rider become effective. If the Rider is
purchased within 60 days of the Contract Date, the Rider
Effective Date is the Contract Date. If the Rider is purchased
within 60 days of a Contract Anniversary, the Rider Effective
Date is the date of that Contract Anniversary.
Spouse – The Owner’s spouse who is treated
as the Owner’s spouse pursuant to federal law.
25
Surviving Spouse – The surviving spouse of a
deceased Owner.
How the
Rider Works
On any day, this Rider guarantees you can withdraw up to the
Protected Payment Amount, regardless of market performance,
until the Rider terminates. This Rider also provides for an
amount (an “Annual Credit”) to be added to the
Protected Payment Base and Remaining Protected Balance. Once the
Rider is purchased, you cannot request a termination of the
Rider (see the Termination subsection of this Rider for
more information).
In addition, on each Contract Anniversary while this Rider is in
effect and before the Annuity Date, the Rider provides for
Automatic Annual Resets or Owner-Elected Resets of the Protected
Payment Base and Remaining Protected Balance to an amount equal
to 100% of the Contract Value.
If applicable, an Annual Credit is added to the Protected
Payment Base and Remaining Protected Balance prior to any
Automatic Reset. If the Contract Value as of that Contract
Anniversary is greater than the Protected Payment Base (which
includes the Annual Credit amount), then the Protected Payment
Base and Remaining Protected Balance will be automatically reset
to equal the Contract Value.
The Protected Payment Base and Remaining Protected Balance may
change over time. The addition of an Annual Credit will increase
the Protected Payment Base and the Remaining Protected Balance
by the amount of the Annual Credit. An Automatic Reset or
Owner-Elected Reset will increase or decrease the Protected
Payment Base and Remaining Protected Balance depending on the
Contract Value on the Reset Date. A withdrawal that is less than
or equal to the Protected Payment Amount will reduce the
Remaining Protected Balance by the amount of the withdrawal and
will not change the Protected Payment Base. If a withdrawal is
greater than the Protected Payment Amount and the Contract Value
is less than the Protected Payment Base, both the Protected
Payment Base and Remaining Protected Balance will be reduced by
an amount that is greater than the excess amount withdrawn. For
withdrawals that are greater than the Protected Payment Amount,
see the Withdrawal of Protected Payment Amount subsection.
For purposes of this Rider, the term “withdrawal”
includes any applicable withdrawal charges. Amounts withdrawn
under this Rider will reduce the Contract Value by the amount
withdrawn and will be subject to the same conditions,
limitations, restrictions and all other fees, charges and
deductions, if applicable, as withdrawals otherwise made under
the provisions of the Contract. Withdrawals under this Rider are
not annuity payouts. Annuity payouts generally receive a more
favorable tax treatment than other withdrawals.
If your Contract is a Qualified Contract, including a TSA/403(b)
Contract, you are subject to restrictions on withdrawals you may
take prior to a triggering event (e.g. reaching age
591/2,
separation from service, disability) and you should consult your
tax or legal advisor prior to purchasing this optional
guarantee, the primary benefit of which is guaranteeing
withdrawals. For additional information regarding withdrawals
and triggering events, see FEDERAL TAX ISSUES –
IRAs and Qualified Plans.
Withdrawal
Percentage
The withdrawal percentage is determined according to the table
below based on youngest Designated Life’s age at Rider
Effective Date or the most recent Reset Date, whichever is
later. The withdrawal percentages are as follows:
Age
Withdrawal Percentage
591/2 - 74
5.0
%
75 and older
6.0
%
Withdrawal
of Protected Payment Amount
While this Rider is in effect, you may withdraw up to the
Protected Payment Amount each Contract Year, regardless of
market performance, until the Rider terminates. Any portion of
the Protected Payment Amount not withdrawn during a Contract
Year may not be carried over to the next Contract Year.
26
If a withdrawal does not exceed the Protected Payment Amount
immediately prior to that withdrawal, the Protected Payment Base
will remain unchanged. Immediately following the withdrawal, the
Remaining Protected Balance will decrease by the withdrawal
amount.
Withdrawals Exceeding the Protected Payment
Amount. If a withdrawal (except an RMD withdrawal)
exceeds the Protected Payment Amount immediately prior to that
withdrawal, we will (immediately following the excess
withdrawal) reduce the Protected Payment Base on a proportionate
basis for the amount in excess of the Protected Payment Amount.
We will reduce the Remaining Protected Balance either on a
proportionate basis or by the total withdrawal amount, whichever
results in the lower Remaining Protected Balance amount. (See
example 4 in APPENDIX A: FLEXIBLE LIFETIME INCOME PLUS RIDER
(SINGLE AND JOINT) SAMPLE CALCULATIONS for a numerical
example of the adjustments to the Protected Payment Base,
Remaining Protected Balance and Protected Payment Amount as a
result of an excess withdrawal.) If a withdrawal is greater than
the Protected Payment Amount and the Contract Value is less than
the Protected Payment Base, both the Protected Payment Base and
Remaining Protected Balance will be reduced by an amount that is
greater than the excess amount withdrawn.
The amount available for withdrawal under the Contract must be
sufficient to support any withdrawal that would otherwise exceed
the Protected Payment Amount.
For information regarding taxation of withdrawals, see
FEDERAL TAX ISSUES.
Required
Minimum Distributions
No adjustment will be made to the Protected Payment Base as a
result of a withdrawal that exceeds the Protected Payment Amount
immediately prior to the withdrawal, provided:
•
such withdrawal (an “RMD Withdrawal”) is for purposes
of satisfying the minimum distribution requirements of
Section 401(a)(9) and related Code provisions in effect at
that time,
•
you have authorized us to calculate and make periodic
distribution of the Annual RMD Amount for the Calendar Year
required based on the payment frequency you have chosen,
•
the Annual RMD Amount is based on this Contract only, and
•
only RMD withdrawals are made from the Contract during the
Contract Year.
Immediately following an RMD withdrawal, the Remaining Protected
Balance will decrease by the RMD withdrawal amount.
See FEDERAL TAX ISSUES – Qualified
Contracts – General Rules – Required
Minimum Distributions.
Depletion
of Contract Value
If a withdrawal (including an RMD withdrawal) does not exceed
the Protected Payment Amount immediately prior to the withdrawal
and reduces the Contract Value to zero, the following will apply:
•
the Protected Payment Amount will be paid each year until the
death of all Designated Lives eligible for lifetime benefits,
•
the payments of the Protected Payment Amount will be paid under
a series of pre-authorized withdrawals under a payment frequency
as elected by the Owner, but no less frequently than annually,
•
no additional Purchase Payments will be accepted under the
Contract,
•
any Remaining Protected Balance will not be available for
payment in a lump sum and will not be applied to provide
payments under an Annuity Option, and
•
the Contract will cease to provide any death benefit.
If the surviving Designated Life eligible for lifetime benefits
dies and the Contract Value is zero as of the date of death,
there is no death benefit, however, any Remaining Protected
Balance will be paid to the Beneficiary under a series of
pre-authorized withdrawals and payment frequency (at least
annually) then in effect at the time of the death of the
27
surviving Designated Life eligible for lifetime benefits. If,
however, the Remaining Protected Balance would be paid over a
period that exceeds the life expectancy of the Beneficiary, the
pre-authorized withdrawal amount will be adjusted so that the
withdrawal payments will be paid over a period that does not
exceed the Beneficiary’s life expectancy.
Depletion
of Remaining Protected Balance
If a withdrawal (including an RMD Withdrawal) reduced the
Remaining Protected Balance to zero and Contract Value remains,
the following will apply:
•
if a withdrawal (except an RMD withdrawal) made from the
Contract exceeds the Protected Payment Amount, the withdrawal
will be treated as an excess withdrawal and the Protected
Payment Base will be reduced according to the Withdrawals
Exceeding the Protected Payment Amount subsection, and
•
any death benefit proceeds to be paid to the Beneficiary from
remaining Contract Value will be paid according to the Death
Benefit provisions of the Contract.
Annual
Credit
On each Contract Anniversary after the Rider Effective Date, an
Annual Credit will be added to the Protected Payment Base and
Remaining Protected Balance, as of that Contract Anniversary, if:
•
no withdrawals have occurred after the Rider Effective Date or
the most recent Reset Date, whichever is later, and
•
that Contract Anniversary is within the first 10 Contract
Anniversaries, measured from the Rider Effective Date or the
most recent Reset Date, whichever is later.
The Annual Credit is equal to 5% (7% if your Rider Effective
Date is before January 1, 2009) of the total of:
•
the Remaining Protected Balance on the Rider Effective Date or
the most recent Reset Date, whichever is later, and
•
the cumulative Purchase Payments received after the Rider
Effective Date or most recent Reset Date, whichever is later,
as of the Contract Anniversary on which the Annual Credit is
added.
Once a withdrawal has occurred, including an RMD Withdrawal,
no Annual Credit will be added to the Protected Payment Base and
Remaining Protected Balance on any Contract Anniversary
following the withdrawal, unless an Automatic Reset or
Owner-Elected Reset occurs. If such a Reset occurs, your
eligibility for the Annual Credit will be reinstated as of the
Reset Date.
The Annual Credit is not added to your Contract Value.
Reset of
Protected Payment Base and Remaining Protected Balance
Regardless of which reset option is used, on and after each
Reset Date, the provisions of this Rider shall apply in the same
manner as they applied when the Rider was originally issued.
Eligibility for any Annual Credit, the limitations and
restrictions on Purchase Payments and withdrawals, the deduction
of annual Charges and any future reset options available on and
after the Reset Date, will again apply and will be measured from
that Reset Date. A reset occurs when the Protected Payment Base
and Remaining Protected Balance are changed to an amount equal
to the Contract Value as of the Reset Date.
Automatic Reset. On each Contract Anniversary while
this Rider is in effect and before the Annuity Date and after
any Annual Credit is applied, we will automatically reset the
Protected Payment Base and Remaining Protected Balance to an
amount equal to 100% of the Contract Value, if the Protected
Payment Base, after any Annual Credit is applied, is less than
the Contract Value on that Contract Anniversary. The annual
charge percentage may change as a result of any Automatic Reset
(see CHARGES, FEES AND DEDUCTIONS – Optional Rider
Charges).
28
Automatic Reset – Opt-Out Election. Within
60 days after a Contract Anniversary on which an Automatic
Reset is effective, you have the option to reinstate the
Protected Payment Base, Remaining Protected Balance, Protected
Payment Amount and annual charge percentage to their respective
amounts immediately before the Automatic Reset. Any future
Automatic Resets will continue in accordance with the
Automatic Reset paragraph above.
If you elect this option, your opt-out election must be
received, in a form satisfactory to us, at our Service Center
within the same 60 day period after the Contract
Anniversary on which the reset is effective.
Automatic Reset – Future
Participation. You may elect not to participate in
future Automatic Resets at any time. Your election must be
received, in a form satisfactory to us, at our Service Center,
while this Rider is in effect and before the Annuity Date. Such
election will be effective for future Contract Anniversaries.
If you previously elected not to participate in Automatic
Resets, you may re-elect to participate in future Automatic
Resets at any time. Your election to resume participation must
be received, in a form satisfactory to us, at our Service Center
while this Rider is in effect and before the Annuity Date. Such
election will be effective for future Contract Anniversaries as
described in the Automatic Reset paragraph above.
Owner-Elected Resets (Non-Automatic). You may, on
any Contract Anniversary, elect to reset the Remaining Protected
Balance and Protected Payment Base to an amount equal to 100% of
the Contract Value. An Owner-Elected Reset may be elected while
Automatic Resets are in effect. The annual charge percentage may
change as a result of this Reset.
If you elect this option, your election must be received, in a
form satisfactory to us, at our Service Center within
60 days after the Contract Anniversary on which the reset
is effective. The reset will be based on the Contract Value as
of that Contract Anniversary. Your election of this option
may result in a reduction in the Protected Payment Base,
Remaining Protected Balance, Protected Payment Amount and any
Annual Credit that may be applied. Generally, the reduction
will occur when your Contract Value is less than the Protected
Payment Base as of the Contract Anniversary you elected the
reset. You are strongly advised to work with your investment
professional prior to electing an Owner-Elected Reset. We
will provide you with written confirmation of your election.
Subsequent
Purchase Payments
If we receive additional Purchase Payments after the Rider
Effective Date, we will increase the Protected Payment Base and
Remaining Protected Balance by the amount of the Purchase
Payments. However, for purposes of this Rider, we reserve the
right to restrict additional Purchase Payments that result in a
total of all Purchase Payments received on or after the later of
the first
(1st)
Contract Anniversary or most recent Reset Date to exceed
$100,000 without our prior approval. This provision only applies
if the Contract to which this Rider is attached, permits
Purchase Payments after the first
(1st)
Contract Anniversary, measured from the Contract Date.
Annuitization
If you annuitize the Contract at the maximum Annuity Date
specified in your Contract and this Rider is still in effect at
the time of your election and a Life Only annuity option is
chosen, the annuity payments will be equal to the greater of:
•
the Life Only annual payment amount based on the terms of your
Contract, or
•
Protected Payment Amount in effect at the maximum Annuity Date.
If you annuitize the Contract at any time prior to the maximum
Annuity Date specified in your Contract, your annuity payments
will be determined in accordance with the terms of your
Contract. The Protected Payment Base, Remaining Protected
Balance and Protected Payment Amount under this Rider will not
be used in determining any annuity payments. Work with your
financial professional to determine if you should annuitize your
Contract before the maximum Annuity Date or stay in the
accumulation phase and continue to take withdrawals under the
Rider.
29
Continuation
of Rider if Surviving Spouse Continues Contract
If the Owner dies while this Rider is in effect and if the
Surviving Spouse (who is also a Designated Life eligible for
lifetime benefits) elects to continue the Contract in accordance
with its terms, the Surviving Spouse may continue to take
withdrawals of the Protected Payment Amount under this Rider,
until the Rider terminates.
The Surviving Spouse may elect any of the reset options
available under this Rider for subsequent Contract
Anniversaries. If a reset takes place, whether by an Automatic
Reset or an Owner-Elected Reset, the withdrawal percentage may
change and will be determined based on the age of the Surviving
Spouse. However, the withdrawal percentage will never be lower
than the withdrawal percentage in effect at the time of death.
The Surviving Spouse may elect to receive any death benefit
proceeds instead of continuing the Contract and Rider (see
DEATH BENEFITS AND OPTIONAL DEATH BENEFIT RIDERS –
Death Benefits).
Ownership
and Beneficiary Changes
Changes to the Contract Owner, Annuitant
and/or
Beneficiary designations and changes in marital status,
including a dissolution of marriage, may adversely affect the
benefits of this Rider. A particular change may make a
Designated Life ineligible to receive lifetime income benefits
under this Rider. As a result, the Rider may remain in effect
and you may pay for benefits that you will not receive. You
are strongly advised to work with your investment professional
and consider your options prior to making any Owner, Annuitant
and/or
Beneficiary changes to your Contract.
Termination
You cannot request a termination of the Rider. Except as
otherwise provided below, the Rider will automatically terminate
on the earliest of:
•
the day any portion of the Contract Value is no longer allocated
according to the Investment Allocation Requirements,
•
the day of death of all Designated Lives eligible for lifetime
benefits,
•
upon the death of the first Designated Life, if a death benefit
is payable and a Surviving Spouse who chooses to continue the
Contract is not a Designated Life eligible for lifetime benefits,
•
upon the death of the first Designated Life, if a death benefit
is payable and the Contract is not continued by a Surviving
Spouse who is a Designated Life eligible for lifetime benefits,
•
if both Designated Lives are Joint Owners and there is a change
in marital status, the Rider will terminate upon the death of
the first Designated Life who is a Contract Owner,
•
the day the Contract is terminated in accordance with the
provisions of the Contract,
•
the day that neither Designated Life is an Owner (or Annuitant,
in the case of a custodial owned IRA or TSA),
•
the day you exchange this Rider for another withdrawal benefit
Rider,
•
the Annuity Date (see the Annuitization subsection for
additional information), or
•
the day that the Contract is reduced to zero as a result of a
withdrawal (except an RMD withdrawal) that exceeds the Protected
Payment Amount.
The Rider and the Contract will not terminate the day of death
of:
•
all Designated Lives eligible for lifetime benefits, or
•
the first Designated Life who is a Contract Owner if both
Designated Lives are Joint Owners and there is a change in
marital status,
if, at the time of these events, the Contract Value is zero
and we are making pre-authorized withdrawals of the Protected
Payment Amount. In this case, the Rider will terminate when the
Remaining Protected Balance is zero, see Depletion of
Remaining Protected Balance subsection.
30
Sample
Calculations
Hypothetical sample calculations are in the attached APPENDIX
A: FLEXIBLE LIFETIME INCOME PLUS RIDER (SINGLE AND JOINT) SAMPLE
CALCULATIONS. The examples are based on certain hypothetical
assumptions and are for example purposes only. These examples
are not intended to serve as projections of future investment
returns.
Automatic
Income Builder Rider
Purchasing
the Rider
This Rider is no longer available for purchase.
Rider
Terms
Annual RMD Amount – The amount required to be
distributed each Calendar Year for purposes of satisfying the
minimum distribution requirements of Code Section 401(a)(9)
(“Section 401(a)(9)”) and related Code provisions
in effect as of the Rider Effective Date.
Protected Payment Amount – The maximum amount
that can be withdrawn under this Rider without reducing the
Protected Payment Base. The initial Protected Payment Amount on
the Rider Effective Date is equal to the applicable withdrawal
percentage (based on the Owner’s age at the time of
purchase) multiplied by the Protected Payment Base.
If the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner) is
age 591/2
or older when the first withdrawal was taken or the most recent
reset, whichever is later, the Protected Payment Amount on any
day after the Rider Effective Date is equal to the withdrawal
percentage multiplied by the Protected Payment Base as of that
day, less cumulative withdrawals during the Contract Year.
If the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner) is younger than
age 591/2
when the first withdrawal was taken or the most recent reset,
whichever is later, the Protected Payment Amount on any day
after the Rider Effective Date is equal to the lesser of:
•
the withdrawal percentage multiplied by the Protected Payment
Base as of that day, less cumulative withdrawals during that
Contract Year, or
•
the Remaining Protected Balance as of that day.
The Protected Payment Amount will never be less than zero.
Protected Payment Base – An amount used to
determine the Protected Payment Amount. The Protected Payment
Base will never be less than zero and will remain unchanged
except as otherwise described under the provisions of this
Rider. The initial Protected Payment Base is equal to the
initial Purchase Payment, if the Rider Effective Date is on the
Contract Date, or the Contract Value, if the Rider Effective
Date is on a Contract Anniversary.
Remaining Protected Balance – The amount
available for future withdrawals made under this Rider. The
Remaining Protected Balance will never be less than zero. The
initial Remaining Protected Balance is equal to the initial
Purchase Payment, if the Rider Effective Date is on the Contract
Date, or the Contract Value, if the Rider Effective Date is on a
Contract Anniversary.
Reset Date – Any Contract Anniversary after the
Rider Effective Date on which an Automatic Reset or an
Owner-Elected Reset occurs.
Rider Effective Date – The date the guarantees
and charges for the Rider become effective. If the Rider is
purchased within 60 days of the Contract Date, the Rider
Effective Date is the Contract Date. If the Rider is purchased
within 60 days of a Contract Anniversary, the Rider
Effective Date is the date of that Contract Anniversary.
How the
Rider Works
On any day, this Rider guarantees you can withdraw up to the
Protected Payment Amount, regardless of market performance,
until the Rider terminates. Lifetime withdrawals up to the
Protected Payment Amount may continue
31
after the Remaining Protected Balance is reduced to zero (0) if
the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner) was age
591/2
or older when the first withdrawal was taken after the Rider
Effective Date or the most recent Reset Date, whichever is
later. If a withdrawal was taken before age
591/2
and there was no subsequent Reset, the Rider will terminate once
the Remaining Protected Balance is reduced to zero (0).
If you are older than
591/2
and if you delay taking withdrawals, this Rider also provides
the potential to receive a 0.10% increase in the withdrawal
percentage per year, which can increase the percentage that you
may withdraw each Contract Year without reducing your Protected
Payment Base. Once the Rider is purchased, you cannot request a
termination of the Rider (see the Termination subsection
of this Rider for more information).
In addition, beginning with the first
(1st)
anniversary of the Rider Effective Date or most recent Reset
Date, whichever is later, the Rider provides for Automatic
Annual Resets or Owner-Elected Resets of the Protected Payment
Base and Remaining Protected Balance to an amount equal to 100%
of the Contract Value.
The Protected Payment Base and Remaining Protected Balance may
change over time. An Automatic Reset or Owner-Elected Reset will
increase or decrease the Protected Payment Base and Remaining
Protected Balance depending on the Contract Value on the Reset
Date. A withdrawal that is less than or equal to the Protected
Payment Amount will reduce the Remaining Protected Balance by
the amount of the withdrawal and will not change the Protected
Payment Base. If a withdrawal is greater than the Protected
Payment Amount and the Contract Value is less than the Protected
Payment Base, both the Protected Payment Base and Remaining
Protected Balance will be reduced by an amount that is greater
than the excess amount withdrawn. For withdrawals that are
greater than the Protected Payment Amount, see the Withdrawal
of Protected Payment Amount subsection.
For purposes of this Rider, the term “withdrawal”
includes any applicable withdrawal charges. Amounts withdrawn
under this Rider will reduce the Contract Value by the amount
withdrawn and will be subject to the same conditions,
limitations, restrictions and all other fees, charges and
deductions, if applicable, as withdrawals otherwise made under
the provisions of the Contract. Withdrawals under this Rider are
not annuity payouts. Annuity payouts generally receive a more
favorable tax treatment than other withdrawals.
If your Contract is a Qualified Contract, including a TSA/403(b)
Contract, you are subject to restrictions on withdrawals you may
take prior to a triggering event (e.g. reaching age
591/2,
separation from service, disability) and you should consult your
tax or legal advisor prior to purchasing this optional
guarantee, the primary benefit of which is guaranteeing
withdrawals. For additional information regarding withdrawals
and triggering events, see FEDERAL TAX ISSUES –
IRAs and Qualified Plans.
Withdrawal
Percentage
On or prior to the date of the first withdrawal (measured from
the later of the Rider Effective Date or most recent Reset Date)
the withdrawal percentage is determined as follows based on the
oldest Owner’s age (or youngest Annuitant in the case of a
Non-Natural Owner):
If your Rider Effective Date is on or after
January 1, 2009, the following Withdrawal Percentages
will apply:
Age
Withdrawal Percentage
Before
591/2
4.0%
591/2 - 69
4.0%
70 - 84
5.0%
85 and older
6.0%
If your Rider Effective Date is before January 1,2009, the following Withdrawal Percentages will apply:
Age
Withdrawal Percentage
Before
591/2
5.0%
591/2 - 69
5.0%
70 - 84
6.0%
85 and older
7.0%
32
If the first withdrawal (measured from the later of the Rider
Effective Date or most recent Reset Date) is taken on or
after
age 591/2,
the withdrawal percentage will automatically increase according
to the table above based on age as of the most recent Contract
Anniversary.
If the first withdrawal (measured from the later of the Rider
Effective Date or most recent Reset Date) is taken prior
to
age 591/2,
the withdrawal percentage will be 4.0% (5.0% if your Rider
Effective Date is before January 1, 2009) until the
Remaining Protected Balance is depleted and will remain
unchanged unless a Reset occurs. If an Automatic Reset or an
Owner-Elected Reset occurs and your first withdrawal after that
Reset is taken on or after age
591/2,
the withdrawal percentage will be the withdrawal percentage that
corresponds to the age at the time of the first withdrawal.
There is an opportunity for an increase in the withdrawal
percentage. The withdrawal percentage in the table above will
increase by 0.10% for each Rider year a withdrawal is not taken
beginning on the later of the Contract Anniversary following the
Owner’s
age 591/2
or the Rider Effective Date. In addition, the increase in the
withdrawal percentage will still be included as you reach a new
age band (for example, if your first withdrawal is taken after
age
591/2
and at age 69 your withdrawal percentage is 4.4%, then your
withdrawal percentage would be 5.4% the Contract Anniversary
immediately after you turn 70). However, once a withdrawal is
taken (including an RMD Withdrawal), regardless of the
Owner’s age when the withdrawal is taken, no further
increase in the withdrawal percentage will be available and
eligibility for the increase cannot be reinstated with a Reset.
The withdrawal percentage, including any 0.10% increase, will
not be reduced as a result of a Reset.
Withdrawal
of Protected Payment Amount
While this Rider is in effect, you may withdraw up to the
Protected Payment Amount each Contract Year, regardless of
market performance, until the Rider terminates. Any portion of
the Protected Payment Amount not withdrawn during a Contract
Year may not be carried over to the next Contract Year.
If a withdrawal does not exceed the Protected Payment Amount
immediately prior to that withdrawal, the Protected Payment Base
will remain unchanged. Immediately following the withdrawal the
Remaining Protected Balance will decrease by the withdrawal
amount.
Withdrawals Exceeding the Protected Payment
Amount. If a withdrawal (except an RMD withdrawal)
exceeds the Protected Payment Amount immediately prior to that
withdrawal, we will (immediately following the excess
withdrawal) reduce the Protected Payment Base on a proportionate
basis for the amount in excess of the Protected Payment Amount.
We will reduce the Remaining Protected Balance either on a
proportionate basis or by the total withdrawal amount, whichever
results in the lower Remaining Protected Balance amount. (See
example 4 in APPENDIX B: AUTOMATIC INCOME BUILDER RIDER
SAMPLE CALCULATIONS for a numerical example of the
adjustments to the Protected Payment Base, Remaining Protected
Balance and Protected Payment Amount as a result of an excess
withdrawal.) If a withdrawal is greater than the Protected
Payment Amount and the Contract Value is less than the Protected
Payment Base, both the Protected Payment Base and Remaining
Protected Balance will be reduced by an amount that is greater
than the excess amount withdrawn.
The amount available for withdrawal under the Contract must be
sufficient to support any withdrawal that would otherwise exceed
the Protected Payment Amount.
For information regarding taxation of withdrawals, see
FEDERAL TAX ISSUES.
Required
Minimum Distributions
No adjustment will be made to the Protected Payment Base as a
result of a withdrawal that exceeds the Protected Payment Amount
immediately prior to the withdrawal, provided:
•
such withdrawal (an “RMD Withdrawal”) is for purposes
of satisfying the minimum distribution requirements of
Section 401(a)(9) and related Code provisions in effect at
that time,
•
you have authorized us to calculate and make periodic
distribution of the Annual RMD Amount for the Calendar Year
required based on the payment frequency you have chosen,
33
•
the Annual RMD Amount is based on this Contract only, and
•
only RMD withdrawals are made from the Contract during the
Contract Year.
Immediately following an RMD Withdrawal, the Remaining Protected
Balance will decrease by the RMD withdrawal amount.
See FEDERAL TAX ISSUES – Qualified
Contracts – Required Minimum Distributions.
Depletion
of Contract Value
If a withdrawal (including an RMD withdrawal) does not exceed
the Protected Payment Amount immediately prior to the withdrawal
and reduces the Contract Value to zero, the following will apply:
•
if the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner):
•
was younger than
age 591/2
when the first withdrawal was taken under the Rider, after the
Rider Effective Date or the most recent Reset Date, whichever is
later, the Protected Payment Amount will be paid each year until
the Remaining Protected Balance is reduced to zero, or
•
was
age 591/2
or older when the first withdrawal was taken under the Rider
after the Rider Effective Date or the most recent Reset Date,
whichever is later, the Protected Payment Amount will be paid
each year until the day of the first death of an Owner or the
date of death of the sole surviving Annuitant.
•
the Protected Payment Amount will be paid under a series of
pre-authorized withdrawals under a payment frequency as elected
by the Owner, but no less frequently than annually,
•
no additional Purchase Payments will be accepted under the
Contract,
•
any Remaining Protected Balance will not be available for
payment in a lump sum and will not be applied to provide
payments under an Annuity Option, and
•
the Contract will cease to provide any death benefit.
If the Owner or sole surviving Annuitant dies and the Contract
Value is zero as of the date of death, there is no death
benefit, however, any Remaining Protected Balance will be paid
to the Beneficiary under a series of pre-authorized withdrawals
and payment frequency (at least annually) then in effect at the
time of the Owner’s or sole surviving Annuitant’s
death. If, however, the Remaining Protected Balance would be
paid over a period that exceeds the life expectancy of the
Beneficiary, the pre-authorized withdrawal amount will be
adjusted so that the withdrawal payments will be paid over a
period that does not exceed the Beneficiary’s life
expectancy.
Depletion
of Remaining Protected Balance
If a withdrawal (including an RMD Withdrawal) reduces the
Remaining Protected Balance to zero and Contract Value remains,
the following will apply:
If the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner):
•
was younger than
age 591/2
when the first withdrawal was taken under the Rider after the
Rider Effective Date or the most recent Reset Date, whichever is
later, this Rider will terminate, or
•
was
age 591/2
or older when the first withdrawal was taken under the Rider
after the Rider Effective Date or the most recent Reset Date,
whichever is later, you may elect to withdraw up to the
Protected Payment Amount each year until the day of the first
death of an Owner or the date of death of the sole surviving
Annuitant. If an Automatic or Owner-Elected Reset occurs, the
Remaining Protected Balance will be reinstated to an amount
equal to the Contract Value as of that Contract Anniversary.
Before your Remaining Protected Balance is zero, if you took
your first withdrawal before
age 591/2
and you would like to be eligible for lifetime payments under
the Rider, an Automatic or Owner-Elected Reset must occur and
your first withdrawal after that Reset must be taken on or
after
age 591/2.
See the Reset of Protected Payment Base and
34
Remaining Protected Balance subsection of this Rider. If
you are younger than
age 591/2
when the Remaining Protected Balance is zero and Contract Value
remains, the Rider will terminate and there is no opportunity
for a Reset.
If a withdrawal (except an RMD withdrawal) made from the
Contract exceeds the Protected Payment Amount, the Protected
Payment Base will be reduced according to the Withdrawals
Exceeding the Protected Payment Amount subsection.
Any death benefit proceeds to be paid to the Beneficiary from
remaining Contract Value will be paid according to the Death
Benefit provisions of the Contract.
Reset of
Protected Payment Base and Remaining Protected Balance
Regardless of which reset option is used, on and after each
Reset Date, the provisions of this Rider shall apply in the same
manner as they applied when the Rider was originally issued,
except that eligibility for the increase in the withdrawal
percentage cannot be reinstated with a Reset once a withdrawal
is taken. The limitations and restrictions on Purchase Payments
and withdrawals, the deduction of annual Charges and any future
reset options available on and after the Reset Date, will again
apply and will be measured from that Reset Date. A reset occurs
when the Protected Payment Base and Remaining Protected Balance
are changed to an amount equal to the Contract Value as of the
Reset Date.
Automatic Reset. On each Contract Anniversary while
this Rider is in effect and before the Annuity Date, we will
automatically reset the Protected Payment Base and Remaining
Protected Balance to an amount equal to 100% of the Contract
Value, if the Protected Payment Base is less than the Contract
Value on that Contract Anniversary. The annual charge percentage
may change as a result of any Automatic Reset (see CHARGES,
FEES AND DEDUCTIONS – Optional Rider Charges).
Automatic Reset – Opt-Out Election. Within
60 days after a Contract Anniversary on which an Automatic
Reset is effective, you have the option to reinstate the
Protected Payment Base, Remaining Protected Balance, Protected
Payment Amount and annual charge percentage to their respective
amounts immediately before the Automatic Reset. Any future
Automatic Resets will continue in accordance with the
Automatic Reset paragraph above. If you elect this
option, your opt-out election must be received, in a form
satisfactory to us, at our Service Center within the same
60 day period after the Contract Anniversary on which the
reset is effective.
Automatic Reset – Future
Participation. You may elect not to participate in
future Automatic Resets at any time. Your election must be
received, in a form satisfactory to us, at our Service Center,
while this Rider is in effect and before the Annuity Date. Such
election will be effective for future Contract Anniversaries. If
you previously elected not to participate in Automatic Resets,
you may re-elect to participate in future Automatic Resets at
any time. Your election to resume participation must be
received, in a form satisfactory to us, at our Service Center
while this Rider is in effect and before the Annuity Date. Such
election will be effective for future Contract Anniversaries as
described in the Automatic Reset paragraph above.
Owner-Elected Resets (Non-Automatic). You may, on
any Contract Anniversary, elect to reset the Remaining Protected
Balance and Protected Payment Base to an amount equal to 100% of
the Contract Value. An Owner-Elected Reset may be elected while
Automatic Resets are in effect. The annual charge percentage may
change as a result of this Reset.
If you elect this option, your election must be received, in a
form satisfactory to us, at our Service Center within
60 days after the Contract Anniversary on which the reset
is effective. The reset will be based on the Contract Value as
of that Contract Anniversary. Your election of this option
may result in a reduction in the Protected Payment Base,
Remaining Protected Balance and Protected Payment Amount.
Generally, the reduction will occur when your Contract Value is
less than the Protected Payment Base as of the Contract
Anniversary you elected the reset. You are strongly advised
to work with your investment professional prior to electing an
Owner-Elected Reset. We will provide you with written
confirmation of your election.
35
Subsequent
Purchase Payments
If we receive additional Purchase Payments after the Rider
Effective Date, we will increase the Protected Payment Base and
Remaining Protected Balance by the amount of the Purchase
Payments. However, for purposes of this Rider, we reserve the
right to restrict additional Purchase Payments that result in a
total of all Purchase Payments received on or after the later of
the first
(1st)
Contract Anniversary or most recent Reset Date to exceed
$100,000 without our prior approval. This provision only applies
if the Contract to which this Rider is attached permits Purchase
Payments after the first
(1st)
Contract Anniversary, measured from the Contract Date.
Annuitization
If you annuitize the Contract at the maximum Annuity Date
specified in your Contract and this Rider is still in effect at
the time of your election and a Life Only annuity option is
chosen, the annuity payments will be equal to the greater of:
•
the Life Only annual payment amount based on the terms of your
Contract, or
•
the Protected Payment Amount in effect at the maximum Annuity
Date.
If you annuitize the Contract at any time prior to the maximum
Annuity Date specified in your Contract, your annuity payments
will be determined in accordance with the terms of your
Contract. The Protected Payment Base, Remaining Protected
Balance and Protected Payment Amount under this Rider will not
be used in determining any annuity payments. Work with your
financial professional to determine if you should annuitize your
Contract before the maximum Annuity Date or stay in the
accumulation phase and continue to take withdrawals under the
Rider.
The annuity payments described in this subsection are available
to you even if your first withdrawal was taken prior to age
591/2
and no Resets have occurred.
Continuation
of Rider if Surviving Spouse Continues Contract
If the Remaining Protected Balance is zero when the Owner dies,
this Rider will terminate. If the Owner dies while this Rider is
in effect and if the surviving spouse of the deceased Owner
elects to continue the Contract in accordance with its terms,
the surviving spouse may continue to take withdrawals of the
Protected Payment Amount under this Rider, until the Remaining
Protected Balance is reduced to zero.
The surviving spouse may elect any of the reset options
available under this Rider for subsequent Contract
Anniversaries. If a reset takes place then the provisions of
this Rider will continue in full force and in effect for the
surviving spouse. The withdrawal percentage will be determined
based on the age of the surviving spouse and the new withdrawal
percentage may be higher or lower than what the withdrawal
percentage was prior to death. In addition, if the surviving
spouse is
591/2
when a reset occurs, the surviving spouse may take withdrawals
of the Protected Payment Amount (based on the new Protected
Payment Base and withdrawal percentage) for life.
Any 0.10% increase to the withdrawal percentage previously added
will apply but no further increases to the withdrawal percentage
will be added.
The surviving spouse may elect to receive any death benefit
proceeds instead of continuing the Contract and Rider (see
DEATH BENEFITS AND OPTIONAL DEATH BENEFIT RIDERS –
Death Benefits).
Termination
You cannot request a termination of the Rider. Except as
otherwise provided below, the Rider will automatically terminate
on the earliest of:
•
the day any portion of the Contract Value is no longer allocated
according to the Investment Allocation Requirements,
•
the day the Remaining Protected Balance is reduced to zero if
the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner), was younger than
591/2
when the first withdrawal was taken under the Rider after the
Rider Effective Date or the most recent Reset Date, whichever is
later,
36
•
the date of the first death of an Owner or the date of death of
the sole surviving Annuitant (except as provided under the
Continuation of Rider if Surviving Spouse Continues
Contract subsection),
•
for Contracts with a Non-Natural Owner, the date of the first
death of an Annuitant, including Primary, Joint and Contingent
Annuitants,
•
the day the Contract is terminated in accordance with the
provisions of the Contract,
•
the day we are notified of a change in ownership of the Contract
to a non-spouse Owner if the Contract is Non-Qualified
(excluding changes in ownership to or from certain trusts),
•
the day you exchange this Rider for another withdrawal benefit
Rider,
•
the Annuity Date (see the Annuitization subsection for
additional information), or
•
the day the Contract Value is reduced to zero as a result of a
withdrawal (except an RMD withdrawal) that exceeds the Protected
Payment Amount.
The Rider will not terminate the day the Remaining Protected
Balance is reduced to zero if the oldest Owner (or youngest
Annuitant, in the case of a Non-Natural Owner) was
age 591/2
or older when the first withdrawal was taken under the Rider
after the Rider Effective Date or the most recent Reset Date,
whichever is later.
The Rider and the Contract will not terminate the day the
Contract Value is zero and you begin taking pre-authorized
withdrawals of the Protected Payment Amount. In this case, the
Rider and the Contract will terminate:
•
the day the Remaining Protected Balance is reduced to zero if
the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner), was younger than
591/2
when the first withdrawal was taken under the Rider after the
Rider Effective Date or the most recent Reset Date, whichever is
later, or
•
the date of the first death of an Owner or the date of death of
the sole surviving Annuitant if the oldest Owner (or youngest
Annuitant, in the case of a Non-Natural Owner) was
age 591/2
or older when the first withdrawal was taken under the Rider
after the Rider Effective Date or the most recent Reset Date,
whichever is later.
If this Rider is terminated as a result of having any portion of
the Contract Value no longer allocated according to the
Investment Allocation Requirements, you must wait until a
Contract Anniversary that is at least one (1) year from the
Effective Date of termination before this Rider may be purchased
again (if available).
Sample
Calculations
Hypothetical sample calculations are in the attached APPENDIX
B: AUTOMATIC INCOME BUILDER RIDER SAMPLE CALCULATIONS. The
examples are based on certain hypothetical assumptions and are
for example purposes only. These examples are not intended to
serve as projections of future investment returns.
Flexible
Lifetime Income Rider (Single)
Purchasing
the Rider
This Rider is no longer available for purchase.
Rider
Terms
Annual RMD Amount – The amount required to
be distributed each Calendar Year for purposes of satisfying the
minimum distribution requirements of Code Section 401(a)(9)
(“Section 401(a)(9)”) and related Code provisions
in effect as of the Rider Effective Date.
Protected Payment Amount – The maximum
amount that can be withdrawn under this Rider without reducing
the Protected Payment Base. The Protected Payment Amount on any
day after the Rider Effective Date is equal to the lesser of:
•
5% of the Protected Payment Base as of that day, less cumulative
withdrawals during that Contract Year, or
•
the Remaining Protected Balance as of that day.
37
The initial Protected Payment Amount on the Rider Effective Date
is equal to 5% of the initial Protected Payment Base.
Protected Payment Base – An amount used to
determine the Protected Payment Amount. The Protected Payment
Base will remain unchanged except as otherwise described under
the provisions of this Rider. The initial Protected Payment Base
is equal to the initial Purchase Payment, if the Rider Effective
Date is on the Contract Date, or the Contract Value, if the
Rider Effective Date is on a Contract Anniversary.
Remaining Protected Balance – The amount
available for future withdrawals made under this Rider. The
initial Remaining Protected Balance is equal to the initial
Purchase Payment, if the Rider Effective Date is on the Contract
Date, or the Contract Value, if the Rider Effective Date is on a
Contract Anniversary.
Annual Credit – An amount added to the
Protected Payment Base and Remaining Protected Balance.
Reset Date – Any Contract Anniversary
beginning with the first
(1st)
Contract Anniversary after the Rider Effective Date on which an
Automatic Reset or an Owner-Elected Reset occurs.
Rider Effective Date – The date the
guarantees and charges for the Rider become effective. If the
Rider is purchased within 60 days of the Contract Date, the
Rider Effective Date is the Contract Date. If the Rider is
purchased within 60 days of a Contract Anniversary, the
Rider Effective Date is the date of that Contract Anniversary.
How the
Rider Works
On any day, this Rider guarantees you can withdraw up to the
Protected Payment Amount, regardless of market performance,
until the Remaining Protected Balance is reduced to
zero (0). Lifetime withdrawals up to the Protected Payment
Amount may continue after the Remaining Protected Balance is
reduced to zero (0) if the oldest Owner (or youngest Annuitant,
in the case of a Non-Natural Owner) was age
591/2
or older when the first withdrawal was taken after the Rider
Effective Date or the most recent Reset Date, whichever is
later. If a withdrawal was taken before age
591/2
and there was no subsequent Reset, the Rider will terminate once
the Remaining Protected Balance is reduced to zero (0). This
Rider also provides for an amount (an “Annual Credit”)
to be added to the Protected Payment Base and Remaining
Protected Balance. Once the Rider is purchased, you cannot
request a termination of the Rider (see the Termination
subsection of this Rider for more information).
In addition, beginning with the first
(1st)
anniversary of the Rider Effective Date or most recent Reset
Date, whichever is later, the Rider provides for Automatic
Annual Resets or Owner-Elected Resets of the Protected Payment
Base and Remaining Protected Balance to an amount equal to 100%
of the Contract Value.
If applicable, an Annual Credit is added to the Protected
Payment Base and Remaining Protected Balance prior to any
Automatic Reset. If the Contract Value as of that Contract
Anniversary is greater than the Protected Payment Base (which
includes the Annual Credit amount) then the Protected Payment
Base and Remaining Protected Balance will be automatically reset
to equal the Contract Value.
The Protected Payment Base and Remaining Protected Balance may
change over time. The addition of an Annual Credit will increase
the Protected Payment Base and the Remaining Protected Balance
by the amount of the Annual Credit. An Automatic Reset or
Owner-Elected Reset will increase or decrease the Protected
Payment Base and Remaining Protected Balance depending on the
Contract Value on the Reset Date. A withdrawal that is less
than or equal to the Protected Payment Amount will reduce the
Remaining Protected Balance by the amount of the withdrawal and
will not change the Protected Payment Base. If a withdrawal is
greater than the Protected Payment Amount and the Contract Value
is less than the Protected Payment Base, both the Protected
Payment Base and Remaining Protected Balance will be reduced by
an amount that is greater than the excess amount withdrawn. For
withdrawals that are greater than the Protected Payment Amount,
see the Withdrawal of Protected Payment Amount subsection.
For purposes of this Rider, the term “withdrawal”
includes any applicable withdrawal charges. Amounts withdrawn
under this Rider will reduce the Contract Value by the amount
withdrawn and will be subject to the same conditions,
limitations, restrictions and all other fees, charges and
deductions, if applicable, as withdrawals otherwise made under
the provisions of the Contract. Withdrawals under this Rider are
not annuity payouts. Annuity payouts generally receive a more
favorable tax treatment than other withdrawals.
38
If your Contract is a Qualified Contract, including a TSA/403(b)
Contract, you are subject to restrictions on withdrawals you may
take prior to a triggering event (e.g. reaching age
591/2,
separation from service, disability) and you should consult your
tax or legal advisor prior to purchasing this optional
guarantee, the primary benefit of which is guaranteeing
withdrawals. For additional information regarding withdrawals
and triggering events, see FEDERAL TAX ISSUES –
IRAs and Qualified Plans.
Withdrawal
of Protected Payment Amount
While this Rider is in effect, you may withdraw up to the
Protected Payment Amount each Contact Year, regardless of market
performance, until the Rider terminates. Any portion of the
Protected Payment Amount not withdrawn during a Contract Year
may not be carried over to the next Contract Year. If a
withdrawal does not exceed the Protected Payment Amount
immediately prior to that withdrawal, the Protected Payment Base
will remain unchanged. The Remaining Protected Balance will
decrease by the withdrawal amount immediately following the
withdrawal.
Withdrawals Exceeding the Protected Payment Amount. If a
withdrawal (except an RMD withdrawal) exceeds the Protected
Payment Amount immediately prior to that withdrawal, we will
(immediately following the excess withdrawal) reduce the
Protected Payment Base on a proportionate basis for the amount
in excess of the Protected Payment Amount. We will reduce the
Remaining Protected Balance either on a proportionate basis or
by the total withdrawal amount, whichever results in the lower
Remaining Protected Balance amount. (See example 4 in
APPENDIX C: FLEXIBLE LIFETIME INCOME RIDER (SINGLE AND JOINT)
SAMPLE CALCULATIONS for a numerical example of the
adjustments to the Protected Payment Base and Remaining
Protected Balance as a result of an excess withdrawal.) If a
withdrawal is greater than the Protected Payment Amount and the
Contract Value is less than the Protected Payment Base, both the
Protected Payment Base and Remaining Protected Balance will be
reduced by an amount that is greater than the excess amount
withdrawn.
The amount available for withdrawal under the Contract must be
sufficient to support any withdrawal that would otherwise exceed
the Protected Payment Amount.
For information regarding taxation of withdrawals, see
FEDERAL TAX ISSUES.
Required
Minimum Distributions
No adjustment will be made to the Protected Payment Base as a
result of a withdrawal that exceeds the Protected Payment Amount
immediately prior to the withdrawal, provided:
•
such withdrawal (an “RMD Withdrawal”) is for purposes
of satisfying the minimum distribution requirements of
Section 401(a)(9) and related Code provisions in effect at
that time,
•
you have authorized us to calculate and make periodic
distribution of the Annual RMD Amount for the Calendar Year
required based on the payment frequency you have chosen,
•
the Annual RMD Amount is based on this Contract only, and
•
only RMD withdrawals are made from the Contract during the
Contract Year.
Immediately following an RMD Withdrawal, the Remaining Protected
Balance will decrease by the RMD Withdrawal amount.
See FEDERAL TAX ISSUES – Qualified
Contracts – Required Minimum Distributions.
Depletion
of Contract Value
If a withdrawal (including an RMD withdrawal) does not exceed
the Protected Payment Amount and reduces the Contract Value to
zero, the following will apply:
•
if the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner):
•
was younger than
age 591/2
when the first withdrawal was taken under the Rider, after the
Rider Effective Date or the most recent Reset Date, whichever is
later, 5% of the Protected Payment Base will be paid each year
until the Remaining Protected Balance is reduced to zero, or
39
•
was
age 591/2
or older when the first withdrawal was taken under the Rider
after the Rider Effective Date or the most recent Reset Date,
whichever is later, 5% of the Protected Payment Base will be
paid each year until the day of the first death of an Owner or
the date of death of the sole surviving Annuitant.
•
the payments of 5% of the Protected Payment Base will be paid
under a series of pre-authorized withdrawals under a payment
frequency as elected by the Owner, but no less frequently than
annually,
•
no additional Purchase Payments will be accepted under the
Contract,
•
any Remaining Protected Balance will not be available for
payment in a lump sum and will not be applied to provide
payments under an Annuity Option, and
•
the Contract will cease to provide any death benefit.
If the Owner or sole surviving Annuitant dies and the Contract
Value is zero as of the date of death, there is no death
benefit, however, any Remaining Protected Balance will be paid
to the Beneficiary under a series of pre-authorized withdrawals
and payment frequency (at least annually) then in effect at the
time of the Owner’s or sole surviving Annuitant’s
death. If, however, the Remaining Protected Balance would be
paid over a period that exceeds the life expectancy of the
Beneficiary, the pre-authorized withdrawal amount will be
adjusted so that the withdrawal payments will be paid over a
period that does not exceed the Beneficiary’s life
expectancy.
Depletion
of Remaining Protected Balance
If a withdrawal (including an RMD Withdrawal) reduced the
Remaining Protected Balance to zero and Contract Value remains,
the following will apply:
If the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner):
•
was younger than
age 591/2
when the first withdrawal was taken under the Rider after the
Rider Effective Date or the most recent Reset Date, whichever is
later, this Rider will terminate, or
•
was
age 591/2
or older when the first withdrawal was taken under the Rider
after the Rider Effective Date or the most recent Reset Date,
whichever is later, you may elect to withdraw up to 5% of the
Protected Payment Base each year until the day of the first
death of an Owner or the date of death of the sole surviving
Annuitant. If an Automatic or Owner-Elected Reset occurs, the
Remaining Protected Balance will be reinstated to an amount
equal to the Contract Value as of that Contract Anniversary.
Before your Remaining Protected Balance is zero, if you took
your first withdrawal before
age 591/2
and you would like to be eligible for lifetime payments under
the Rider, an Automatic or Owner-Elected Reset must occur and
your first withdrawal after that Reset must be taken on or
after
age 591/2.
See the Reset of Protected Payment Base and Remaining
Protected Balance subsection of this Rider. If you are
younger than
age 591/2
when the Remaining Protected Balance is zero and Contract Value
remains, the Rider will terminate and there is no opportunity
for a Reset.
If a withdrawal (except an RMD withdrawal) made from the
Contract exceeds the Protected Payment Amount, the withdrawal
will be treated as an excess withdrawal and the Protected
Payment Base will be reduced according to the Withdrawals
Exceeding the Protected Payment Amount subsection.
Any death benefit proceeds to be paid to the Beneficiary from
remaining Contract Value will be paid according to the Death
Benefit provisions of the Contract.
Annual
Credit
On each Contract Anniversary after the Rider Effective Date, an
Annual Credit will be added to the Protected Payment Base and
Remaining Protected Balance, as of that Contract Anniversary, if:
•
no withdrawals have occurred after the Rider Effective Date or
the most recent Reset Date, whichever is later, and
•
that Contract Anniversary is within the first 10 Contract
Anniversaries, measured from the Rider Effective Date or the
most recent Reset Date, whichever is later.
40
The Annual Credit is equal to 6% of the total of:
•
the Remaining Protected Balance on the Rider Effective Date or
the most recent Reset Date, whichever is later, and
•
the cumulative Purchase Payments received after the Rider
Effective Date or most recent Reset Date, whichever is later,
as of the Contract Anniversary on which the Annual Credit is
added.
Once a withdrawal has occurred, including an RMD Withdrawal, no
Annual Credit will be added to the Protected Payment Base and
Remaining Protected Balance on any Contract Anniversary
following the withdrawal, unless an Automatic Reset or
Owner-Elected Reset occurs. If such a Reset occurs, your
eligibility for the Annual Credit will be reinstated as of the
Reset Date.
The Annual Credit is not added to your Contract Value.
Reset of
Protected Payment Base and Remaining Protected Balance
Regardless of which reset option is used, on and after each
Reset Date, the provisions of this Rider shall apply in the same
manner as they applied when the Rider was originally issued.
Eligibility for any Annual Credit, the limitations and
restrictions on Purchase Payments and withdrawals, the deduction
of annual Charges and any future reset options available on and
after the Reset Date, will again apply and will be measured from
that Reset Date. A reset occurs when the Protected Payment Base
and Remaining Protected Balance are changed to an amount equal
to the Contract Value as of the Reset Date.
Automatic Reset. On each Contract Anniversary
while this Rider is in effect and before the Annuity Date, we
will automatically reset the Protected Payment Base and
Remaining Protected Balance to an amount equal to 100% of the
Contract Value, if the Protected Payment Base, after any Annual
Credit is applied, is less than the Contract Value on that
Contract Anniversary. The annual charge percentage may change as
a result of any Automatic Reset (see CHARGES, FEES AND
DEDUCTIONS – Optional Rider Charges).
Automatic Reset – Opt-Out
Election. Within 60 days after a Contract
Anniversary on which an Automatic Reset is effective, you have
the option to reinstate the Protected Payment Base, Remaining
Protected Balance and annual charge percentage to their
respective amounts immediately before the Automatic Reset. Any
future Automatic Resets will continue in effect in accordance
with the Automatic Reset paragraph above.
If you elect this option, your opt-out election must be
received, in a form satisfactory to us, at our Service Center
within the same 60 day period after the Contract
Anniversary on which the reset is effective.
Automatic Reset – Future
Participation. You may elect not to participate
in future Automatic Resets at any time. Your election must be
received, in a form satisfactory to us, at our Service Center,
while this Rider is in effect and before the Annuity Date. Such
election will be effective for future Contract Anniversaries.
If you previously elected not to participate in Automatic
Resets, you may re-elect to participate in future Automatic
Resets at any time. Your election to resume participation must
be received, in a form satisfactory to us, at our Service Center
while this Rider is in effect and before the Annuity Date. Such
election will be effective for future Contract Anniversaries as
described in the Automatic Reset paragraph above.
Owner-Elected Resets (Non-Automatic). You may,
on any Contract Anniversary, elect to reset the Remaining
Protected Balance and Protected Payment Base to an amount equal
to 100% of the Contract Value. An Owner-Elected Reset may be
elected while Automatic Resets are in effect. The annual charge
percentage may change as a result of this Reset.
If you elect this option, your election must be received, in a
form satisfactory to us, at our Service Center within
60 days after the Contract Anniversary on which the reset
is effective. The reset will be based on the Contract Value as
of that Contract Anniversary. Your election of this option
may result in a reduction in the Protected Payment Base,
Remaining Protected Balance, Protected Payment Amount and any
Annual Credit that may be applied. Generally, the reduction
will occur when your Contract Value is less than the Protected
Payment Base as of the Contract
41
Anniversary you elected the reset. You are strongly advised
to work with your investment professional prior to electing an
Owner-Elected Reset. We will provide you with written
confirmation of your election.
Subsequent
Purchase Payments
If we receive additional Purchase Payments after the Rider
Effective Date, we will increase the Protected Payment Base and
Remaining Protected Balance by the amount of the Purchase
Payments. However, for purposes of this Rider, we reserve the
right to restrict additional Purchase Payments that result in a
total of all Purchase Payments received on or after the later of
the first
(1st)
Contract Anniversary or most recent Reset Date to exceed
$100,000 without our prior approval. This provision only applies
if the Contract to which this Rider is attached, permits
Purchase Payments after the first
(1st)
Contract Anniversary, measured from the Contract Date.
Annuitization
If you annuitize the Contract at the maximum Annuity Date
specified in your Contract and this Rider is still in effect at
the time of your election and a Life Only annuity option is
chosen, the annuity payments will be equal to the greater of:
•
the Life Only annual payment amount based on the terms of your
Contract, or
•
5% of the Protected Payment Base in effect at the maximum
Annuity Date.
If you annuitize the Contract at any time prior to the maximum
Annuity Date specified in your Contract, your annuity payments
will be determined in accordance with the terms of your
Contract. The Protected Payment Base, Remaining Protected
Balance and Protected Payment Amount under this Rider will not
be used in determining any annuity payments. Work with your
financial professional to determine if you should annuitize your
Contract before the maximum Annuity Date or stay in the
accumulation phase and continue to take withdrawals under the
Rider.
The annuity payments described in this subsection are available
to you even if your first withdrawal was taken prior to age
591/2
and no Resets have occurred.
Continuation
of Rider if Surviving Spouse Continues Contract
If the Remaining Protected Balance is zero when the Owner dies,
this Rider will terminate. If the Owner dies while this Rider is
in effect and if the surviving spouse of the deceased Owner
elects to continue the Contract in accordance with its terms,
the surviving spouse may continue to take withdrawals of the
Protected Payment Amount under this Rider, until the Remaining
Protected Balance is reduced to zero.
The surviving spouse may elect any of the reset options
available under this Rider for subsequent Contract
Anniversaries. If a reset takes place then the provisions of
this Rider will continue in full force and in effect for the
surviving spouse. In addition, if the surviving spouse is
591/2
when a reset occurs, the surviving spouse may take withdrawals
of the Protected Payment Amount (based on the new Protected
Payment Base and withdrawal percentage) for life.
The surviving spouse may elect to receive any death benefit
proceeds instead of continuing the Contract and Rider (see
DEATH BENEFITS AND OPTIONAL DEATH BENEFIT
RIDERS – Death Benefits).
Termination
You cannot request a termination of the Rider. Except as
otherwise provided below, the Rider will automatically terminate
on the earliest of:
•
the day any portion of the Contract Value is no longer allocated
according to the Investment Allocation Requirements,
•
the day the Remaining Protected Balance is reduced to zero if
the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner), was younger than
591/2
when the first withdrawal was taken under the Rider after the
Rider Effective Date or the most recent Reset Date, whichever is
later,
42
•
the date of the first death of an Owner or the date of death of
the sole surviving Annuitant (except as provided under the
Continuation of Rider if Surviving Spouse Continues Contract
subsection),
•
for Contracts with a Non-Natural Owner, the date of the first
death of an Annuitant, including Primary, Joint and Contingent
Annuitants,
•
the day the Contract is terminated in accordance with the
provisions of the Contract,
•
the day we are notified of a change in ownership of the Contract
if the Contract is Non-Qualified,
•
the day you exchange this Rider for another withdrawal benefit
Rider,
•
the Annuity Date (see the Annuitization subsection for
additional information), or
•
the day the Contract Value is reduced to zero as a result of a
withdrawal (except an RMD withdrawal) that exceeds the Protected
Payment Amount.
The Rider will not terminate the day the Remaining Protected
Balance is reduced to zero if the oldest Owner (or youngest
Annuitant, in the case of a Non-Natural Owner) was
age 591/2
or older when the first withdrawal was taken under the Rider
after the Rider Effective Date or the most recent Reset Date,
whichever is later. In this case, the Rider will terminate the
date of the first death of an Owner or the date of death of the
sole surviving Annuitant.
The Rider and the Contract will not terminate the day the
Contract Value is zero and you begin taking pre-authorized
withdrawals of 5% of the Protected Payment Base. In this case,
the Rider and the Contract will terminate:
•
the day the Remaining Protected Balance is reduced to zero if
the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner), was younger than
591/2
when the first withdrawal was taken under the Rider after the
Rider Effective Date or the most recent Reset Date, whichever is
later, or
•
the date of the first death of an Owner or the date of death of
the sole surviving Annuitant if the oldest Owner (or youngest
Annuitant, in the case of a Non-Natural Owner) was
age 591/2
or older when the first withdrawal was taken under the Rider
after the Rider Effective Date or the most recent Reset Date,
whichever is later.
Sample
Calculations
Hypothetical sample calculations are in the attached APPENDIX
C: FLEXIBLE LIFETIME INCOME RIDER (SINGLE AND JOINT) SAMPLE
CALCULATIONS. The examples provided are based on certain
hypothetical assumptions and are for example purposes only.
These examples are not intended to serve as projections of
future investment returns.
Flexible
Lifetime Income Rider (Joint)
Purchasing
the Rider
This Rider is no longer available for purchase.
Rider
Terms
Annual RMD Amount – The amount required to
be distributed each Calendar Year for purposes of satisfying the
minimum distribution requirements of Code Section 401(a)(9)
(“Section 401(a)(9)”) and related Code provisions
in effect as of the Rider Effective Date.
Designated Lives (each a “Designated
Life”) – Designated Lives must be
natural persons who are each other’s spouses on the Rider
Effective Date. Designated Lives will remain unchanged while
this Rider is in effect.
To be eligible for lifetime benefits, a Designated Life must:
•
be the Owner (or the Annuitant, in the case of a custodial owned
IRA or TSA), or
•
remain the Spouse of the other Designated Life and be the first
in line of succession, as determined under the Contract, for
payment of any death benefit.
43
Protected Payment Amount – The maximum
amount that can be withdrawn under this Rider without reducing
the Protected Payment Base. The Protected Payment Amount on any
day after the Rider Effective Date is equal to 5% of the
Protected Payment Base as of that day, less cumulative
withdrawals during that Contract Year. The initial Protected
Payment Amount on the Rider Effective Date is equal to 5% of the
initial Protected Payment Base.
Protected Payment Base – An amount used to
determine the Protected Payment Amount. The Protected Payment
Base will remain unchanged except as otherwise described under
the provisions of this Rider. The initial Protected Payment Base
is equal to the initial Purchase Payment, if the Rider Effective
Date is on the Contract Date, or the Contract Value, if the
Rider Effective Date is on a Contract Anniversary.
Remaining Protected Balance – The amount
available for future withdrawals made under this Rider. The
initial Remaining Protected Balance is equal to the initial
Purchase Payment, if the Rider Effective Date is on the Contract
Date, or the Contract Value, if the Rider Effective Date is on a
Contract Anniversary.
Annual Credit – An amount added to the
Protected Payment Base and Remaining Protected Balance.
Reset Date – Any Contract Anniversary
beginning with the first
(1st)
Contract Anniversary after the Rider Effective Date on which an
Automatic Reset or an Owner-Elected Reset occurs.
Rider Effective Date – The date the
guarantees and charges for the Rider become effective. If the
Rider is purchased within 60 days of the Contract Date, the
Rider Effective Date is the Contract Date. If the Rider is
purchased within 60 days of a Contract Anniversary, the Rider
Effective Date is the date of that Contract Anniversary.
Spouse – The Owner’s spouse who is
treated as the Owner’s spouse pursuant to federal law.
Surviving Spouse – The surviving spouse of
a deceased Owner.
How the
Rider Works
On any day, this Rider guarantees you can withdraw up to the
Protected Payment Amount, regardless of market performance,
until the death of all Designated Lives eligible for lifetime
benefits. This Rider also provides for an amount (an
“Annual Credit”) to be added to the Protected Payment
Base and Remaining Protected Balance. Once the Rider is
purchased, you cannot request a termination of the Rider (see
the Termination subsection of this Rider for more
information).
In addition, on each Contract Anniversary while this Rider is in
effect and before the Annuity Date, the Rider provides for
Automatic Annual Resets or Owner-Elected Resets of the Protected
Payment Base and Remaining Protected Balance to an amount equal
to 100% of the Contract Value.
If applicable, an Annual Credit is added to the Protected
Payment Base and Remaining Protected Balance prior to any
Automatic Reset. If the Contract Value as of that Contract
Anniversary is greater than the Protected Payment Base (which
includes the Annual Credit amount) then the Protected Payment
Base and Remaining Protected Balance will be automatically reset
to equal the Contract Value.
The Protected Payment Base and Remaining Protected Balance may
change over time. The addition of an Annual Credit will increase
the Protected Payment Base and the Remaining Protected Balance
by the amount of the Annual Credit. An Automatic Reset or
Owner-Elected Reset will increase or decrease the Protected
Payment Base and Remaining Protected Balance depending on the
Contract Value on the Reset Date. A withdrawal that is less
than or equal to the Protected Payment Amount will reduce the
Remaining Protected Balance by the amount of the withdrawal and
will not change the Protected Payment Base. If a withdrawal is
greater than the Protected Payment Amount and the Contract Value
is less than the Protected Payment Base, both the Protected
Payment Base and Remaining Protected Balance will be reduced by
an amount that is greater than the excess amount withdrawn. For
withdrawals that are greater than the Protected Payment Amount,
see the Withdrawal of Protected Payment Amount subsection.
For purposes of this Rider, the term “withdrawal”
includes any applicable withdrawal charges. Amounts withdrawn
under this Rider will reduce the Contract Value by the amount
withdrawn and will be subject to the same conditions,
limitations, restrictions and all other fees, charges and
deductions, if applicable, as withdrawals otherwise made under
the provisions of the Contract. Withdrawals under this Rider are
not annuity payouts. Annuity payouts generally receive a more
favorable tax treatment than other withdrawals.
44
If your Contract is a Qualified Contract, including a TSA/403(b)
Contract, you are subject to restrictions on withdrawals you may
take prior to a triggering event (e.g. reaching age
591/2,
separation from service, disability) and you should consult your
tax or legal advisor prior to purchasing this optional
guarantee, the primary benefit of which is guaranteeing
withdrawals. For additional information regarding withdrawals
and triggering events, see FEDERAL TAX ISSUES –
IRAs and Qualified Plans.
Withdrawal
of Protected Payment Amount
While this Rider is in effect, you may withdraw up to the
Protected Payment Amount each Contract Year, regardless of
market performance, until the Rider terminates. Any portion of
the Protected Payment Amount not withdrawn during a Contract
Year may not be carried over to the next Contract Year.
If a withdrawal does not exceed the Protected Payment Amount
immediately prior to that withdrawal, the Protected Payment Base
will remain unchanged. Immediately following the withdrawal, the
Remaining Protected Balance will decrease by the withdrawal
amount.
Withdrawals Exceeding the Protected Payment Amount. If a
withdrawal (except an RMD withdrawal) exceeds the Protected
Payment Amount immediately prior to that withdrawal, we will
(immediately following the excess withdrawal) reduce the
Protected Payment Base on a proportionate basis for the amount
in excess of the Protected Payment Amount. We will reduce the
Remaining Protected Balance either on a proportionate basis or
by the total withdrawal amount, whichever results in the lower
Remaining Protected Balance amount. (See example 4 in
APPENDIX C: FLEXIBLE LIFETIME INCOME RIDER (SINGLE AND JOINT)
SAMPLE CALCULATIONS for a numerical example of the
adjustments to the Protected Payment Base and Remaining
Protected Balance as a result of an excess withdrawal.) If a
withdrawal is greater than the Protected Payment Amount and the
Contract Value is less than the Protected Payment Base, both the
Protected Payment Base and Remaining Protected Balance will be
reduced by an amount that is greater than the excess amount
withdrawn.
The amount available for withdrawal under the Contract must be
sufficient to support any withdrawal that would otherwise exceed
the Protected Payment Amount.
For information regarding taxation of withdrawals, see
FEDERAL TAX ISSUES.
Required
Minimum Distributions
No adjustment will be made to the Protected Payment Base as a
result of a withdrawal that exceeds the Protected Payment Amount
immediately prior to the withdrawal, provided:
•
such withdrawal (an “RMD Withdrawal”) is for purposes
of satisfying the minimum distribution requirements of
Section 401(a)(9) and related Code provisions in effect at
that time,
•
you have authorized us to calculate and make periodic
distribution of the Annual RMD Amount for the Calendar Year
required based on the payment frequency you have chosen,
•
the Annual RMD Amount is based on this Contract only, and
•
only RMD withdrawals are made from the Contract during the
Contract Year.
Immediately following an RMD Withdrawal, the Remaining Protected
Balance will decrease by the RMD Withdrawal amount.
See FEDERAL TAX ISSUES – Qualified
Contracts – Required Minimum Distributions.
Depletion
of Contract Value
If a withdrawal does not exceed the Protected Payment Amount (or
is an RMD withdrawal) and reduces the Contract Value to zero,
the following will apply:
•
5% of the Protected Payment Base will be paid each year until
the death of all Designated Lives eligible for lifetime benefits,
45
•
the payments of 5% of the Protected Payment Base will be paid
under a series of pre-authorized withdrawals under a payment
frequency as elected by the Owner, but no less frequently than
annually,
•
no additional Purchase Payments will be accepted under the
Contract,
•
any Remaining Protected Balance will not be available for
payment in a lump sum and will not be applied to provide
payments under an Annuity Option, and
•
the Contract will cease to provide any death benefit.
If the surviving Designated Life eligible for lifetime benefits
dies and the Contract Value is zero as of the date of death,
there is no death benefit, however, any Remaining Protected
Balance will be paid to the Beneficiary under a series of
pre-authorized withdrawals and payment frequency (at least
annually) then in effect at the time of the death of the
surviving Designated Life eligible for lifetime benefits. If,
however, the Remaining Protected Balance would be paid over a
period that exceeds the life expectancy of the Beneficiary, the
pre-authorized withdrawal amount will be adjusted so that the
withdrawal payments will be paid over a period that does not
exceed the Beneficiary’s life expectancy.
Depletion
of Remaining Protected Balance
If a withdrawal (including an RMD Withdrawal) reduced the
Remaining Protected Balance to zero and Contract Value remains,
the following will apply:
•
if a withdrawal (except an RMD withdrawal) made from the
Contract exceeds the Protected Payment Amount, the withdrawal
will be treated as an excess withdrawal and the Protected
Payment Base will be reduced according to the Withdrawals
Exceeding the Protected Payment Amount subsection, and
•
any death benefit proceeds to be paid to the Beneficiary from
remaining Contract Value will be paid according to the Death
Benefit provisions of the Contract.
Annual
Credit
On each Contract Anniversary after the Rider Effective Date, an
Annual Credit will be added to the Protected Payment Base and
Remaining Protected Balance, as of that Contract Anniversary, if:
•
no withdrawals have occurred after the Rider Effective Date or
the most recent Reset Date, whichever is later, and
•
that Contract Anniversary is within the first 10 Contract
Anniversaries, measured from the Rider Effective Date or the
most recent Reset Date, whichever is later.
The Annual Credit is equal to 6% of the total of:
•
the Remaining Protected Balance on the Rider Effective Date or
the most recent Reset Date, whichever is later, and
•
the cumulative Purchase Payments received after the Rider
Effective Date or most recent Reset Date, whichever is later,
as of the Contract Anniversary on which the Annual Credit is
added.
Once a withdrawal has occurred, including an RMD Withdrawal, no
Annual Credit will be added to the Protected Payment Base and
Remaining Protected Balance on any Contract Anniversary
following the withdrawal, unless an Automatic Reset or
Owner-Elected Reset occurs. If such a Reset occurs, your
eligibility for the Annual Credit will be reinstated as of the
Reset Date.
The Annual Credit is not added to your Contract Value.
46
Reset of
Protected Payment Base and Remaining Protected Balance
Regardless of which reset option is used, on and after each
Reset Date, the provisions of this Rider shall apply in the same
manner as they applied when the Rider was originally issued.
Eligibility for any Annual Credit, the limitations and
restrictions on Purchase Payments and withdrawals, the deduction
of annual Charges and any future reset options available on and
after the Reset Date, will again apply and will be measured from
that Reset Date. A reset occurs when the Protected Payment Base
and Remaining Protected Balance are changed to an amount equal
to the Contract Value as of the Reset Date.
Automatic Reset. On each Contract Anniversary
while this Rider is in effect and before the Annuity Date, we
will automatically reset the Protected Payment Base and
Remaining Protected Balance to an amount equal to 100% of the
Contract Value, if the Protected Payment Base, after any Annual
Credit is applied, is less than the Contract Value on that
Contract Anniversary. The annual charge percentage may change as
a result of any Automatic Reset (see CHARGES, FEES AND
DEDUCTIONS – Optional Rider Charges).
Automatic Reset – Opt-Out
Election. Within 60 days after a Contract
Anniversary on which an Automatic Reset is effective, you have
the option to reinstate the Protected Payment Base, Remaining
Protected Balance and annual charge percentage to their
respective amounts immediately before the Automatic Reset. Any
future Automatic Resets will continue in effect in accordance
with the Automatic Reset paragraph above.
If you elect this option, your opt-out election must be
received, in a form satisfactory to us, at our Service Center
within the same 60 day period after the Contract
Anniversary on which the reset is effective.
Automatic Reset – Future
Participation. You may elect not to participate
in future Automatic Resets at any time. Your election must be
received, in a form satisfactory to us, at our Service Center,
while this Rider is in effect and before the Annuity Date. Such
election will be effective for future Contract Anniversaries.
If you previously elected not to participate in Automatic
Resets, you may re-elect to participate in future Automatic
Resets at any time. Your election to resume participation must
be received, in a form satisfactory to us, at our Service Center
while this Rider is in effect and before the Annuity Date. Such
election will be effective for future Contract Anniversaries as
described in the Automatic Reset paragraph above.
Owner-Elected Resets (Non-Automatic). You may,
on any Contract Anniversary, elect to reset the Remaining
Protected Balance and Protected Payment Base to an amount equal
to 100% of the Contract Value. An Owner-Elected Reset may be
elected while Automatic Resets are in effect. The annual charge
percentage may change as a result of this Reset.
If you elect this option, your election must be received, in a
form satisfactory to us, at our Service Center within
60 days after the Contract Anniversary on which the reset
is effective. The reset will be based on the Contract Value as
of that Contract Anniversary. Your election of this option
may result in a reduction in the Protected Payment Base,
Remaining Protected Balance, Protected Payment Amount and any
Annual Credit that may be applied. Generally, the reduction
will occur when your Contract Value is less than the Protected
Payment Base as of the Contract Anniversary you elected the
reset. You are strongly advised to work with your investment
professional prior to electing an Owner-Elected Reset. We
will provide you with written confirmation of your election.
Subsequent
Purchase Payments
If we receive additional Purchase Payments after the Rider
Effective Date, we will increase the Protected Payment Base and
Remaining Protected Balance by the amount of the Purchase
Payments. However, for purposes of this Rider, we reserve the
right to restrict additional Purchase Payments that result in a
total of all Purchase Payments received on or after the later of
the first
(1st)
Contract Anniversary or most recent Reset Date to exceed
$100,000 without our prior approval. This provision only applies
if the Contract to which this Rider is attached, permits
Purchase Payments after the first
(1st)
Contract Anniversary, measured from the Contract Date.
47
Annuitization
If you annuitize the Contract at the maximum Annuity Date
specified in your Contract and this Rider is still in effect at
the time of your election and a Life Only annuity option is
chosen, the annuity payments will be equal to the greater of:
•
the Life Only annual payment amount based on the terms of your
Contract, or
•
5% of the Protected Payment Base in effect at the maximum
Annuity Date.
If you annuitize the Contract at any time prior to the maximum
Annuity Date specified in your Contract, your annuity payments
will be determined in accordance with the terms of your
Contract. The Protected Payment Base, Remaining Protected
Balance and Protected Payment Amount under this Rider will not
be used in determining any annuity payments. Work with your
financial professional to determine if you should annuitize your
Contract before the maximum Annuity Date or stay in the
accumulation phase and continue to take withdrawals under the
Rider.
Continuation
of Rider if Surviving Spouse Continues Contract
If the Owner dies while this Rider is in effect and if the
Surviving Spouse (who is also a Designated Life eligible for
lifetime benefits) elects to continue the Contract in accordance
with its terms, the Surviving Spouse may continue to take
withdrawals of the Protected Payment Amount under this Rider,
until the day of the death of such Surviving Spouse. The
Surviving Spouse may elect any of the reset options available
under this Rider for subsequent Contract Anniversaries.
The Surviving Spouse may elect to receive any death benefit
proceeds instead of continuing the Contract and Rider (see
DEATH BENEFITS AND OPTIONAL DEATH BENEFIT
RIDERS – Death Benefits).
Ownership
and Beneficiary Changes
Changes to the Contract Owner, Annuitant and/or Beneficiary
designations and changes in marital status, including a
dissolution of marriage, may adversely affect the benefits of
this Rider. A particular change may make a Designated Life
ineligible to receive lifetime income benefits under this Rider.
As a result, the Rider may remain in effect and you may pay for
benefits that you will not receive. You are strongly advised
to work with your investment professional and consider your
options prior to making any Owner, Annuitant and/or Beneficiary
changes to your Contract.
Termination
You cannot request a termination of the Rider. Except as
otherwise provided below, the Rider will automatically terminate
on the earliest of:
•
the day any portion of the Contract Value is no longer allocated
according to the Investment Allocation Requirements,
•
the day of death of all Designated Lives eligible for lifetime
benefits,
•
upon the death of the first Designated Life, if a death benefit
is payable and a Surviving Spouse who chooses to continue the
Contract is not a Designated Life eligible for lifetime benefits,
•
upon the death of the first Designated Life, if a death benefit
is payable and the Contract is not continued by a Surviving
Spouse who is a Designated Life eligible for lifetime benefits,
•
if both Designated Lives are Joint Owners and there is a change
in marital status, the Rider will terminate upon the death of
the first Designated Life who is a Contract Owner,
•
the day the Contract is terminated in accordance with the
provisions of the Contract,
•
the day that neither Designated Life is an Owner (or Annuitant,
in the case of a custodial owned IRA or TSA),
•
the day you exchange this Rider for another withdrawal benefit
Rider,
48
•
the Annuity Date (see the Annuitization subsection for
additional information), or
•
the day the Contract Value is reduced to zero as a result of a
withdrawal (except an RMD withdrawal) that exceeds the Protected
Payment Amount.
The Rider and the Contract will not terminate the day of death
of:
•
all Designated Lives eligible for lifetime benefits, or
•
the first Designated Life who is a Contract Owner if both
Designated Lives are Joint Owners and there is a change in
marital status,
if, at the time of these events, the Contract Value is zero and
we are making pre-authorized withdrawals of 5% of the Protected
Payment Base. In this case, the Rider will terminate when the
Remaining Protected Balance is reduced to zero, see Depletion
of Remaining Protected Balance subsection.
Sample
Calculations
Hypothetical sample calculations are in the attached APPENDIX
C: FLEXIBLE LIFETIME INCOME RIDER (SINGLE AND JOINT) SAMPLE
CALCULATIONS. The examples provided are based on certain
hypothetical assumptions and are for example purposes only.
These examples are not intended to serve as projections of
future investment returns.
Foundation 10
Rider
Purchasing
the Rider
This Rider is no longer available for purchase.
Rider
Terms
Annual RMD Amount – The amount required to
be distributed each Calendar Year for purposes of satisfying the
minimum distribution requirements of Code Section 401(a)(9)
(“Section 401(a)(9)”) and related Code provisions
in effect as of the Rider Effective Date.
Protected Payment Amount – The maximum
amount that can be withdrawn under this Rider without reducing
the Protected Payment Base. The Protected Payment Amount on any
day after the Rider Effective Date is equal to the lesser of:
•
5% of the Protected Payment Base as of that day, less cumulative
withdrawals during that Contract Year, or
•
the Remaining Protected Balance as of that day.
The initial Protected Payment Amount on the Rider Effective Date
is equal to 5% of the initial Protected Payment Base.
Protected Payment Base – An amount used to
determine the Protected Payment Amount. The Protected Payment
Base will remain unchanged except as otherwise described under
the provisions of this Rider. The initial Protected Payment Base
is equal to the initial Purchase Payment, if the Rider Effective
Date is on the Contract Date, or the Contract Value, if the
Rider Effective Date is on a Contract Anniversary.
Remaining Protected Balance – The amount
available for future withdrawals made under this Rider. The
initial Remaining Protected Balance is equal to the initial
Purchase Payment, if the Rider Effective Date is on the Contract
Date, or the Contract Value, if the Rider Effective Date is on a
Contract Anniversary.
Annual Credit – An amount added to the
Protected Payment Base and Remaining Protected Balance.
Maximum Credit Base – An amount equal to
200% of the Remaining Protected Balance as of the Rider
Effective Date and any subsequent Purchase Payments made during
the first year that the Rider is in effect plus 100% of all
subsequent Purchase Payments made after the first year.
49
Reset Date – Any Contract Anniversary
beginning with the first
(1st)
Contract Anniversary after the Rider Effective Date on which an
Automatic Reset or an Owner-Elected Reset occurs.
Rider Effective Date – The date the
guarantees and charges for the Rider become effective. If the
Rider is purchased within 60 days of the Contract Date, the
Rider Effective Date is the Contract Date. If the Rider is
purchased within 60 days of a Contract Anniversary, the
Rider Effective Date is the date of that Contract Anniversary.
How the
Rider Works
On any day, this Rider guarantees you can withdraw up to the
Protected Payment Amount, regardless of market performance,
until the Remaining Protected Balance is reduced to zero (0).
Lifetime withdrawals up to the Protected Payment Amount may
continue after the Remaining Protected Balance is reduced to
zero (0) if the oldest Owner (or youngest Annuitant, in the case
of a Non-Natural Owner) was age
591/2
or older when the first withdrawal was taken after the Rider
Effective Date or the most recent Reset Date, whichever is
later. If a withdrawal was taken before age
591/2
and there was no subsequent Reset, the Rider will terminate once
the Remaining Protected Balance is reduced to zero (0). This
Rider also provides for an amount (an “Annual Credit”)
to be added to the Protected Payment Base and Remaining
Protected Balance if no withdrawals are taken. Once the Rider is
purchased, you cannot request a termination of the Rider (see
the Termination subsection of this Rider for more
information).
In addition, beginning with the first
(1st)
anniversary of the Rider Effective Date or most recent Reset
Date, whichever is later, the Rider provides for Automatic
Annual Resets or Owner-Elected Resets of the Protected Payment
Base and Remaining Protected Balance to an amount equal to 100%
of the Contract Value.
If applicable, an Annual Credit is added to the Protected
Payment Base and Remaining Protected Balance prior to any
Automatic Reset. If the Contract Value as of that Contract
Anniversary is greater than the Protected Payment Base (which
includes the Annual Credit amount) then the Protected Payment
Base and Remaining Protected Balance will be automatically reset
to equal the Contract Value.
The Protected Payment Base and Remaining Protected Balance may
change over time. The addition of an Annual Credit will increase
the Protected Payment Base and the Remaining Protected Balance
by the amount of the Annual Credit. An Automatic Reset or
Owner-Elected Reset will increase or decrease the Protected
Payment Base and Remaining Protected Balance depending on the
Contract Value on the Reset Date. A withdrawal that is less than
or equal to the Protected Payment Amount will reduce the
Remaining Protected Balance by the amount of the withdrawal and
will not change the Protected Payment Base. If a withdrawal is
greater than the Protected Payment Amount and the Contract Value
is less than the Protected Payment Base, both the Protected
Payment Base and Remaining Protected Balance will be reduced by
an amount that is greater than the excess amount withdrawn. For
withdrawals that are greater than the Protected Payment Amount,
see the Withdrawal of Protected Payment Amount subsection.
For purposes of this Rider, the term “withdrawal”
includes any applicable withdrawal charges. Amounts withdrawn
under this Rider will reduce the Contract Value by the amount
withdrawn and will be subject to the same conditions,
limitations, restrictions and all other fees, charges and
deductions, if applicable, as withdrawals otherwise made under
the provisions of the Contract. Withdrawals under this Rider are
not annuity payouts. Annuity payouts generally receive a more
favorable tax treatment than other withdrawals.
If your Contract is a Qualified Contract, including a TSA/403(b)
Contract, you are subject to restrictions on withdrawals you may
take prior to a triggering event (e.g. reaching age
591/2,
separation from service, disability) and you should consult your
tax or legal advisor prior to purchasing this optional
guarantee, the primary benefit of which is guaranteeing
withdrawals. For additional information regarding withdrawals
and triggering events, see the FEDERAL TAX ISSUES –
IRAs and Qualified Plans section in the Prospectus.
Withdrawal
of Protected Payment Amount
While this Rider is in effect, you may withdraw up to the
Protected Payment Amount each Contract Year, regardless of
market performance, until the Rider terminates. Any portion of
the Protected Payment Amount not withdrawn during a Contract
Year may not be carried over to the next Contract Year. If a
withdrawal does not exceed the Protected Payment Amount
immediately prior to that withdrawal, the Protected Payment Base
will remain
50
unchanged. The Remaining Protected Balance will decrease by the
withdrawal amount immediately following the withdrawal.
Withdrawals Exceeding the Protected Payment
Amount. If a withdrawal (except an RMD withdrawal)
exceeds the Protected Payment Amount immediately prior to that
withdrawal, we will (immediately following the excess
withdrawal) reduce the Protected Payment Base on a proportionate
basis for the amount in excess of the Protected Payment Amount.
We will reduce the Remaining Protected Balance either on a
proportionate basis or by the total withdrawal amount, whichever
results in the lower Remaining Protected Balance amount. (See
example 4 in APPENDIX D: FOUNDATION 10 RIDER SAMPLE
CALCULATIONS for a numerical example of the adjustments to
the Protected Payment Base and Remaining Protected Balance as a
result of an excess withdrawal.) If a withdrawal is greater than
the Protected Payment Amount and the Contract Value is less than
the Protected Payment Base, both the Protected Payment Base and
Remaining Protected Balance will be reduced by an amount that is
greater than the excess amount withdrawn.
The amount available for withdrawal under the Contract must be
sufficient to support any withdrawal that would otherwise exceed
the Protected Payment Amount.
For information regarding taxation of withdrawals, see the
FEDERAL TAX ISSUES section in the Prospectus.
Required
Minimum Distributions
No adjustment will be made to the Protected Payment Base as a
result of a withdrawal that exceeds the Protected Payment Amount
immediately prior to the withdrawal, provided:
•
such withdrawal (an “RMD Withdrawal”) is for purposes
of satisfying the minimum distribution requirements of
Section 401(a)(9) and related Code provisions in effect at
that time,
•
you have authorized us to calculate and make periodic
distribution of the Annual RMD Amount for the Calendar Year
required based on the payment frequency you have chosen,
•
the Annual RMD Amount is based on this Contract only, and
•
only RMD withdrawals are made from the Contract during the
Contract Year.
Immediately following an RMD Withdrawal, the Remaining Protected
Balance will decrease by the RMD Withdrawal amount.
See the FEDERAL TAX ISSUES – Qualified
Contracts – Required Minimum Distributions
section in the Prospectus.
Depletion
of Contract Value
If a withdrawal (including an RMD withdrawal) does not exceed
the Protected Payment Amount and reduces the Contract Value to
zero, the following will apply:
•
if the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner):
•
was younger than
age 591/2
when the first withdrawal was taken under the Rider, after the
Rider Effective Date or the most recent Reset Date, whichever is
later, 5% of the Protected Payment Base will be paid each year
until the Remaining Protected Balance is reduced to zero, or
•
was
age 591/2
or older when the first withdrawal was taken under the Rider
after the Rider Effective Date or the most recent Reset Date,
whichever is later, 5% of the Protected Payment Base will be
paid each year until the day of the first death of an Owner or
the date of death of the sole surviving Annuitant.
•
the payments of 5% of the Protected Payment Base will be paid
under a series of pre-authorized withdrawals under a payment
frequency as elected by the Owner, but no less frequently than
annually,
•
no additional Purchase Payments will be accepted under the
Contract,
51
•
any Remaining Protected Balance will not be available for
payment in a lump sum and will not be applied to provide
payments under an Annuity Option, and
•
the Contract will cease to provide any death benefit.
If the Owner or sole surviving Annuitant dies and the Contract
Value is zero as of the date of death, there is no death
benefit, however, any Remaining Protected Balance will be paid
to the Beneficiary under a series of pre-authorized withdrawals
and payment frequency (at least annually) then in effect at the
time of the Owner’s or sole surviving Annuitant’s
death. If, however, the Remaining Protected Balance would be
paid over a period that exceeds the life expectancy of the
Beneficiary, the pre-authorized withdrawal amount will be
adjusted so that the withdrawal payments will be paid over a
period that does not exceed the Beneficiary’s life
expectancy.
Depletion
of Remaining Protected Balance
If a withdrawal (including an RMD Withdrawal) reduces the
Remaining Protected Balance to zero and Contract Value remains,
the following will apply:
If the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner):
•
was younger than
age 591/2
when the first withdrawal was taken under the Rider after the
Rider Effective Date or the most recent Reset Date, whichever is
later, this Rider will terminate, or
•
was
age 591/2
or older when the first withdrawal was taken under the Rider
after the Rider Effective Date or the most recent Reset Date,
whichever is later, you may elect to withdraw up to 5% of the
Protected Payment Base each year until the day of the first
death of an Owner or the date of death of the sole surviving
Annuitant. If an Automatic or Owner-Elected Reset occurs, the
Remaining Protected Balance will be reinstated to an amount
equal to the Contract Value as of that Contract Anniversary.
Before your Remaining Protected Balance is zero, if you took
your first withdrawal before age
591/2
and you would like to be eligible for lifetime payments under
the Rider, an Automatic or Owner-Elected Reset must occur and
your first withdrawal after that Reset must be taken on or
after age
591/2.
See the Reset of Protected Payment Base and Remaining
Protected Balance subsection of this Rider. If you are
younger than age
591/2
when the Remaining Protected Balance is zero and Contract Value
remains, the Rider will terminate and there is no opportunity
for a Reset.
If a withdrawal (except an RMD withdrawal) made from the
Contract exceeds the Protected Payment Amount, the withdrawal
will be treated as an excess withdrawal and the Protected
Payment Base will be reduced according to the Withdrawals
Exceeding the Protected Payment Amount subsection.
Any death benefit proceeds to be paid to the Beneficiary from
remaining Contract Value will be paid according to the Death
Benefit provisions of the Contract.
Annual
Credit
On each Contract Anniversary after the Rider Effective Date, an
Annual Credit will be added to the Protected Payment Base and
Remaining Protected Balance, as of that Contract Anniversary, if:
•
no withdrawals have occurred after the Rider Effective Date,
•
that Contract Anniversary is within the first 10 Contract
Anniversaries, measured from the Rider Effective Date, and
•
the Remaining Protected Balance is less than the Maximum Credit
Base.
The Annual Credit is equal to 10% of the total of:
•
the Remaining Protected Balance on the Rider Effective Date, or
the most recent Reset Date, whichever is later, and
•
the cumulative Purchase Payments received after the Rider
Effective Date or the most recent Reset Date, whichever is later,
as of the Contract Anniversary on which the Annual Credit is
added.
52
Once a withdrawal has occurred, including an RMD Withdrawal,
no Annual Credit will be added to the Protected Payment Base and
Remaining Protected Balance on any Contract Anniversary
following the withdrawal. In addition, Annual Credit eligibility
cannot be reinstated by any Automatic or Owner-Elected Reset.
The Annual Credit is not added to your Contract Value.
Reset of
Protected Payment Base and Remaining Protected Balance
Regardless of which reset option is used, on and after each
Reset Date, the provisions of this Rider shall apply in the same
manner as they applied when the Rider was originally issued,
except that eligibility for the Annual Credit cannot be
reinstated with a Reset. The limitations and restrictions on
Purchase Payments and withdrawals, the deduction of annual
Charges and any future reset options available on and after the
Reset Date, will again apply and will be measured from that
Reset Date. A reset occurs when the Protected Payment Base and
Remaining Protected Balance are changed to an amount equal to
the Contract Value as of the Reset Date.
If a withdrawal is taken, the Annual Credit will no longer be
applied and cannot be restarted with an Automatic or
Owner-Elected Reset. In addition, an Automatic or Owner-Elected
Reset will not start a new 10 year period for Annual Credit
eligibility.
Automatic Reset. On each Contract Anniversary
while this Rider is in effect and before the Annuity Date, we
will automatically reset the Protected Payment Base and
Remaining Protected Balance to an amount equal to 100% of the
Contract Value, if the Protected Payment Base, after any Annual
Credit is applied, is less than the Contract Value on that
Contract Anniversary. The annual charge percentage may change as
a result of any Automatic Reset (see CHARGES, FEES AND
DEDUCTIONS – Optional Rider Charges). A Reset does
not begin a new 10 year period for the Annual Credit to be
applied.
Automatic Reset – Opt-Out
Election. Within 60 days after a Contract
Anniversary on which an Automatic Reset is effective, you have
the option to reinstate the Protected Payment Base, Remaining
Protected Balance and annual charge percentage to their
respective amounts immediately before the Automatic Reset. Any
future Automatic Resets will continue in accordance with the
Automatic Reset paragraph above. If you elect this
option, your opt-out election must be received, in a form
satisfactory to us, at our Service Center within the same
60 day period after the Contract Anniversary on which the
reset is effective.
Automatic Reset – Future
Participation. You may elect not to participate
in future Automatic Resets at any time. Your election must be
received, in a form satisfactory to us, at our Service Center,
while this Rider is in effect and before the Annuity Date. Such
election will be effective for future Contract Anniversaries.
If you previously elected not to participate in Automatic
Resets, you may re-elect to participate in future Automatic
Resets at any time. Your election to resume participation must
be received, in a form satisfactory to us, at our Service Center
while this Rider is in effect and before the Annuity Date. Such
election will be effective for future Contract Anniversaries as
described in the Automatic Reset paragraph above.
Owner-Elected Resets (Non-Automatic). You may,
on any Contract Anniversary, elect to reset the Remaining
Protected Balance and Protected Payment Base to an amount equal
to 100% of the Contract Value. An Owner-Elected Reset may be
elected while Automatic Resets are in effect. The annual charge
percentage may change as a result of this reset.
If you elect this option, your election must be received, in a
form satisfactory to us, at our Service Center within
60 days after the Contract Anniversary on which the reset
is effective. The reset will be based on the Contract Value as
of that Contract Anniversary. Your election of this option
may result in a reduction in the Protected Payment Base,
Remaining Protected Balance, Protected Payment Amount and any
Annual Credit that may be applied. Generally, the reduction
will occur when your Contract Value is less than the Protected
Payment Base as of the Contract Anniversary you elected the
reset. You are strongly advised to work with your investment
professional prior to electing an Owner-Elected Reset. We
will provide you with written confirmation of your election.
53
Subsequent
Purchase Payments
If we receive additional Purchase Payments after the Rider
Effective Date, we will increase the Protected Payment Base and
Remaining Protected Balance by the amount of the Purchase
Payments. However, for purposes of this Rider, we reserve the
right to restrict additional Purchase Payments that result in a
total of all Purchase Payments received on or after the later of
the first
(1st)
Contract Anniversary or most recent Reset Date to exceed
$100,000 without our prior approval. This provision only applies
if the Contract to which this Rider is attached permits Purchase
Payments after the first
(1st)
Contract Anniversary, measured from the Contract Date.
Annuitization
If you annuitize the Contract at the maximum Annuity Date
specified in your Contract and this Rider is still in effect at
the time of your election and a Life Only annuity option is
chosen, the annuity payments will be equal to the greater of:
•
the Life Only annual payment amount based on the terms of your
Contract, or
•
5% of the Protected Payment Base in effect at the maximum
Annuity Date.
If you annuitize the Contract at any time prior to the maximum
Annuity Date specified in your Contract, your annuity payments
will be determined in accordance with the terms of your
Contract. The Protected Payment Base, Remaining Protected
Balance and Protected Payment Amount under this Rider will not
be used in determining any annuity payments. Work with your
financial professional to determine if you should annuitize your
Contract before the maximum Annuity Date or stay in the
accumulation phase and continue to take withdrawals under the
Rider.
The annuity payments described in this subsection are available
to you even if your first withdrawal was taken prior to age
591/2
and no Resets have occurred.
Continuation
of Rider if Surviving Spouse Continues Contract
If the Owner dies while this Rider is in effect and if the
surviving spouse of the deceased Owner elects to continue the
Contract in accordance with its terms, the surviving spouse may
continue to take withdrawals of the Protected Payment Amount
under this Rider, until the Remaining Protected Balance is
reduced to zero. If the Remaining Protected Balance is zero when
the Owner dies, this Rider will terminate.
The surviving spouse may elect any of the reset options
available under this Rider for subsequent Contract
Anniversaries. If a reset takes place then the provisions of
this Rider will continue in full force and in effect for the
surviving spouse. If the surviving spouse is
591/2
when a reset occurs, the surviving spouse may take withdrawals
of the Protected Payment Amount (based on the new Protected
Payment Base and withdrawal percentage) for life.
The surviving spouse may elect to receive any death benefit
proceeds instead of continuing the Contract and Rider (see the
DEATH BENEFITS AND OPTIONAL DEATH BENEFIT RIDERS –
Death Benefits in the Prospectus).
Termination
You cannot request a termination of the Rider. Except as
otherwise provided below, the Rider will automatically terminate
on the earliest of:
•
the day any portion of the Contract Value is no longer allocated
according to the Investment Allocation Requirements,
•
the day the Remaining Protected Balance is reduced to zero if
the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner), was younger than
591/2
when the first withdrawal was taken under the Rider after the
Rider Effective Date or the most recent Reset Date, whichever is
later,
•
the date of the first death of an Owner or the date of death of
the sole surviving Annuitant (except as provided under the
Continuation of Rider if Surviving Spouse Continues
Contract subsection),
•
for Contracts with a Non-Natural Owner, the date of the first
death of an Annuitant, including Primary, Joint and Contingent
Annuitants,
•
the day the Contract is terminated in accordance with the
provisions of the Contract,
54
•
the day we are notified of a change in ownership of the Contract
if the Contract is Non-Qualified,
•
the day you exchange this Rider for another withdrawal benefit
Rider,
•
the Annuity Date (see the Annuitization subsection for
additional information), or
•
the day the Contract Value is reduced to zero as a result of a
withdrawal (except an RMD withdrawal) that exceeds the Protected
Payment Amount.
The Rider will not terminate the day the Remaining Protected
Balance is reduced to zero if the oldest Owner (or youngest
Annuitant, in the case of a Non-Natural Owner) was
age 591/2
or older when the first withdrawal was taken under the Rider
after the Rider Effective Date or the most recent Reset Date,
whichever is later. In this case, the Rider will terminate the
date of the first death of an Owner or the date of death of the
sole surviving Annuitant.
The Rider and the Contract will not terminate the day the
Contract Value is zero and you begin taking pre-authorized
withdrawals of 5% of the Protected Payment Base. In this case,
the Rider and the Contract will terminate:
•
the day the Remaining Protected Balance is reduced to zero if
the oldest Owner (or youngest Annuitant, in the case of a
Non-Natural Owner), was younger than
591/2
when the first withdrawal was taken under the Rider after the
Rider Effective Date or the most recent Reset Date, whichever is
later, or
•
the date of the first death of an Owner or the date of death of
the sole surviving Annuitant if the oldest Owner (or youngest
Annuitant, in the case of a Non-Natural Owner) was
age 591/2
or older when the first withdrawal was taken under the Rider
after the Rider Effective Date or the most recent Reset Date,
whichever is later.
Sample
Calculations
Hypothetical sample calculations are in the attached APPENDIX
D: FOUNDATION 10 RIDER SAMPLE CALCULATIONS to this SAI. The
examples are based on certain hypothetical assumptions and are
for example purposes only. These examples are not intended to
serve as projections of future investment returns.
The statements of assets and liabilities of Separate Account A
as of December 31, 2009, the related statements of
operations for the periods presented, the statements of changes
in net assets for each of the periods presented and the
financial highlights for each of the periods presented are
incorporated by reference in this Statement of Additional
Information from the Annual Report of Separate Account A dated
December 31, 2009. Pacific Life’s consolidated
financial statements as of December 31, 2009 and 2008 and
for each of the three years in the period ended
December 31, 2009 are attached. These financial statements
should be considered only as bearing on the ability of Pacific
Life to meet its obligations under the Contracts and not as
bearing on the investment performance of the assets held in the
Separate Account.
The financial statements of Separate Account A of Pacific
Life Insurance Company as of December 31, 2009 and for each
of the periods presented have been audited by
Deloitte & Touche LLP, 695 Town Center
Drive, Costa Mesa, CA92626, independent registered public
accounting firm, as stated in their report included in the
Annual Report of Separate Account A dated December 31,2009, which is incorporated by reference in this Registration
Statement.
The consolidated financial statements of Pacific Life Insurance
Company and Subsidiaries as of December 31, 2009 and 2008
and for each of the three years in the period ended
December 31, 2009 have been audited by Deloitte &
Touche LLP, 695 Town Center Drive, Costa Mesa, CA92626, independent auditors, as stated in their report appearing
herein.
55
APPENDIX
A:
FLEXIBLE
LIFETIME INCOME PLUS RIDER (SINGLE AND JOINT)
SAMPLE
CALCULATIONS
The examples provided are based on certain hypothetical
assumptions and are for example purposes only. Where Contract
Value is reflected, the examples do not assume any specific
return percentage. The examples have been provided to assist in
understanding the benefits provided by this Rider and to
demonstrate how Purchase Payments received and withdrawals made
from the Contract prior to the Annuity Date affect the values
and benefits under this Rider over an extended period of time.
There may be minor differences in the calculations due to
rounding. These examples are not intended to serve as
projections of future investment returns nor are they a
reflection of how your Contract will actually perform.
Examples 1 through 5 apply to the Flexible Lifetime Income
Plus (Single) and (Joint) Riders.
Example #1 –
Setting of Initial Values.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
Youngest Owner’s Age = 74 on the Contract Date
Beginning
Protected
Protected
Remaining
of Contract
Purchase
Contract Value
Annual
Payment
Payment
Protected
Year
Payment
Withdrawal
after Activity
Credit
Base
Amount
Balance
1
$100,000
$100,000
$0
$100,000
$5,000
$100,000
On the Rider Effective Date, the initial values are set as
follows:
•
Protected Payment Base = Initial Purchase Payment = $100,000
Protected Payment Amount = 5% of Protected Payment Base = $5,000
Example #2 –
Subsequent Purchase Payments.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
Youngest Owner’s Age = 74 on the Contract Date
•
A subsequent Purchase Payment of $100,000 is received during
Contract Year 1.
•
No withdrawals taken.
•
No Automatic Resets or Owner-Elected Resets.
Beginning
Protected
Protected
Remaining
of Contract
Purchase
Contract Value
Annual
Payment
Payment
Protected
Year
Payment
Withdrawal
after Activity
Credit
Base
Amount
Balance
1
$100,000
$100,000
$0
$100,000
$5,000
$100,000
Activity
$100,000
$200,000
$200,000
$10,000
$200,000
2
$207,000
$10,000
$210,000
$10,500
$210,000
Immediately after the $100,000 subsequent Purchase Payment
during Contract Year 1, the Protected Payment Base and
Remaining Protected Balance are increased by the Purchase
Payment amount to $200,000 ($100,000 + $100,000). The Protected
Payment Amount after the Purchase Payment is equal to $10,000
(5% of the Protected Payment Base after the Purchase Payment
since there were no withdrawals during that Contract Year).
56
Since no withdrawal occurred prior to the Contract Anniversary
at the Beginning of Contract Year 2, an annual credit of $10,000
(5% of the initial Remaining Protected Balance plus cumulative
Purchase Payments received after the Rider Effective Date) is
applied to the Protected Payment Base and Remaining Protected
Balance on that Contract Anniversary, increasing both to
$210,000. As a result, the Protected Payment Amount on that
Contract Anniversary is equal to $10,500 (5% of the Protected
Payment Base on that Contract Anniversary).
In addition to Purchase Payments, the Contract Value is further
subject to increases
and/or
decreases during each Contract Year as a result of additional
amounts credited, charges, fees and other deductions, and
increases
and/or
decreases in the investment performance of the Variable Account.
Example #3 –
Withdrawals Not Exceeding Protected Payment Amount.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
Youngest Owner’s Age = 74 on the Contract Date
•
A subsequent Purchase Payment of $100,000 is received during
Contract Year 1.
•
A withdrawal equal to or less than the Protected Payment Amount
is taken during Contract Years 2, 3 and 4.
•
Automatic Resets at Beginning of Contract Years 4 and 5.
Beginning
Protected
Protected
Remaining
of Contract
Purchase
Contract Value
Annual
Payment
Payment
Protected
Year
Payment
Withdrawal
after Activity
Credit
Base
Amount
Balance
1
$100,000
$100,000
$0
$100,000
$5,000
$100,000
Activity
$100,000
$200,000
$200,000
$10,000
$200,000
2
$207,000
$10,000
$210,000
$10,500
$210,000
Activity
$10,500
$209,000
$210,000
$0
$199,500
3
$209,000
$0
$210,000
$10,500
$199,500
Activity
$10,500
$214,845
$210,000
$0
$189,000
4
(Prior to Automatic Reset)
$214,845
$0
$210,000
$10,500
$189,000
4
(After Automatic Reset)
$214,845
$0
$214,845
$12,890
$214,845
Activity
$12,890
$216,994
$214,845
$0
$201,955
5
(Prior to Automatic Reset)
$216,994
$0
$214,845
$12,890
$201,955
5
(After Automatic Reset)
$216,994
$0
$216,994
$13,019
$216,994
For an explanation of the values and activities at the start of
and during Contract Year 1, refer to Examples #1 and
#2.
As the withdrawal during Contract Year 2 did not exceed
the Protected Payment Amount immediately prior to the withdrawal
($10,500):
•
the Protected Payment Base remains unchanged; and
•
the Remaining Protected Balance is reduced by the amount of the
withdrawal to $199,500 ($210,000 −$10,500).
As the withdrawal during Contract Year 3 did not exceed
the Protected Payment Amount immediately prior to the withdrawal
($10,500):
•
the Protected Payment Base remains unchanged; and
•
the Remaining Protected Balance is reduced by the amount of the
withdrawal to $189,000 ($199,500 −$10,500).
Because at the Beginning of Contract Year 4, the Protected
Payment Base was less than the Contract Value on that Contract
Anniversary (see balances at Beginning of Contract Year
4 – Prior to Automatic Reset), an Automatic Reset
occurred which resets the Protected Payment Base and Remaining
Protected Balance to an amount equal to 100% of the Contract
Value (see balances at Beginning of Contract Year
4 – After Automatic Reset). Additionally, the
reset took place after the Owner reached age 75. As a
result, the Protected Payment Amount is equal to $12,890 (6% of
the reset Protected Payment Base).
57
As the withdrawal during Contract Year 4 did not exceed
the Protected Payment Amount immediately prior to the withdrawal
($12,890):
•
the Protected Payment Base remains unchanged; and
•
the Remaining Protected Balance is reduced by the amount of the
withdrawal to $201,955 ($214,845 −$12,890).
Because at the Beginning of Contract Year 5, the Protected
Payment Base was less than the Contract Value on that Contract
Anniversary (see balances at Beginning of Contract Year
5 – Prior to Automatic Reset), an Automatic Reset
occurred which resets the Protected Payment Base and Remaining
Protected Balance to an amount equal to 100% of the Contract
Value (see balances at Beginning of Contract Year
5 – After Automatic Reset). As a result, the
Protected Payment Amount is equal to $13,019 (6% of the reset
Protected Payment Base).
Since withdrawals occurred during Contract Years 2, 3 and 4,
annual credits are not applied to the Protected Payment Base and
Remaining Protected Balance on any Contract Anniversary
following the withdrawal. Since a reset occurred at the
beginning of Contract Year 5, eligibility for the annual credit
will again apply.
Example #4 –
Withdrawals Exceeding Protected Payment Amount.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
Youngest Owner’s Age = 74 on the Contract Date
•
A subsequent Purchase Payment of $100,000 is received during
Contract Year 1.
•
A withdrawal greater than the Protected Payment Amount is taken
during Contract Year 2.
•
Automatic Reset at Beginning of Contract Year 3.
Beginning
Protected
Protected
Remaining
of Contract
Purchase
Contract Value
Annual
Payment
Payment
Protected
Year
Payment
Withdrawal
after Activity
Credit
Base
Amount
Balance
1
$100,000
$100,000
$0
$100,000
$5,000
$100,000
Activity
$100,000
$200,000
$200,000
$10,000
$200,000
2
$207,000
$10,000
$210,000
$10,500
$210,000
Activity
$15,000
$206,490
$205,527
$0
$195,000
3
(Prior to Automatic Reset)
$206,490
$0
$205,527
$10,276
$195,000
3
(After Automatic Reset)
$206,490
$0
$206,490
$12,389
$206,490
For an explanation of the values and activities at the start of
and during Contract Year 1, refer to Examples #1 and
#2.
Because the $15,000 withdrawal during Contract Year 2
exceeds the Protected Payment Amount immediately prior to
the withdrawal ($15,000 > $10,500), the Protected Payment
Base and Remaining Protected Balance immediately after the
withdrawal are reduced.
The Values shown below are based on the following assumptions
immediately before the excess withdrawal:
No withdrawals were taken prior to the excess withdrawal
A withdrawal of $15,000 was taken, which exceeds the Protected
Payment Amount of $10,500 for the Contract Year. The Protected
Payment Base and Remaining Protected Balance will be reduced
based on the following calculation:
First, determine the excess withdrawal amount. The excess
withdrawal amount is the total withdrawal amount less the
Protected Payment Amount. Numerically, the excess withdrawal
amount is $4,500 (total withdrawal amount − Protected
Payment Amount; $15,000 − $10,500 = $4,500).
58
Second, determine the ratio for the proportionate reduction. The
ratio is the excess withdrawal amount determined above divided
by (Contract Value − Protected Payment Amount). The
Contract Value prior to the withdrawal was $221,490, which
equals the $206,490 after the withdrawal plus the $15,000
withdrawal amount. Numerically, the ratio is 2.13% ($4,500
¸
($221,490 − $10,500);
$4,500 ¸ $210,990 = 0.0213
or 2.13%).
Third, determine the new Protected Payment Base. The Protected
Payment Base will be reduced on a proportionate basis. The
Protected Payment Base is multiplied by 1 less the ratio
determined above. Numerically, the new Protected Payment Base is
$205,527 (Protected Payment Base × (1-ratio); $210,000
× (1-2.13%); $210,000 × 97.87% = $205,527).
Fourth, determine the new Remaining Protected Balance. The
Remaining Protected Balance is reduced either on a proportionate
basis or by the total withdrawal amount, whichever results in
the lower Remaining Protected Balance amount.
To determine the proportionate reduction, the Remaining
Protected Balance immediately before the withdrawal is reduced
by the Protected Payment Amount multiplied by 1 less the ratio
determined above. Numerically, after the proportionate
reduction, the new Remaining Protected Balance is $195,250
((Remaining Protected Balance immediately before the
withdrawal − Protected Payment Amount) ×
(1-ratio);
($210,000 − $10,500) ×
(1-2.13%);
$199,500 × 97.87% = $195,250).
To determine the total withdrawal amount reduction, the
Remaining Protected Balance immediately before the withdrawal is
reduced by the total withdrawal amount. Numerically, after the
Remaining Protected Balance is reduced by the total withdrawal
amount, the new Remaining Protected Balance is $195,000
(Remaining Protected Balance immediately before the
withdrawal − total withdrawal amount;
$210,000 − $15,000 = $195,000).
Therefore, since $195,000 (total withdrawal amount method) is
less than $195,250 (proportionate method) the new Remaining
Protected Balance is $195,000.
The Protected Payment Amount immediately after the withdrawal is
equal to $0 (5% of the Protected Payment Base after the
withdrawal (5% of $205,527 = $10,276), less cumulative
withdrawals during that Contract Year ($15,000), but not less
than zero).
Because at the Beginning of Contract Year 3, the Protected
Payment Base was less than the Contract Value on that Contract
Anniversary (see balances at Beginning of Contract Year
3 – Prior to Automatic Reset), an automatic reset
occurred which resets the Protected Payment Base and Remaining
Protected Balance to an amount equal to 100% of the Contract
Value (see balances at Beginning of Contract Year
3 – After Automatic Reset). Additionally, the
reset took place after the Owner reached age 75. As a
result, the Protected Payment Amount is equal to $12,389 (6% of
the reset Protected Payment Base).
Since withdrawals occurred during Contract Year 2, annual
credits are not applied to the Protected Payment Base and
Remaining Protected Balance on any Contract Anniversary
following the withdrawal. Since a reset occurred at the
beginning of Contract Year 3, eligibility for the annual credit
will again apply.
Example #5 –
RMD Withdrawals.
This is an example of the effect of cumulative RMD Withdrawals
during the Contract Year that exceed the Protected Payment
Amount established for that Contract Year and its effect on the
Protected Payment Base and Remaining Protected Balance. The
Annual RMD Amount is based on the entire interest of your
Contract as of the previous year-end.
59
This table assumes quarterly withdrawals of only the Annual RMD
Amount during the Contract Year. The calculated Annual RMD
amount for the Calendar Year is $7,500 and the Contract
Anniversary is May 1 of each year.
Annual
Protected
Protected
Remaining
Activity
RMD
Non-RMD
RMD
Payment
Payment
Protected
Date
Withdrawal
Withdrawal
Amount
Base
Amount
Balance
05/01/2006
$100,000
$5,000
$100,000
Contract
Anniversary
01/01/2007
$7,500
03/15/2007
$1,875
$100,000
$3,125
$98,125
05/01/2007
$100,000
$5,000
$98,125
Contract
Anniversary
06/15/2007
$1,875
$100,000
$3,125
$96,250
09/15/2007
$1,875
$100,000
$1,250
$94,375
12/15/2007
$1,875
$100,000
$0
$92,500
01/01/2008
$8,000
03/15/2008
$2,000
$100,000
$0
$90,500
05/01/2008
$100,000
$5,000
$90,500
Contract
Anniversary
Since the RMD Amount for 2008 increases to $8,000, the quarterly
withdrawals of the RMD Amount increase to $2,000, as shown by
the RMD withdrawal on March 15, 2008. Because all
withdrawals during the Contract Year were RMD Withdrawals, there
is no adjustment to the Protected Payment Base for exceeding the
Protected Payment Amount. The only effect is a reduction in the
Remaining Protected Balance equal to the amount of each
withdrawal. In addition, each contract year the Protected
Payment Amount is reduced by the amount of each withdrawal until
the Protected Payment Amount is zero.
This chart assumes quarterly withdrawals of the Annual RMD
Amount and other non-RMD Withdrawals during the Contract Year.
The calculated Annual RMD amount and Contract Anniversary are
the same as above.
Annual
Protected
Protected
Remaining
Activity
RMD
Non-RMD
RMD
Payment
Payment
Protected
Date
Withdrawal
Withdrawal
Amount
Base
Amount
Balance
05/01/2006
$0
$100,000
$5,000
$100,000
Contract
Anniversary
01/01/2007
$7,500
03/15/2007
$1,875
$100,000
$3,125
$98,125
04/01/2007
$2,000
$100,000
$1,125
$96,125
05/01/2007
$100,000
$5,000
$96,125
Contract
Anniversary
06/15/2007
$1,875
$100,000
$3,125
$94,250
09/15/2007
$1,875
$100,000
$1,250
$92,375
11/15/2007
$4,000
$96,900
$0
$88,300
On 3/15/07
there was an RMD Withdrawal of $1,875 and on
4/1/07 a
non-RMD Withdrawal of $2,000. Because the total withdrawals
during the Contract Year
(5/1/06
through
4/30/07) did
not exceed the Protected Payment Amount of $5,000 there was no
adjustment to the Protected Payment Base. The only effect is a
reduction in the Remaining Protected Balance and the Protected
Payment Amount equal to the amount of each withdrawal. On
5/1/07, the
Protected Payment Amount was re-calculated (5% of the Protected
Payment Base) as of that Contract Anniversary.
On 11/15/07,
there was a non-RMD Withdrawal ($4,000) that caused the
cumulative withdrawals during the Contract Year ($7,750) to
exceed the Protected Payment Amount ($5,000). As the withdrawal
exceeded the
60
Protected Payment Amount immediately prior to the withdrawal
($1,250), and assuming the Contract Value was $90,000
immediately prior to the withdrawal, the Protected Payment Base
is reduced to $96,900 and the Remaining Protected Balance is
reduced to $88,300. The Protected Payment Base and Remaining
Protected Balance will be reduced based on the following
calculation:
First, determine the excess withdrawal amount. The excess
withdrawal amount is the total withdrawal amount less the
Protected Payment Amount. Numerically, the excess withdrawal
amount is $2,750 (total withdrawal amount − Protected
Payment Amount; $4,000 − $1,250=$2,750).
Second, determine the ratio for the proportionate reduction. The
ratio is the excess withdrawal amount determined above divided
by (Contract Value − Protected Payment Amount).
Numerically, the ratio is 3.10% ($2,750
¸
($90,000 − $1,250); $2,750
¸
$88,750 = 0.0310 or 3.10%).
Third, determine the new Protected Payment Base. The Protected
Payment Base will be reduced on a proportionate basis. The
Protected Payment Base is multiplied by 1 less the ratio
determined above. Numerically, the new Protected Payment Base is
$96,900 (Protected Payment Base × (1-ratio); $100,000
× (1-3.10%); $100,000 × 96.90% = $96,900).
Fourth, determine the new Remaining Protected Balance. The
Remaining Protected Balance is reduced either on a proportionate
basis or by the total withdrawal amount, whichever results in
the lower Remaining Protected Balance amount.
To determine the proportionate reduction, the Remaining
Protected Balance is reduced by the Protected Payment Amount
multiplied by 1 less the ratio determined above. Numerically,
after the proportionate reduction, the Remaining Protected
Balance is $88,300 ((Remaining Protected Balance −
Protected Payment Amount) ×
(1-ratio);
($92,375 − $1,250)
× (1-3.10%);
$91,125 × 96.90% = $88,300).
To determine the total withdrawal amount reduction, the
Remaining Protected Balance is reduced by the total withdrawal
amount. Numerically, after the Remaining Protected Balance is
reduced by the total withdrawal amount, the Remaining Protected
Balance is $88,375 (Remaining Protected Balance −
total withdrawal amount; $92,375 − $4,000 = $88,375).
Therefore, since $88,300 (proportionate method) is less than
$88,375 (total withdrawal amount method) the new Remaining
Protected Balance is $88,300.
Example #6 –
Lifetime Income.
This example applies to the Flexible Lifetime Income Plus
Rider (Single) only.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
No subsequent Purchase Payments are received.
•
Owner is
age 591/2
or older when the first withdrawal was taken.
•
Withdrawals, each equal to 5% of the Protected Payment Base are
taken each Contract Year.
•
No Automatic Reset or Owner-Elected Reset is assumed during the
life of the Rider.
61
Protected
Protected
Remaining
Contract
End of Year
Annual
Payment
Payment
Protected
Year
Withdrawal
Contract Value
Credit
Base
Amount
Balance
1
$5,000
$96,489
$0
$100,000
$5,000
$95,000
2
$5,000
$94,384
$0
$100,000
$5,000
$90,000
3
$5,000
$92,215
$0
$100,000
$5,000
$85,000
4
$5,000
$89,982
$0
$100,000
$5,000
$80,000
5
$5,000
$87,681
$0
$100,000
$5,000
$75,000
6
$5,000
$85,311
$0
$100,000
$5,000
$70,000
7
$5,000
$82,871
$0
$100,000
$5,000
$65,000
8
$5,000
$80,357
$0
$100,000
$5,000
$60,000
9
$5,000
$77,768
$0
$100,000
$5,000
$55,000
10
$5,000
$75,101
$0
$100,000
$5,000
$50,000
11
$5,000
$72,354
$0
$100,000
$5,000
$45,000
12
$5,000
$69,524
$0
$100,000
$5,000
$40,000
13
$5,000
$66,610
$0
$100,000
$5,000
$35,000
14
$5,000
$63,608
$0
$100,000
$5,000
$30,000
15
$5,000
$60,517
$0
$100,000
$5,000
$25,000
16
$5,000
$57,332
$0
$100,000
$5,000
$20,000
17
$5,000
$54,052
$0
$100,000
$5,000
$15,000
18
$5,000
$50,674
$0
$100,000
$5,000
$10,000
19
$5,000
$47,194
$0
$100,000
$5,000
$5,000
20
$5,000
$43,610
$0
$100,000
$5,000
$0
21
$5,000
$39,918
$0
$100,000
$5,000
$0
22
$5,000
$36,115
$0
$100,000
$5,000
$0
23
$5,000
$32,199
$0
$100,000
$5,000
$0
24
$5,000
$28,165
$0
$100,000
$5,000
$0
25
$5,000
$24,010
$0
$100,000
$5,000
$0
26
$5,000
$19,730
$0
$100,000
$5,000
$0
27
$5,000
$15,322
$0
$100,000
$5,000
$0
28
$5,000
$10,782
$0
$100,000
$5,000
$0
29
$5,000
$6,105
$0
$100,000
$5,000
$0
30
$5,000
$1,288
$0
$100,000
$5,000
$0
31
$5,000
$0
$0
$100,000
$5,000
$0
32
$5,000
$0
$0
$100,000
$5,000
$0
33
$5,000
$0
$0
$100,000
$5,000
$0
34
$5,000
$0
$0
$100,000
$5,000
$0
On the Rider Effective Date, the initial values are set as
follows:
•
Protected Payment Base = Initial Purchase Payment = $100,000
Protected Payment Amount = 5% of Protected Payment Base = $5,000
Because the amount of each withdrawal does not exceed the
Protected Payment Amount immediately prior to the withdrawal
($5,000): (a) the Protected Payment Base remains unchanged;
and (b) the Remaining Protected Balance is reduced by the
amount of each withdrawal.
Since a withdrawal occurred during Contract Year 1, no annual
credit will be applied to the Protected Payment Base and
Remaining Protected Balance on any Contract Anniversary
following the withdrawal. Since it was assumed that the Owner
was
age 591/2
or older when the first withdrawal was taken, withdrawals of 5%
of the Protected Payment Base will continue to be paid each year
(even after the Contract Value and Remaining Protected Balance
have been reduced to zero) until the day of the first death of
an Owner or the date of death of the sole surviving Annuitant
(death of any Annuitant for Non-Natural Owners), whichever
occurs first.
62
Example #7 –
Lifetime Income.
This example applies to the Flexible Lifetime Income Plus
Rider (Joint) Only.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
No subsequent Purchase Payments are received.
•
Withdrawals, each equal to 5% of the Protected Payment Base are
taken each Contract Year.
•
No Automatic Reset or Owner-Elected Reset is assumed during the
life of the Rider.
•
All Designated Lives remain eligible for lifetime income
benefits while the Rider is in effect.
Protected
Protected
Remaining
Contract
End of Year
Annual
Payment
Payment
Protected
Year
Withdrawal
Contract Value
Credit
Base
Amount
Balance
1
$5,000
$96,489
$0
$100,000
$5,000
$95,000
2
$5,000
$94,384
$0
$100,000
$5,000
$90,000
3
$5,000
$92,215
$0
$100,000
$5,000
$85,000
4
$5,000
$89,982
$0
$100,000
$5,000
$80,000
5
$5,000
$87,681
$0
$100,000
$5,000
$75,000
6
$5,000
$85,311
$0
$100,000
$5,000
$70,000
7
$5,000
$82,871
$0
$100,000
$5,000
$65,000
8
$5,000
$80,357
$0
$100,000
$5,000
$60,000
9
$5,000
$77,768
$0
$100,000
$5,000
$55,000
10
$5,000
$75,101
$0
$100,000
$5,000
$50,000
11
$5,000
$72,354
$0
$100,000
$5,000
$45,000
12
$5,000
$69,524
$0
$100,000
$5,000
$40,000
13
$5,000
$66,610
$0
$100,000
$5,000
$35,000
Activity (Death of first
Designated Life)
14
$5,000
$63,608
$0
$100,000
$5,000
$30,000
15
$5,000
$60,517
$0
$100,000
$5,000
$25,000
16
$5,000
$57,332
$0
$100,000
$5,000
$20,000
17
$5,000
$54,052
$0
$100,000
$5,000
$15,000
18
$5,000
$50,674
$0
$100,000
$5,000
$10,000
19
$5,000
$47,194
$0
$100,000
$5,000
$5,000
20
$5,000
$43,610
$0
$100,000
$5,000
$0
21
$5,000
$39,918
$0
$100,000
$5,000
$0
22
$5,000
$36,115
$0
$100,000
$5,000
$0
23
$5,000
$32,199
$0
$100,000
$5,000
$0
24
$5,000
$28,165
$0
$100,000
$5,000
$0
25
$5,000
$24,010
$0
$100,000
$5,000
$0
26
$5,000
$19,730
$0
$100,000
$5,000
$0
27
$5,000
$15,322
$0
$100,000
$5,000
$0
28
$5,000
$10,782
$0
$100,000
$5,000
$0
29
$5,000
$6,105
$0
$100,000
$5,000
$0
30
$5,000
$1,288
$0
$100,000
$5,000
$0
31
$5,000
$0
$0
$100,000
$5,000
$0
32
$5,000
$0
$0
$100,000
$5,000
$0
33
$5,000
$0
$0
$100,000
$5,000
$0
34
$5,000
$0
$0
$100,000
$5,000
$0
On the Rider Effective Date, the initial values are set as
follows:
•
Protected Payment Base = Initial Purchase Payment = $100,000
Protected Payment Amount = 5% of Protected Payment Base = $5,000
63
Because the amount of each withdrawal does not exceed the
Protected Payment Amount immediately prior to the withdrawal
($5,000): (a) the Protected Payment Base remains unchanged;
and (b) the Remaining Protected Balance is reduced by the
amount of each withdrawal.
During Contract Year 13, the death of the first Designated Life
occurred. Withdrawals of the Protected Payment Amount (5% of the
Protected Payment Base) will continue to be paid each year (even
after the Contract Value and Remaining Protected Balance were
reduced to zero) until the Rider terminates.
If there was a change in Owner, Beneficiary or marital status
prior to the death of the first Designated Life that resulted in
the surviving Designated Life (spouse) to become ineligible for
lifetime income benefits, then the lifetime income benefits
under the Rider would not continue for the surviving Designated
Life and the Rider would terminate upon the death of the first
Designated Life.
64
APPENDIX
B:
AUTOMATIC
INCOME BUILDER RIDER
SAMPLE
CALCULATIONS
The examples provided are based on certain hypothetical
assumptions and are for example purposes only. Where Contract
Value is reflected, the examples do not assume any specific
return percentage. The examples have been provided to assist in
understanding the benefits provided by this Rider and to
demonstrate how Purchase Payments received and withdrawals made
from the Contract prior to the Annuity Date affect the values
and benefits under this Rider over an extended period of time.
There may be minor differences in the calculations due to
rounding. These examples are not intended to serve as
projections of future investment returns nor are they a
reflection of how your Contract will actually perform.
Example #1 –
Setting of Initial Values.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
Owner’s age on Rider Effective Date = 68
Beginning
Protected
Protected
Remaining
of Contract
Purchase
Contract Value
Payment
Payment
Protected
Year
Payment
Withdrawal
after Activity
Base
Amount
Balance
1
$100,000
$100,000
$100,000
$4,000
$100,000
On the Rider Effective Date, the initial values are set as
follows:
•
Protected Payment Base = Initial Purchase Payment = $100,000
Protected Payment Amount = Withdrawal percentage multiplied by
the Protected Payment Base = 4% × $100,000 = $4,000
Example #2 –
Subsequent Purchase Payments.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
Owner’s age on Rider Effective Date = 68
•
A subsequent Purchase Payment of $100,000 is received during
Contract Years 1 and 2.
•
No withdrawals taken.
•
Automatic Reset at Beginning of Contract Years 2 and 3.
Beginning
Protected
Protected
Remaining
of Contract
Purchase
Contract Value
Payment
Payment
Protected
Year
Payment
Withdrawal
after Activity
Base
Amount
Balance
1
$100,000
$100,000
$100,000
$4,000
$100,000
Activity
$100,000
$200,000
$200,000
$8,000
$200,000
2
Prior to Automatic Reset
$207,000
$200,000
$8,200
$200,000
2
After Automatic Reset
$207,000
$207,000
$8,487
$207,000
Activity
$100,000
$307,000
$307,000
$12,587
$307,000
3
Prior to Automatic Reset
$321,490
$307,000
$15,964
$307,000
3
After Automatic Reset
$321,490
$321,490
$16,717
$321,490
Immediately after the $100,000 subsequent Purchase Payment
during Contract Year 1, the Protected Payment Base and Remaining
Protected Balance are increased by the Purchase Payment amount
to $200,000 ($100,000 +
65
$100,000). The Protected Payment Amount after the Purchase
Payment is equal to $8,000 (4.0% of the Protected Payment Base
after the Purchase Payment).
Since no withdrawal occurred prior to the Contract Anniversary
at the Beginning of Contract Year 2, the withdrawal percentage
is increased to 4.1%. Additionally, because at the Beginning of
Contract Year 2, the Protected Payment Base was less than the
Contract Value on that Contract Anniversary (see balances at
Beginning of Contract Year 2 – Prior to Automatic
Reset), an automatic reset occurred which resets the
Protected Payment Base and Remaining Protected Balance to an
amount equal to 100% of the Contract Value (see balances at
Beginning of Contract Year 2 – After Automatic
Reset). As a result, the Protected Payment Amount is equal
to $8,487 (4.1% of the reset Protected Payment Base).
Immediately after the $100,000 subsequent Purchase Payment
during Contract Year 2, the Protected Payment Base and Remaining
Protected Balance are increased by the Purchase Payment amount
to $307,000 ($207,000 + $100,000). The Protected Payment
Amount after the Purchase Payment is equal to $12,587 (4.1% of
the Protected Payment Base after the Purchase Payment.
Since the Owner reached age 70 and no withdrawal occurred
prior to the Contract Anniversary at the Beginning of Contract
Year 3, the withdrawal percentage is increased to 5.2%.
Additionally, because at the Beginning of Contract Year 3, the
Protected Payment Base was less than the Contract Value on that
Contract Anniversary (see balances at Beginning of Contract
Year 3 – Prior to Automatic Reset), an Automatic
Reset occurred which resets the Protected Payment Base and
Remaining Protected Balance to an amount equal to 100% of the
Contract Value (see balances at Beginning of Contract Year
3 – After Automatic Reset). As a result, the
Protected Payment Amount is equal to $16,717 (5.2% of the reset
Protected Payment Base).
In addition to Purchase Payments, the Contract Value is further
subject to increases
and/or
decreases during each Contract Year as a result of additional
amounts credited, charges, fees and other deductions, and
increases
and/or
decreases in the investment performance of the Variable Account.
Example #3 –
Withdrawals Not Exceeding Protected Payment Amount.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
Owner’s age on Rider Effective Date = 68
•
A subsequent Purchase Payment of $100,000 is received during
Contract Years 1 and 2.
•
A withdrawal equal to or less than the Protected Payment Amount
is taken during Contract Year 3.
•
Automatic Reset at Beginning of Contract Years 2, 3 and 4.
Beginning
Protected
Protected
Remaining
of Contract
Purchase
Contract Value
Payment
Payment
Protected
Year
Payment
Withdrawal
after Activity
Base
Amount
Balance
1
$100,000
$100,000
$100,000
$4,000
$100,000
Activity
$100,000
$200,000
$200,000
$8,000
$200,000
2
Prior to Automatic Reset
$207,000
$200,000
$8,200
$200,000
2
After Automatic Reset
$207,000
$207,000
$8,487
$207,000
Activity
$100,000
$307,000
$307,000
$12,587
$307,000
3
Prior to Automatic Reset
$321,490
$307,000
$15,964
$307,000
3
After Automatic Reset
$321,490
$321,490
$16,717
$321,490
Activity
$16,717
$327,277
$321,490
$0
$304,773
4
Prior to Automatic Reset
$327,277
$321,490
$16,717
$304,773
4
After Automatic Reset
$327,277
$327,277
$17,018
$327,277
For an explanation of the values and activities at the start of
and during Contract Years 1 and 2, refer to
Examples #1 and #2.
At the Beginning of Contract Year 3, since the Protected
Payment Base was less than the Contract Value on that Contract
Anniversary (see balances at Beginning of Contract
Year 3 – Prior to Automatic Reset), an
Automatic
66
Reset occurred which resets the Protected Payment Base and
Remaining Protected Balance to an amount equal to 100% of the
Contract Value (see balances at Beginning of Contract
Year 3 – After Automatic Reset). As a result,
the Protected Payment Amount is equal to $16,717 (5.2% of the
reset Protected Payment Base).
As the withdrawal during Contract Year 3 did not
exceed the Protected Payment Amount immediately prior to the
withdrawal ($16,717):
•
the Protected Payment Base remains unchanged; and
•
the Remaining Protected Balance is reduced by the amount of the
withdrawal to $304,773 ($321,490 − $16,717).
Since a withdrawal occurred during Contract Year 3, the
withdrawal percentage will no longer increase as a result of
delaying withdrawals.
Because at the Beginning of Contract Year 4, the Protected
Payment Base was less than the Contract Value on that Contract
Anniversary (see balances at Beginning of Contract
Year 4 – Prior to Automatic Reset), an
automatic reset occurred which resets the Protected Payment Base
and Remaining Protected Balance to an amount equal to 100% of
the Contract Value (see balances at Beginning of Contract
Year 4 – After Automatic Reset). As a result,
the Protected Payment Amount is equal to $17,018 (5.2% of the
reset Protected Payment Base).
Example #4 –
Withdrawals Exceeding Protected Payment Amount.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
Owner’s age on Rider Effective Date = 68
•
A subsequent Purchase Payment of $100,000 is received during
Contract Years 1 and 2.
•
A withdrawal greater than the Protected Payment Amount is taken
during Contract Year 3.
•
Automatic Resets at Beginning of Contract Years 2, 3 and 4.
Beginning
Contract
Protected
Protected
Remaining
of Contract
Purchase
Value
Payment
Payment
Protected
Year
Payment
Withdrawal
after Activity
Base
Amount
Balance
1
$100,000
$100,000
$100,000
$4,000
$100,000
Activity
$100,000
$200,000
$200,000
$8,000
$200,000
2
Prior to Automatic Reset
$207,000
$200,000
$8,200
$200,000
2
After Automatic Reset
$207,000
$207,000
$8,487
$207,000
Activity
$100,000
$307,000
$307,000
$12,587
$307,000
3
Prior to Automatic Reset
$321,490
$307,000
$15,964
$307,000
3
After Automatic Reset
$321,490
$321,490
$16,717
$321,490
Activity
$30,000
$313,994
$308,437
$0
$291,490
4
Prior to Automatic Reset
$313,994
$308,437
$16,038
$291,490
4
After Automatic Reset
$313,994
$313,994
$16,327
$313,994
For an explanation of the values and activities at the start of
and during Contract Years 1 and 2, refer to Examples #1
and #2.
Since the Owner reached age 70 and no withdrawal occurred
prior to the Contract Anniversary at the Beginning of Contract
Year 3, the withdrawal percentage is increased to 5.2%.
Additionally, because at the Beginning of Contract Year 3,
the Protected Payment Base was less than the Contract Value on
that Contract Anniversary (see balances at Beginning of
Contract Year 3 – Prior to Automatic Reset),
an Automatic Reset occurred which resets the Protected Payment
Base and Remaining Protected Balance to an amount equal to 100%
of the Contract Value (see balances at Beginning of Contract
Year 3 – After Automatic Reset). As a result,
the Protected Payment Amount is equal to $16,717 (5.2% of the
reset Protected Payment Base).
As the withdrawal during Contract Year 3 exceeded
the Protected Payment Amount immediately prior to the withdrawal
($16,717), the Protected Payment Base is reduced to $308,437 and
the Remaining Protected Balance is
67
reduced to $291,490. The reduction in the Protected Payment Base
and the Remaining Protected Balance is calculated as follows:
First, determine the excess withdrawal amount. The excess
withdrawal amount is the total withdrawal amount less the
Protected Payment Amount. Numerically, the excess withdrawal
amount is $13,283 (total withdrawal amount – Protected
Payment Amount; $30,000 − $16,717 = $13,283).
Second, determine the ratio for the proportionate reduction. The
ratio is the excess withdrawal amount determined above divided
by (Contract Value – Protected Payment Amount). The
Contract Value prior to the withdrawal was $343,994, which
equals the $313,994 after the withdrawal plus the $30,000
withdrawal amount. Numerically, the ratio is 4.06% ($13,283
¸
($343,994 − $16,717); $13,283
¸
$327,277 = 0.0406 or 4.06%).
Third, determine the new Protected Payment Base. The Protected
Payment Base will be reduced on a proportionate basis. The
Protected Payment Base is multiplied by 1 less the ratio
determined above. Numerically, the new Protected Payment Base is
$308,437 (Protected Payment Base ×
(1-ratio);
$321,490 ×
(1-4.06%);
$321,490 × 95.94% = $308,437).
Fourth, determine the new Remaining Protected Balance. The
Remaining Protected Balance is reduced either on a proportionate
basis or by the total withdrawal amount, whichever results in
the lower Remaining Protected Balance amount.
To determine the proportionate reduction, the Remaining
Protected Balance immediately before the withdrawal is reduced
by the Protected Payment Amount and then multiplied by 1
less the ratio determined above. Numerically, after the
proportionate reduction, the new Remaining Protected Balance is
$292,399 ((Remaining Protected Balance immediately before the
withdrawal – Protected Payment Amount) ×
(1-ratio);
($321,490 − $16,717)
× (1-4.06%);
$304,773 × 95.94% = $292,399).
To determine the total withdrawal amount reduction, the
Remaining Protected Balance immediately before the withdrawal is
reduced by the total withdrawal amount. Numerically, after the
Remaining Protected Balance is reduced by the total withdrawal
amount, the new Remaining Protected Balance is $291,490
(Remaining Protected Balance immediately before the
withdrawal – total withdrawal amount;
$321,490 − $30,000 = $291,490).
Therefore, since $291,490 (total withdrawal amount method) is
less than $292,399 (proportionate method) the new Remaining
Protected Balance is $291,490.
Since a withdrawal occurred during Contract Year 3, the
withdrawal percentage will no longer increase as a result of
delaying withdrawals.
Because at the Beginning of Contract Year 4, the Protected
Payment Base was less than the Contract Value on that Contract
Anniversary (see balances at Beginning of Contract
Year 4 – Prior to Automatic Reset), an
automatic reset occurred which resets the Protected Payment Base
and Remaining Protected Balance to an amount equal to 100% of
the Contract Value (see balances at Beginning of Contract
Year 4 – After Automatic Reset). As a result,
the Protected Payment Amount is equal to $16,327 (5.2% of the
reset Protected Payment Base).
Example
#5 – RMD Withdrawals.
This is an example of the effect of cumulative RMD Withdrawals
during the Contract Year that exceed the Protected Payment
Amount established for that Contract Year and its effect on the
Protected Payment Base and Remaining Protected Balance. The
Annual RMD Amount is based on the entire interest of your
Contract as of the previous
year-end.
68
This table assumes quarterly withdrawals of only the Annual RMD
Amount during the Contract Year. The calculated Annual RMD
amount for the Calendar Year is $7,500 and the Contract
Anniversary is May 1 of each year.
Annual
Protected
Protected
Remaining
Activity
RMD
Non-RMD
RMD
Payment
Payment
Protected
Date
Withdrawal
Withdrawal
Amount
Base
Amount
Balance
05/01/2006
Contract
Anniversary
$0
$100,000
$5,000
$100,000
01/01/2007
$7,500
03/15/2007
$1,875
$100,000
$3,125
$98,125
05/01/2007
Contract
Anniversary
$100,000
$5,000
$98,125
06/15/2007
$1,875
$100,000
$3,125
$96,250
09/15/2007
$1,875
$100,000
$1,250
$94,375
12/15/2007
$1,875
$100,000
$0
$92,500
01/01/2008
$8,000
03/15/2008
$2,000
$100,000
$0
$90,500
05/01/2008
Contract
Anniversary
$100,000
$5,000
$90,500
Since the RMD Amount for 2008 increases to $8,000, the quarterly
withdrawals of the RMD Amount increase to $2,000, as shown by
the RMD withdrawal on March 15, 2008. Because all
withdrawals during the Contract Year were RMD Withdrawals, there
is no adjustment to the Protected Payment Base for exceeding the
Protected Payment Amount. The only effect is a reduction in the
Remaining Protected Balance equal to the amount of each
withdrawal. In addition, each contract year the Protected
Payment Amount is reduced by the amount of each withdrawal until
the Protected Payment Amount is zero.
This chart assumes quarterly withdrawals of the Annual RMD
Amount and other
non-RMD
Withdrawals during the Contract Year. The calculated Annual RMD
amount and Contract Anniversary are the same as above.
Annual
Protected
Protected
Remaining
Activity
RMD
Non-RMD
RMD
Payment
Payment
Protected
Date
Withdrawal
Withdrawal
Amount
Base
Amount
Balance
05/01/2006
Contract
Anniversary
$0
$100,000
$5,000
$100,000
01/01/2007
$7,500
03/15/2007
$1,875
$100,000
$3,125
$98,125
04/01/2007
$2,000
$100,000
$1,125
$96,125
05/01/2007
Contract
Anniversary
$100,000
$5,000
$96,125
06/15/2007
$1,875
$100,000
$3,125
$94,250
09/15/2007
$1,875
$100,000
$1,250
$92,375
11/15/2007
$4,000
$96,900
$0
$88,300
On 3/15/07
there was an RMD Withdrawal of $1,875 and on
4/1/07 a
non-RMD
Withdrawal of $2,000. Because the total withdrawals during the
Contract Year
(5/1/06
through
4/30/07) did
not exceed the Protected Payment Amount of $5,000 there was no
adjustment to the Protected Payment Base. The only effect is a
reduction in the Remaining
69
Protected Balance and the Protected Payment Amount equal to the
amount of each withdrawal. On
5/1/07, the
Protected Payment Amount was
re-calculated
(5% of the Protected Payment Base) as of that Contract
Anniversary.
On 11/15/07,
there was a
non-RMD
Withdrawal ($4,000) that caused the cumulative withdrawals
during the Contract Year ($7,750) to exceed the Protected
Payment Amount ($5,000). As the withdrawal exceeded the
Protected Payment Amount immediately prior to the withdrawal
($1,250), and assuming the Contract Value was $90,000
immediately prior to the withdrawal, the Protected Payment Base
is reduced to $96,900 and the Remaining Protected Balance is
reduced to $88,300. The Protected Payment Base and Remaining
Protected Balance will be reduced by the following calculation:
First, determine the excess withdrawal amount. The excess
withdrawal amount is the total withdrawal amount less the
Protected Payment Amount. Numerically, the excess withdrawal
amount is $2,750 (total withdrawal amount – Protected
Payment Amount; $4,000 − $1,250 = $2,750).
Second, determine the ratio for the proportionate reduction. The
ratio is the excess withdrawal amount determined above divided
by (Contract Value – Protected Payment Amount).
Numerically, the ratio is 3.10% ($2,750
¸
($90,000 − $1,250); $2,750
¸
$88,750 = 0.0310 or 3.10%).
Third, determine the new Protected Payment Base. The Protected
Payment Base will be reduced on a proportionate basis. The
Protected Payment Base is multiplied by 1 less the ratio
determined above. Numerically, the new Protected Payment Base is
$96,900 (Protected Payment Base x
(1-ratio);
$100,000 ×
(1-3.10%);
$100,000 × 96.90% = $96,900).
Fourth, determine the new Remaining Protected Balance. The
Remaining Protected Balance is reduced either on a proportionate
basis or by the total withdrawal amount, whichever results in
the lower Remaining Protected Balance amount.
To determine the proportionate reduction, the Remaining
Protected Balance is reduced by the Protected Payment Amount and
then multiplied by 1 less the ratio determined above.
Numerically, after the proportionate reduction, the Remaining
Protected Balance is $88,300 ((Remaining Protected
Balance – Protected Payment Amount) x
(1-ratio);
($92,375 − $1,250) × (1-3.10%); $91,125 ×
96.90% = $88,300).
To determine the total withdrawal amount reduction, the
Remaining Protected Balance is reduced by the total withdrawal
amount. Numerically, after the Remaining Protected Balance is
reduced by the total withdrawal amount, the Remaining Protected
Balance is $88,375 (Remaining Protected Balance –
total withdrawal amount; $92,375 −
$4,000 = $88,375).
Therefore, since $88,300 (proportionate method) is less than
$88,375 (total withdrawal amount method) the new Remaining
Protected Balance is $88,300.
Example #6 –
Lifetime Income.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
Owner’s age on Rider Effective Date = 65
•
No subsequent Purchase Payments are received.
•
Withdrawals, are taken each Contract Year:
•
Equal to 4% of the Protected Payment Base in Contract Years
1-5
(age 65-69)
•
Equal to 5% of the Protected Payment Base in Contract Years
6-20
(age 70-84)
•
Equal to 6% of the Protected Payment Base in Contract Years
21-35
(age 85-99)
•
No Automatic Reset or Owner-Elected Reset is assumed during the
life of the Rider.
70
Protected
Protected
Remaining
Contract
End of Year
Payment
Payment
Protected
Year
Withdrawal
Contract Value
Base
Amount
Balance
1
$4,000
$99,000
$100,000
$4,000
$96,000
2
$4,000
$97,970
$100,000
$4,000
$92,000
3
$4,000
$96,909
$100,000
$4,000
$88,000
4
$4,000
$95,816
$100,000
$4,000
$84,000
5
$4,000
$94,691
$100,000
$4,000
$80,000
6
$5,000
$92,532
$100,000
$5,000
$75,000
7
$5,000
$90,308
$100,000
$5,000
$70,000
8
$5,000
$88,017
$100,000
$5,000
$65,000
9
$5,000
$85,657
$100,000
$5,000
$60,000
10
$5,000
$83,227
$100,000
$5,000
$55,000
11
$5,000
$80,724
$100,000
$5,000
$50,000
12
$5,000
$78,146
$100,000
$5,000
$45,000
13
$5,000
$75,490
$100,000
$5,000
$40,000
14
$5,000
$72,755
$100,000
$5,000
$35,000
15
$5,000
$69,937
$100,000
$5,000
$30,000
16
$5,000
$67,035
$100,000
$5,000
$25,000
17
$5,000
$64,046
$100,000
$5,000
$20,000
18
$5,000
$60,968
$100,000
$5,000
$15,000
19
$5,000
$57,797
$100,000
$5,000
$10,000
20
$5,000
$54,531
$100,000
$5,000
$5,000
21
$6,000
$50,167
$100,000
$6,000
$0
22
$6,000
$45,672
$100,000
$6,000
$0
23
$6,000
$41,042
$100,000
$6,000
$0
24
$6,000
$36,273
$100,000
$6,000
$0
25
$6,000
$31,361
$100,000
$6,000
$0
26
$6,000
$26,302
$100,000
$6,000
$0
27
$6,000
$21,091
$100,000
$6,000
$0
28
$6,000
$15,724
$100,000
$6,000
$0
29
$6,000
$10,196
$100,000
$6,000
$0
30
$6,000
$4,501
$100,000
$6,000
$0
31
$6,000
$0
$100,000
$6,000
$0
32
$6,000
$0
$100,000
$6,000
$0
33
$6,000
$0
$100,000
$6,000
$0
34
$6,000
$0
$100,000
$6,000
$0
35
$6,000
$0
$100,000
$6,000
$0
On the Rider Effective Date, the initial values are set as
follows:
•
Protected Payment Base = Initial Purchase
Payment = $100,000
Protected Payment Amount = 4% of Protected Payment
Base = $4,000
Because the amount of each withdrawal does not exceed the
Protected Payment Amount immediately prior to the withdrawal:
(a) the Protected Payment Base remains unchanged; and
(b) the Remaining Protected Balance is reduced by the
amount of each withdrawal.
Since a withdrawal occurred during Contract Year 1, no
increases are added to the withdrawal percentage due to delaying
withdrawals.
71
Since it was assumed that the Owner was
age 591/2
or older when the first withdrawal was taken, withdrawals of 4%,
5% and 6% of the Protected Payment Base, respectively, will
continue to be paid each year (even after the Contract Value and
Remaining Protected Balance have been reduced to zero) until the
day of the first death of an Owner or the date of death of the
sole surviving Annuitant (death of any Annuitant for Non-Natural
Owners), whichever occurs first.
72
APPENDIX
C:
FLEXIBLE
LIFETIME INCOME RIDER (SINGLE AND JOINT)
SAMPLE
CALCULATIONS
The examples provided are based on certain hypothetical
assumptions and are for example purposes only. Where Contract
Value is reflected, the examples do not assume any specific
return percentage. The examples have been provided to assist in
understanding the benefits provided by this Rider and to
demonstrate how Purchase Payments received and withdrawals made
from the Contract prior to the Annuity Date affect the values
and benefits under this Rider over an extended period of time.
There may be minor differences in the calculations due to
rounding. These examples are not intended to serve as
projections of future investment returns nor are they a
reflection of how your Contract will actually perform.
Examples
1 through 5 apply to the Flexible Lifetime Income (Single) and
(Joint) Riders
Example #1 – Setting
of Initial Values.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
Beginning
Protected
Protected
Remaining
of Contract
Purchase
Contract Value
Annual
Payment
Payment
Protected
Year
Payment
Withdrawal
after Activity
Credit
Base
Amount
Balance
1
$100,000
$100,000
$0
$100,000
$5,000
$100,000
On the Rider Effective Date, the initial values are set as
follows:
•
Protected Payment Base = Initial Purchase
Payment = $100,000
Protected Payment Amount = 5% of Protected Payment
Base = $5,000
Example #2 – Subsequent
Purchase Payments.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
A subsequent Purchase Payment of $100,000 is received during
Contract Year 1.
•
No withdrawals taken.
•
No Automatic Resets or Owner-Elected Resets.
Beginning
Protected
Protected
Remaining
of Contract
Purchase
Contract Value
Annual
Payment
Payment
Protected
Year
Payment
Withdrawal
after Activity
Credit
Base
Amount
Balance
1
$100,000
$100,000
$0
$100,000
$5,000
$100,000
Activity
$100,000
$200,000
$200,000
$10,000
$200,000
2
$207,000
$12,000
$212,000
$10,600
$212,000
Immediately after the $100,000 subsequent Purchase Payment
during Contract Year 1, the Protected Payment Base and
Remaining Protected Balance are increased by the Purchase
Payment amount to $200,000 ($100,000 + $100,000). The Protected
Payment Amount after the Purchase Payment is equal to $10,000
(5% of the Protected Payment Base after the Purchase Payment).
Since no withdrawal occurred prior to the Contract Anniversary
at the Beginning of Contract Year 2, an annual credit of
$12,000 (6% of the initial Remaining Protected Balance plus
cumulative Purchase Payments received after the Rider Effective
Date) is applied to the Protected Payment Base and Remaining
Protected Balance on that Contract
73
Anniversary, increasing both to $212,000. As a result, the
Protected Payment Amount on that Contract Anniversary is equal
to $10,600 (5% of the Protected Payment Base on that Contract
Anniversary).
In addition to Purchase Payments, the Contract Value is further
subject to increases and/or decreases during each Contract Year
as a result of additional amounts credited, charges, fees and
other deductions, and increases and/or decreases in the
investment performance of the Variable Account.
Example #3 – Withdrawals
Not Exceeding Protected Payment Amount.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
A subsequent Purchase Payment of $100,000 is received during
Contract Year 1.
•
A withdrawal equal to or less than the Protected Payment Amount
is taken during Contract Years 2, 3 and 4.
•
Automatic Resets at Beginning of Contract Years 4 and 5.
Beginning
Protected
Protected
Remaining
of Contract
Purchase
Contract Value
Annual
Payment
Payment
Protected
Year
Payment
Withdrawal
after Activity
Credit
Base
Amount
Balance
1
$100,000
$100,000
$0
$100,000
$5,000
$100,000
Activity
$100,000
$200,000
$200,000
$10,000
$200,000
2
$207,000
$12,000
$212,000
$10,600
$212,000
Activity
$10,600
$210,890
$212,000
$201,400
3
$210,890
$0
$212,000
$10,600
$201,400
Activity
$10,600
$215,052
$212,000
$190,800
4
(Prior to Automatic Reset)
$215,052
$0
$212,000
$10,600
$190,800
4
(After Automatic Reset)
$215,052
$0
$215,052
$10,752
$215,052
Activity
$10,600
$219,506
$215,052
$152
$204,452
5
(Prior to Automatic Reset)
$219,506
$0
$215,052
$10,752
$204,452
5
(After Automatic Reset)
$219,506
$0
$219,506
$10,975
$219,506
For an explanation of the values and activities at the start of
and during Contract Year 1, refer to Examples #1
and #2.
As the withdrawal during Contract Year 2 did not exceed
the Protected Payment Amount immediately prior to the withdrawal
($10,600):
•
the Protected Payment Base remains unchanged; and
•
the Remaining Protected Balance is reduced by the amount of the
withdrawal to $201,400 ($212,000 – $10,600).
As the withdrawal during Contract Year 3 did not exceed
the Protected Payment Amount immediately prior to the withdrawal
($10,600):
•
the Protected Payment Base remains unchanged; and
•
the Remaining Protected Balance is reduced by the amount of the
withdrawal to $190,800 ($201,400 – $10,600).
Because at the Beginning of Contract Year 4, the Protected
Payment Base was less than the Contract Value on that Contract
Anniversary (see balances at Beginning of Contract Year
4 – Prior to Automatic Reset), an automatic
reset occurred which resets the Protected Payment Base and
Remaining Protected Balance to an amount equal to 100% of the
Contract Value (see balances at Beginning of Contract Year
4 – After Automatic Reset). As a result, the
Protected Payment Amount is equal to $10,752 (5% of the reset
Protected Payment Base).
As the withdrawal during Contract Year 4 did not exceed
the Protected Payment Amount immediately prior to the withdrawal
($10,600):
•
the Protected Payment Base remains unchanged;
74
•
the Remaining Protected Balance is reduced by the amount of the
withdrawal to $204,452 ($215,052 − $10,600); and
•
the Protected Payment Amount is reduced to $152 (5% of the
Protected Payment Base less cumulative withdrawals
(5% × $215,052 − $10,600 = $152).
Because at the Beginning of Contract Year 5, the Protected
Payment Base was less than the Contract Value on that Contract
Anniversary (see balances at Beginning of Contract Year
5 – Prior to Automatic Reset), an automatic
reset occurred which resets the Protected Payment Base and
Remaining Protected Balance to an amount equal to 100% of the
Contract Value (see balances at Beginning of Contract Year
5 – After Automatic Reset). As a result, the
Protected Payment Amount is equal to $10,975 (5% of the reset
Protected Payment Base).
Since withdrawals occurred during Contract Years 2, 3
and 4, no annual credit will be applied to the Protected
Payment Base and Remaining Protected Balance on any Contract
Anniversary following the withdrawal. Since a Reset occurred at
the beginning of Contract Year 5, eligibility for the
annual credit will again apply.
Example #4 –
Withdrawals Exceeding Protected Payment Amount.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
A subsequent Purchase Payment of $100,000 is received during
Contract Year 1.
•
A withdrawal greater than the Protected Payment Amount is taken
during Contract Year 2.
•
Automatic Resets at Beginning of Contract Year 4.
Beginning
Contract
Protected
Protected
Remaining
of Contract
Purchase
Value after
Annual
Payment
Payment
Protected
Year
Payment
Withdrawal
Activity
Credit
Base
Amount
Balance
1
$100,000
$100,000
$0
$100,000
$5,000
$100,000
Activity
$100,000
$200,000
$200,000
$10,000
$200,000
2
$207,000
$12,000
$212,000
$10,600
$212,000
Activity
$15,000
$206,490
$207,590
$0
$197,000
3
$206,490
$0
$207,590
$10,379
$197,000
4
(Prior to Automatic Reset)
$220,944
$0
$207,590
$10,379
$197,000
4
(After Automatic Reset)
$220,944
$0
$220,944
$11,047
$220,944
For an explanation of the values and activities at the start of
and during Contract Year 1, refer to Examples #1
and #2.
Because the $15,000 withdrawal during Contract Year 2
exceeds the Protected Payment Amount immediately prior to
the withdrawal ($15,000 > $10,600), the Protected
Payment Base and Remaining Protected Balance immediately after
the withdrawal are reduced.
The Values shown below are based on the following assumptions
immediately before the excess withdrawal:
No withdrawals were taken prior to the excess withdrawal
A withdrawal of $15,000 was taken, which exceeds the Protected
Payment Amount of $10,600 for the Contract Year. The Protected
Payment Base and Remaining Protected Balance will be reduced
based on the following calculation:
First, determine the excess withdrawal amount. The excess
withdrawal amount is the total withdrawal amount less the
Protected Payment Amount. Numerically, the excess withdrawal
amount is $4,400 (total withdrawal amount – Protected
Payment Amount; $15,000 – $10,600 = $4,400).
75
Second, determine the ratio for the proportionate reduction. The
ratio is the excess withdrawal amount determined above divided
by (Contract Value – Protected Payment Amount). The
Contract Value prior to the withdrawal was $221,490, which
equals the $206,490 after the withdrawal plus the $15,000
withdrawal amount. Numerically, the ratio is 2.08%
($4,400 ¸
($221,490 – $10,600);
$4,400 ¸
$210,890 = 0.0208 or 2.08%).
Third, determine the new Protected Payment Base. The Protected
Payment Base will be reduced on a proportionate basis. The
Protected Payment Base is multiplied by 1 less the ratio
determined above. Numerically, the new Protected Payment Base is
$207,590 (Protected Payment Base × (1-ratio);
$212,000 × (1-2.08%); $212,000 ×
97.92% = $207,590).
Fourth, determine the new Remaining Protected Balance. The
Remaining Protected Balance is reduced either on a proportionate
basis or by the total withdrawal amount, whichever results in
the lower Remaining Protected Balance amount.
To determine the proportionate reduction, the Remaining
Protected Balance immediately before the withdrawal is reduced
by the Protected Payment Amount multiplied by 1 less the ratio
determined above. Numerically, after the proportionate
reduction, the new Remaining Protected Balance is $197,210
(Remaining Protected Balance immediately before the
withdrawal – Protected Payment Amount) ×
(1-ratio);
($212,000 – $10,600) ×
(1-2.08%);
$201,400 × 97.92% = $197,210).
To determine the total withdrawal amount reduction, the
Remaining Protected Balance immediately before the withdrawal is
reduced by the total withdrawal amount. Numerically, after the
Remaining Protected Balance is reduced by the total withdrawal
amount, the new Remaining Protected Balance is $197,000
(Remaining Protected Balance immediately before the
withdrawal – total withdrawal amount;
$212,000 – $15,000 = $197,000).
Therefore, since $197,000 (total withdrawal amount method) is
less than $197,210 (proportionate method) the new Remaining
Protected Balance is $197,000.
The Protected Payment Amount immediately after the withdrawal is
equal to $0 (5% of the Protected Payment Base after the
withdrawal (5% of $207,590 = $10,379), less cumulative
withdrawals during that Contract Year ($15,000), but not less
than zero).
Because at the Beginning of Contract Year 4, the Protected
Payment Base was less than the Contract Value on that Contract
Anniversary (see balances at Beginning of Contract
Year 4 – Prior to Automatic Reset), an
Automatic Reset occurred which resets the Protected Payment Base
and Remaining Protected Balance to an amount equal to 100% of
the Contract Value (see balances at Beginning of Contract
Year 4 – After Automatic Reset).
Since a withdrawal occurred during Contract Year 2, annual
credits are not applied to the Protected Payment Base and
Remaining Protected Balance on any Contract Anniversary
following the withdrawal. Since a reset occurred at the
beginning of Contract Year 4, eligibility for the annual
credit will again apply.
Example #5 –
RMD Withdrawals.
This is an example of the effect of cumulative RMD Withdrawals
during the Contract Year that exceed the Protected Payment
Amount established for that Contract Year and its effect on the
Protected Payment Base and Remaining Protected Balance. The
Annual RMD Amount is based on the entire interest of your
Contract as of the previous year-end.
76
This table assumes quarterly withdrawals of only the Annual RMD
Amount during the Contract Year. The calculated Annual RMD
amount for the Calendar Year is $7,500 and the Contract
Anniversary is May 1 of each year.
Annual
Protected
Protected
Remaining
Activity
RMD
Non-RMD
RMD
Payment
Payment
Protected
Date
Withdrawal
Withdrawal
Amount
Base
Amount
Balance
05/01/2006
$100,000
$5,000
$100,000
Contract
Anniversary
01/01/2007
$7,500
03/15/2007
$1,875
$100,000
$3,125
$98,125
05/01/2007
$100,000
$5,000
$98,125
Contract
Anniversary
06/15/2007
$1,875
$100,000
$3,125
$96,250
09/15/2007
$1,875
$100,000
$1,250
$94,375
12/15/2007
$1,875
$100,000
$0
$92,500
01/01/2008
$8,000
03/15/2008
$2,000
$100,000
$0
$90,500
05/01/2008
$100,000
$5,000
$90,500
Contract
Anniversary
Since the RMD Amount for 2008 increases to $8,000, the quarterly
withdrawals of the RMD Amount increase to $2,000, as shown by
the RMD withdrawal on March 15, 2008. Because all
withdrawals during the Contract Year were RMD Withdrawals, there
is no adjustment to the Protected Payment Base for exceeding the
Protected Payment Amount. The only effect is a reduction in the
Remaining Protected Balance equal to the amount of each
withdrawal. In addition, each contract year the Protected
Payment Amount is reduced by the amount of each withdrawal until
the Protected Payment Amount is zero.
This chart assumes quarterly withdrawals of the Annual RMD
Amount and other non-RMD Withdrawals during the Contract Year.
The calculated Annual RMD amount and Contract Anniversary are
the same as above.
Annual
Protected
Protected
Remaining
Activity
RMD
Non-RMD
RMD
Payment
Payment
Protected
Date
Withdrawal
Withdrawal
Amount
Base
Amount
Balance
05/01/2006
$0
$100,000
$5,000
$100,000
Contract
Anniversary
01/01/2007
$7,500
03/15/2007
$1,875
$100,000
$3,125
$98,125
04/01/2007
$2,000
$100,000
$1,125
$96,125
05/01/2007
$100,000
$5,000
$96,125
Contract
Anniversary
06/15/2007
$1,875
$100,000
$3,125
$94,250
09/15/2007
$1,875
$100,000
$1,250
$92,375
11/15/2007
$4,000
$96,900
$0
$88,300
On 3/15/07
there was an RMD Withdrawal of $1,875 and on
4/1/07 a
non-RMD Withdrawal of $2,000. Because the total withdrawals
during the Contract Year
(5/1/06
through
4/30/07) did
not exceed the Protected Payment Amount of $5,000 there was no
adjustment to the Protected Payment Base. The only effect is a
reduction in the Remaining Protected Balance and the Protected
Payment Amount equal to the amount of each withdrawal. On
5/1/07, the
Protected Payment Amount was re-calculated (5% of the Protected
Payment Base) as of that Contract Anniversary.
On 11/15/07,
there was a non-RMD Withdrawal ($4,000) that caused the
cumulative withdrawals during the Contract Year ($7,750) to
exceed the Protected Payment Amount ($5,000). As the withdrawal
exceeded the
77
Protected Payment Amount immediately prior to the withdrawal
($1,250), and assuming the Contract Value was $90,000
immediately prior to the withdrawal, the Protected Payment Base
is reduced to $96,900 and the Remaining Protected Balance is
reduced to $88,300.
The Values shown below are based on the following assumptions
immediately before the excess withdrawal:
•
Contract Value = $90,000
•
Protected Payment Base = $100,000
•
Remaining Protected Balance = $92,375
•
Protected Payment Amount = $1,250
A withdrawal of $4,000 was taken, which exceeds the Protected
Payment Amount of $1,250 for the Contract Year. The Protected
Payment Base and Remaining Protected Balance will be reduced
based on the following calculation:
First, determine the excess withdrawal amount. The excess
withdrawal amount is the total withdrawal amount less the
Protected Payment Amount. Numerically, the excess withdrawal
amount is $2,750 (total withdrawal amount – Protected
Payment Amount; $4,000 – $1,250 = $2,750).
Second, determine the ratio for the proportionate reduction. The
ratio is the excess withdrawal amount determined above divided
by (Contract Value – Protected Payment Amount).
Numerically, the ratio is 3.10%
($2,750 ¸
($90,000 – $1,250);
$2,750 ¸
$88,750 = 0.0310 or 3.10%).
Third, determine the new Protected Payment Base. The Protected
Payment Base will be reduced on a proportionate basis. The
Protected Payment Base is multiplied by 1 less the ratio
determined above. Numerically, the new Protected Payment Base is
$96,900 (Protected Payment Base × (1-ratio);
$100,000 × (1-3.10%); $100,000 ×
96.90% = $96,900).
Fourth, determine the new Remaining Protected Balance. The
Remaining Protected Balance is reduced either on a proportionate
basis or by the total withdrawal amount, whichever results in
the lower Remaining Protected Balance amount.
To determine the proportionate reduction, the Remaining
Protected Balance is reduced by the Protected Payment Amount
multiplied by 1 less the ratio determined above. Numerically,
after the proportionate reduction, the Remaining Protected
Balance is $88,300 (Remaining Protected Balance –
Protected Payment Amount) × (1-ratio);
($92,375 – $1,250) × (1-3.10%);
$91,125 × 96.90% = $88,300).
To determine the total withdrawal amount reduction, the
Remaining Protected Balance is reduced by the total withdrawal
amount. Numerically, after the Remaining Protected Balance is
reduced by the total withdrawal amount, the Remaining Protected
Balance is $88,375 (Remaining Protected Balance –
total withdrawal amount; $92,375 – $4,000 =
$88,375).
Therefore, since $88,300 (proportionate method) is less than
$88,375 (total withdrawal amount method) the new Remaining
Protected Balance is $88,300.
Example #6 – Lifetime
Income.
This example applies to the Flexible Lifetime Income Rider
(Single) only.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
No subsequent Purchase Payments are received.
•
Owner is
age 591/2
or older when the first withdrawal was taken.
•
Withdrawals, each equal to 5% of the Protected Payment Base are
taken each Contract Year.
•
No Automatic Reset or Owner-Elected Reset is assumed during the
life of the Rider.
78
Protected
Protected
Remaining
Contract
End of Year
Annual
Payment
Payment
Protected
Year
Withdrawal
Contract Value
Credit
Base
Amount
Balance
1
$5,000
$96,489
$0
$100,000
$5,000
$95,000
2
$5,000
$94,384
$0
$100,000
$5,000
$90,000
3
$5,000
$92,215
$0
$100,000
$5,000
$85,000
4
$5,000
$89,982
$0
$100,000
$5,000
$80,000
5
$5,000
$87,681
$0
$100,000
$5,000
$75,000
6
$5,000
$85,311
$0
$100,000
$5,000
$70,000
7
$5,000
$82,871
$0
$100,000
$5,000
$65,000
8
$5,000
$80,357
$0
$100,000
$5,000
$60,000
9
$5,000
$77,768
$0
$100,000
$5,000
$55,000
10
$5,000
$75,101
$0
$100,000
$5,000
$50,000
11
$5,000
$72,354
$0
$100,000
$5,000
$45,000
12
$5,000
$69,524
$0
$100,000
$5,000
$40,000
13
$5,000
$66,610
$0
$100,000
$5,000
$35,000
14
$5,000
$63,608
$0
$100,000
$5,000
$30,000
15
$5,000
$60,517
$0
$100,000
$5,000
$25,000
16
$5,000
$57,332
$0
$100,000
$5,000
$20,000
17
$5,000
$54,052
$0
$100,000
$5,000
$15,000
18
$5,000
$50,674
$0
$100,000
$5,000
$10,000
19
$5,000
$47,194
$0
$100,000
$5,000
$5,000
20
$5,000
$43,610
$0
$100,000
$5,000
$0
21
$5,000
$39,918
$0
$100,000
$5,000
$0
22
$5,000
$36,115
$0
$100,000
$5,000
$0
23
$5,000
$32,199
$0
$100,000
$5,000
$0
24
$5,000
$28,165
$0
$100,000
$5,000
$0
25
$5,000
$24,010
$0
$100,000
$5,000
$0
26
$5,000
$19,730
$0
$100,000
$5,000
$0
27
$5,000
$15,322
$0
$100,000
$5,000
$0
28
$5,000
$10,782
$0
$100,000
$5,000
$0
29
$5,000
$6,105
$0
$100,000
$5,000
$0
30
$5,000
$1,288
$0
$100,000
$5,000
$0
31
$5,000
$0
$0
$100,000
$5,000
$0
32
$5,000
$0
$0
$100,000
$5,000
$0
33
$5,000
$0
$0
$100,000
$5,000
$0
34
$5,000
$0
$0
$100,000
$5,000
$0
On the Rider Effective Date, the initial values are set as
follows:
•
Protected Payment Base = Initial Purchase
Payment = $100,000
Protected Payment Amount = 5% of Protected Payment
Base = $5,000
Because the amount of each withdrawal does not exceed the
Protected Payment Amount immediately prior to the withdrawal
($5,000): (a) the Protected Payment Base remains unchanged;
and (b) the Remaining Protected Balance is reduced by the
amount of each withdrawal.
Since a withdrawal occurred during Contract Year 1 and no
Resets occurred, no annual credit will be applied to the
Protected Payment Base and Remaining Protected Balance on any
Contract Anniversary following the withdrawal.
Since it was assumed that the Owner was
age 591/2
or older when the first withdrawal was taken, withdrawals of 5%
of the Protected Payment Base will continue to be paid each year
(even after the Contract Value and Remaining Protected Balance
have been reduced to zero) until the day of the first death of
an Owner or the date of death of the sole surviving Annuitant
(death of any Annuitant for Non-Natural Owners), whichever
occurs first.
79
Example #7 – Lifetime
Income.
This example applies to the Flexible Lifetime Income Rider
(Joint) only.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
No subsequent Purchase Payments are received.
•
Withdrawals, each equal to 5% of the Protected Payment Base are
taken each Contract Year.
•
No Automatic Reset or Owner-Elected Reset is assumed during the
life of the Rider.
•
All Designated Lives remain eligible for lifetime income
benefits while the Rider is in effect.
Protected
Protected
Remaining
Contract
End of Year
Annual
Payment
Payment
Protected
Year
Withdrawal
Contract Value
Credit
Base
Amount
Balance
1
$5,000
$96,489
$0
$100,000
$5,000
$95,000
2
$5,000
$94,384
$0
$100,000
$5,000
$90,000
3
$5,000
$92,215
$0
$100,000
$5,000
$85,000
4
$5,000
$89,982
$0
$100,000
$5,000
$80,000
5
$5,000
$87,681
$0
$100,000
$5,000
$75,000
6
$5,000
$85,311
$0
$100,000
$5,000
$70,000
7
$5,000
$82,871
$0
$100,000
$5,000
$65,000
8
$5,000
$80,357
$0
$100,000
$5,000
$60,000
9
$5,000
$77,768
$0
$100,000
$5,000
$55,000
10
$5,000
$75,101
$0
$100,000
$5,000
$50,000
11
$5,000
$72,354
$0
$100,000
$5,000
$45,000
12
$5,000
$69,524
$0
$100,000
$5,000
$40,000
13
$5,000
$66,610
$0
$100,000
$5,000
$35,000
Activity (Death of first Designated Life)
14
$5,000
$63,608
$0
$100,000
$5,000
$30,000
15
$5,000
$60,517
$0
$100,000
$5,000
$25,000
16
$5,000
$57,332
$0
$100,000
$5,000
$20,000
17
$5,000
$54,052
$0
$100,000
$5,000
$15,000
18
$5,000
$50,674
$0
$100,000
$5,000
$10,000
19
$5,000
$47,194
$0
$100,000
$5,000
$5,000
20
$5,000
$43,610
$0
$100,000
$5,000
$0
21
$5,000
$39,918
$0
$100,000
$5,000
$0
22
$5,000
$36,115
$0
$100,000
$5,000
$0
23
$5,000
$32,199
$0
$100,000
$5,000
$0
24
$5,000
$28,165
$0
$100,000
$5,000
$0
25
$5,000
$24,010
$0
$100,000
$5,000
$0
26
$5,000
$19,730
$0
$100,000
$5,000
$0
27
$5,000
$15,322
$0
$100,000
$5,000
$0
28
$5,000
$10,782
$0
$100,000
$5,000
$0
29
$5,000
$6,105
$0
$100,000
$5,000
$0
30
$5,000
$1,288
$0
$100,000
$5,000
$0
31
$5,000
$0
$0
$100,000
$5,000
$0
32
$5,000
$0
$0
$100,000
$5,000
$0
33
$5,000
$0
$0
$100,000
$5,000
$0
34
$5,000
$0
$0
$100,000
$5,000
$0
On the Rider Effective Date, the initial values are set as
follows:
•
Protected Payment Base = Initial Purchase
Payment = $100,000
Protected Payment Amount = 5% of Protected Payment
Base = $5,000
80
Because the amount of each withdrawal does not exceed the
Protected Payment Amount immediately prior to the withdrawal
($5,000): (a) the Protected Payment Base remains unchanged;
and (b) the Remaining Protected Balance is reduced by the
amount of each withdrawal.
During Contract Year 13, the death of the first Designated Life
occurred. Withdrawals of the Protected Payment Amount (5% of the
Protected Payment Base) will continue to be paid each year (even
after the Contract Value and Remaining Protected Balance were
reduced to zero) until the death of all Designated Lives
eligible for lifetime benefits.
If there was a change in Owner, Beneficiary or marital status
prior to the death of the first Designated Life that resulted in
the surviving Designated Life (spouse) to become ineligible for
lifetime income benefits, then the lifetime income benefits
under the Rider would not continue for the surviving Designated
Life and the Rider would terminate upon the death of the first
Designated Life.
81
APPENDIX
D:
FOUNDATION
10 RIDER
SAMPLE
CALCULATIONS
The examples provided are based on certain hypothetical
assumptions and are for example purposes only. Where Contract
Value is reflected, the examples do not assume any specific
return percentage. The examples have been provided to assist in
understanding the benefits provided by this Rider and to
demonstrate how Purchase Payments received and withdrawals made
from the Contract prior to the Annuity Date affect the values
and benefits under this Rider over an extended period of time.
There may be minor differences in the calculations due to
rounding. These examples are not intended to serve as
projections of future investment returns nor are they a
reflection of how your Contract will actually perform.
Example #1 –
Setting of Initial Values.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
Beginning
Protected
Protected
Remaining
of Contract
Purchase
Contract Value
Annual
Payment
Payment
Protected
Maximum
Year
Payment
Withdrawal
after Activity
Credit
Base
Amount
Balance
Credit Base
1
$100,000
$100,000
$0
$100,000
$5,000
$100,000
$200,000
On the Rider Effective Date, the initial values are set as
follows:
•
Protected Payment Base = Initial Purchase Payment = $100,000
Protected Payment Amount = 5% of Protected Payment Base = $5,000
•
Maximum Credit Base = 200% of the Initial Purchase Payment =
$200,000
Example #2 –
Subsequent Purchase Payments.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
A subsequent Purchase Payment of $100,000 is received during
Contract Years 1 and 2.
•
No withdrawals taken.
•
Automatic Reset at Beginning of Contract Year 10.
Beginning
Protected
Protected
Remaining
of Contract
Purchase
Contract Value
Annual
Payment
Payment
Protected
Maximum
Year
Payment
Withdrawal
after Activity
Credit
Base
Amount
Balance
Credit Base
1
$100,000
$100,000
$0
$100,000
$5,000
$100,000
$200,000
Activity
$100,000
$200,000
$200,000
$10,000
$200,000
$400,000
2
$207,000
$20,000
$220,000
$11,000
$220,000
$400,000
Activity
$100,000
$307,000
$320,000
$16,000
$320,000
$500,000
3
$321,490
$30,000
$350,000
$17,500
$350,000
$500,000
4
$343,994
$30,000
$380,000
$19,000
$380,000
$500,000
5
$368,073
$30,000
$410,000
$20,500
$410,000
$500,000
6
$393,839
$30,000
$440,000
$22,000
$440,000
$500,000
7
$421,407
$30,000
$470,000
$23,500
$470,000
$500,000
8
$450,906
$30,000
$500,000
$25,000
$500,000
$500,000
9
$482,469
$0
$500,000
$25,000
$500,000
$500,000
10
Prior to Automatic Reset
$516,242
$0
$500,000
$25,000
$500,000
$500,000
10
After Automatic Reset
$516,242
$0
$516,242
$25,812
$516,242
$500,000
82
Immediately after the $100,000 subsequent Purchase Payment
during Contract Year 1, the Protected Payment Base and Remaining
Protected Balance are increased by the Purchase Payment amount
to $200,000 ($100,000 + $100,000). Since the subsequent Purchase
Payment is received in Contract Year 1, the Maximum Credit Base
is increased by 200% of the Purchase Payment, to $400,000. The
Protected Payment Amount after the Purchase Payment is equal to
$10,000 (5% of the Protected Payment Base after the Purchase
Payment since there were no withdrawals during that Contract
Year).
Since no withdrawal occurred prior to the Contract Anniversary
at the Beginning of Contract Year 2, an annual credit of $20,000
(10% of the initial Remaining Protected Balance plus cumulative
Purchase Payments received after the Rider Effective Date) is
applied to the Protected Payment Base and Remaining Protected
Balance on that Contract Anniversary, increasing both to
$220,000. As a result, the Protected Payment Amount on that
Contract Anniversary is equal to $11,000 (5% of the Protected
Payment Base on that Contract Anniversary).
Immediately after the $100,000 subsequent Purchase Payment
during Contract Year 2, the Protected Payment Base and Remaining
Protected Balance are increased by the Purchase Payment amount
to $320,000 ($220,000 + $100,000). Since the subsequent Purchase
Payment is received in Contract Year 2, the Maximum Credit Base
is increased by 100% of the Purchase Payment, to $500,000. The
Protected Payment Amount after the Purchase Payment is equal to
$16,000 (5% of the Protected Payment Base after the Purchase
Payment since there were no withdrawals during that Contract
Year).
Since no withdrawal occurred prior to the Contract Anniversary
at the Beginning of Contract Year 3, an annual credit of $30,000
(10% of the initial Remaining Protected Balance plus cumulative
Purchase Payments received after the Rider Effective Date) is
applied to the Protected Payment Base and Remaining Protected
Balance on that Contract Anniversary, increasing both to
$350,000. As a result, the Protected Payment Amount on that
Contract Anniversary is equal to $17,500 (5% of the Protected
Payment Base on that Contract Anniversary).
An Annual Credit is no longer applied after the Protected
Payment Base and Remaining Protected Balance reach the Maximum
Credit Base of $500,000 in Contract Year 8.
Because at the Beginning of Contract Year 10, the Protected
Payment Base was less than the Contract Value on that Contract
Anniversary (see balances at Beginning of Contract Year
10 – Prior to Automatic Reset), an automatic reset
occurred which resets the Protected Payment Base and Remaining
Protected Balance to an amount equal to 100% of the Contract
Value (see balances at Beginning of Contract Year
10 – After Automatic Reset). As a result, the
Protected Payment Amount is equal to $25,812 (5% of the reset
Protected Payment Base).
In addition to Purchase Payments, the Contract Value is further
subject to increases and/or decreases during each Contract Year
as a result of additional amounts credited, charges, fees and
other deductions, and increases and/or decreases in the
investment performance of the Variable Account.
Example
#3 – Withdrawals Not Exceeding Protected Payment
Amount.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
A subsequent Purchase Payment of $100,000 is received during
Contract Years 1 and 2.
•
A withdrawal equal to or less than the Protected Payment Amount
is taken during Contract Years 3 and 4.
•
Automatic Reset at Beginning of Contract Year 6.
83
Beginning
Protected
Protected
Remaining
of Contract
Purchase
Contract Value
Annual
Payment
Payment
Protected
Maximum
Year
Payment
Withdrawal
after Activity
Credit
Base
Amount
Balance
Credit Base
1
$100,000
$100,000
$0
$100,000
$5,000
$100,000
$200,000
Activity
$100,000
$200,000
$200,000
$10,000
$200,000
$400,000
2
$207,000
$20,000
$220,000
$11,000
$220,000
$400,000
Activity
$100,000
$307,000
$320,000
$16,000
$320,000
$500,000
3
$321,490
$30,000
$350,000
$17,500
$350,000
$500,000
Activity
$17,500
$326,494
$350,000
$0
$332,500
$500,000
4
$326,494
$0
$350,000
$17,500
$332,500
$500,000
Activity
$17,500
$331,848
$350,000
$0
$315,000
$500,000
5
$331,848
$0
$350,000
$17,500
$315,000
$500,000
6
Prior to Automatic Reset
$355,077
$0
$350,000
$17,500
$315,000
$500,000
6
After Automatic Reset
$355,077
$0
$355,077
$17,753
$355,077
$500,000
For an explanation of the values and activities at the start of
and during Contract Year 1, refer to Examples #1 and
#2.
As the withdrawal during Contract Year 3 did not exceed
the Protected Payment Amount immediately prior to the withdrawal
($17,500):
•
the Protected Payment Base remains unchanged; and
•
the Remaining Protected Balance is reduced by the amount of the
withdrawal to $332,500 ($350,000 – $17,500).
As the withdrawal during Contract Year 4 did not exceed
the Protected Payment Amount immediately prior to the withdrawal
($17,500):
•
the Protected Payment Base remains unchanged; and
•
the Remaining Protected Balance is reduced by the amount of the
withdrawal to $315,000 ($332,500 – $17,500).
Because at the Beginning of Contract Year 6, the Protected
Payment Base was less than the Contract Value on that Contract
Anniversary (see balances at Beginning of Contract Year
6 – Prior to Automatic Reset), an automatic reset
occurred which resets the Protected Payment Base and Remaining
Protected Balance to an amount equal to 100% of the Contract
Value (see balances at Beginning of Contract Year
6 – After Automatic Reset). As a result, the
Protected Payment Amount is equal to $17,753 (5% of the reset
Protected Payment Base).
Since a withdrawal occurred during Contract Year 3, no annual
credit will be applied to the Protected Payment Base and
Remaining Protected Balance on any Contract Anniversary
following the withdrawal.
Example #4 –
Withdrawals Exceeding Protected Payment Amount.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
A subsequent Purchase Payment of $100,000 is received during
Contract Years 1 and 2.
•
A withdrawal greater than the Protected Payment Amount is taken
during Contract Year 3.
84
Beginning
Protected
Protected
Remaining
Maximum
of Contract
Purchase
Contract Value
Annual
Payment
Payment
Protected
Credit
Year
Payment
Withdrawal
after Activity
Credit
Base
Amount
Balance
Base
1
$100,000
$100,000
$0
$100,000
$5,000
$100,000
$200,000
Activity
$100,000
$200,000
$200,000
$10,000
$200,000
$400,000
2
$207,000
$20,000
$220,000
$11,000
$220,000
$400,000
Activity
$100,000
$321,490
$320,000
$16,000
$320,000
$500,000
3
$321,490
$30,000
$350,000
$17,500
$350,000
$500,000
Activity
$25,000
$318,994
$341,985
$0
$324,885
$500,000
4
$318,994
$0
$341,985
$17,099
$324,885
$500,000
For an explanation of the values and activities at the start of
and during Contract Year 1, refer to Examples #1 and
#2.
Because the $25,000 withdrawal during Contract Year 3
exceeds the Protected Payment Amount immediately prior to
the withdrawal ($25,000 > $17,500), the Protected
Payment Base and Remaining Protected Balance immediately after
the withdrawal are reduced.
The Values shown below are based on the following assumptions
immediately before the excess withdrawal:
No withdrawals were taken prior to the excess withdrawal
A withdrawal of $25,000 was taken, which exceeds the Protected
Payment Amount of $17,500 for the Contract Year. The Protected
Payment Base and Remaining Protected Balance will be reduced
based on the following calculation:
First, determine the excess withdrawal amount. The excess
withdrawal amount is the total withdrawal amount less the
Protected Payment Amount. Numerically, the excess withdrawal
amount is $7,500 (total withdrawal amount – Protected
Payment Amount; $25,000 – $17,500 = $7,500).
Second, determine the ratio for the proportionate reduction. The
ratio is the excess withdrawal amount determined above divided
by (Contract Value – Protected Payment Amount). The
Contract Value prior to the withdrawal was $343,994, which
equals the $318,994 after the withdrawal plus the $25,000
withdrawal amount. Numerically, the ratio is 2.29%
($7,500 ¸
($343,994 – $17,500);
$7,500 ¸
$326,494 = 0.0229 or 2.29%).
Third, determine the new Protected Payment Base. The Protected
Payment Base will be reduced on a proportionate basis. The
Protected Payment Base is multiplied by 1 less the ratio
determined above. Numerically, the new Protected Payment Base is
$341,985 (Protected Payment Base × (1-ratio);
$350,000 × (1-2.29%); $350,000 ×
97.71% = $341,985).
Fourth, determine the new Remaining Protected Balance. The
Remaining Protected Balance is reduced either on a proportionate
basis or by the total withdrawal amount, whichever results in
the lower Remaining Protected Balance amount.
To determine the proportionate reduction, the Remaining
Protected Balance immediately before the withdrawal is reduced
by the Protected Payment Amount multiplied by 1 less the ratio
determined above. Numerically, after the proportionate
reduction, the new Remaining Protected Balance is $324,885
(Remaining Protected Balance immediately before the
withdrawal – Protected Payment Amount) ×
(1-ratio);
($350,000 – $17,500) × (1-2.29%);
$332,500 × 97.71% = $324,885).
To determine the total withdrawal amount reduction, the
Remaining Protected Balance immediately before the withdrawal is
reduced by the total withdrawal amount. Numerically, after the
Remaining Protected Balance is reduced by the total withdrawal
amount, the new Remaining Protected Balance is $325,000
(Remaining Protected Balance immediately before the
withdrawal – total withdrawal amount;
$350,000 – $25,000 = $325,000).
85
Therefore, since $324,885 (proportionate method) is less than
$325,000 (total withdrawal amount method) the new Remaining
Protected Balance is $324,885.
The Protected Payment Amount immediately after the withdrawal is
equal to $0 (5% of the Protected Payment Base after the
withdrawal (5% of $341,985 = $17,099), less cumulative
withdrawals during that Contract Year ($25,000), but not less
than zero).
Since a withdrawal occurred during Contract Year 3, annual
credits are not applied to the Protected Payment Base and
Remaining Protected Balance on any Contract Anniversary
following the withdrawal. Since a reset occurred at the
beginning of Contract Year 4, eligibility for the annual
credit will again apply.
Example
#5 – Annual Credit & Resets.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
No subsequent Purchase Payments received.
•
No withdrawals taken.
•
Automatic Reset at Beginning of Contract Years 3, 5, 7 and 9.
Beginning
Protected
Protected
Remaining
Maximum
of Contract
Purchase
Contract Value
Annual
Payment
Payment
Protected
Credit
Year
Payment
Withdrawal
after Activity
Credit
Base
Amount
Balance
Base
1
$100,000
$100,000
$0
$100,000
$5,000
$100,000
$200,000
2
$107,000
$10,000
$110,000
$5,500
$110,000
$200,000
3
$125,000
$10,000
$125,000
$6,250
$125,000
$200,000
4
$120,000
$12,500
$137,500
$6,875
$137,500
$200,000
5
$190,000
$12,500
$190,000
$9,500
$190,000
$200,000
6
$180,000
$19,000
$209,000
$10,450
$209,000
$200,000
7
$240,000
$0
$240,000
$12,000
$240,000
$200,000
8
$220,000
$0
$240,000
$12,000
$240,000
$200,000
9
$250,000
$0
$250,000
$12,500
$250,000
$200,000
On the Contract Anniversary at the beginning of Contract
Year 2, an Annual Credit of $10,000 (10% of the Remaining
Protected Balance) is added to the Protected Payment Base and
Remaining Protected Balance.
An Annual Credit of $10,000 would have been applied on the
Contract Anniversary at the beginning of Contract Year 3,
but an Automatic Reset takes place instead, resetting the
Protected Payment Base and Remaining Protected Balance to
$125,000.
On the Contract Anniversary at the beginning of Contract
Year 4, an Annual Credit of $12,500 (10% of the Remaining
Protected Balance) is added to the Protected Payment Base and
Remaining Protected Balance.
An Annual Credit of $12,500 would have been applied on the
Contract Anniversary at the beginning of Contract Year 5,
but an Automatic Reset took place instead, resetting the
Protected Payment Base and Remaining Protected Balance to
$190,000.
On the Contract Anniversary at the beginning of Contract
Year 6, an Annual Credit of $19,000 (10% of the Remaining
Protected Balance) is added, increasing the Protected Payment
Base and Remaining Protected Balance to $209,000. Annual Credits
will no longer be added since the Maximum Credit Base of
$200,000 has been reached.
Example #6 –
RMD Withdrawals.
The effect of cumulative RMD Withdrawals during the Contract
Year that exceed the Protected Payment Amount established for
that Contract Year and its effect on the Protected Payment Base
and Remaining Protected Balance. The Annual RMD Amount is based
on the entire interest of your Contract as of the previous
year-end.
86
This table assumes quarterly withdrawals of only the Annual RMD
Amount during the Contract Year. The calculated Annual RMD
amount for the Calendar Year is $7,500 and the Contract
Anniversary is May 1 of each year.
Annual
Protected
Protected
Remaining
Activity
RMD
Non-RMD
RMD
Payment
Payment
Protected
Date
Withdrawal
Withdrawal
Amount
Base
Amount
Balance
05/01/2006
$100,000
$5,000
$100,000
Contract
Anniversary
01/01/2007
$7,500
03/15/2007
$1,875
$100,000
$3,125
$98,125
05/01/2007
$100,000
$5,000
$98,125
Contract
Anniversary
06/15/2007
$1,875
$100,000
$3,125
$96,250
09/15/2007
$1,875
$100,000
$1,250
$94,375
12/15/2007
$1,875
$100,000
$0
$92,500
01/01/2008
$8,000
03/15/2008
$2,000
$100,000
$0
$90,500
05/01/2008
$100,000
$5,000
$90,500
Contract
Anniversary
Since the RMD Amount for 2008 increases to $8,000, the quarterly
withdrawals of the RMD Amount increase to $2,000, as shown by
the RMD withdrawal on March 15, 2008. Because all
withdrawals during the Contract Year were RMD Withdrawals, there
is no adjustment to the Protected Payment Base for exceeding the
Protected Payment Amount. The only effect is a reduction in the
Remaining Protected Balance equal to the amount of each
withdrawal. In addition, the Protected Payment Amount is reduced
by the amount of each withdrawal until the Protected Payment
Amount is zero.
This chart assumes quarterly withdrawals of the Annual RMD
Amount and other non-RMD Withdrawals during the Contract Year.
The calculated Annual RMD amount and Contract Anniversary are
the same as above.
Annual
Protected
Protected
Remaining
Activity
RMD
Non-RMD
RMD
Payment
Payment
Protected
Date
Withdrawal
Withdrawal
Amount
Base
Amount
Balance
05/01/2006
$0
$100,000
$5,000
$100,000
Contract
Anniversary
01/01/2007
$7,500
03/15/2007
$1,875
$100,000
$3,125
$98,125
04/01/2007
$2,000
$100,000
$1,125
$96,125
05/01/2007
$100,000
$5,000
$96,125
Contract
Anniversary
06/15/2007
$1,875
$100,000
$3,125
$94,250
09/15/2007
$1,875
$100,000
$1,250
$92,375
11/15/2007
$4,000
$96,900
$0
$88,300
On 3/15/07
there was an RMD Withdrawal of $1,875 and on
4/1/07 a
non-RMD Withdrawal of $2,000. Because the total withdrawals
during the Contract Year
(5/1/06
through
4/30/07) did
not exceed the Protected Payment Amount of $5,000 there was no
adjustment to the Protected Payment Base. The only effect is a
reduction in the Remaining Protected Balance and the Protected
Payment Amount equal to the amount of each withdrawal. On
5/1/07, the
Protected Payment Amount was re-calculated (5% of the Protected
Payment Base) as of that Contract Anniversary.
On 11/15/07,
there was a non-RMD Withdrawal ($4,000) that caused the
cumulative withdrawals during the Contract Year ($7,750) to
exceed the Protected Payment Amount ($5,000). As the withdrawal
exceeded the
87
Protected Payment Amount immediately prior to the withdrawal
($1,250), and assuming the Contract Value was $90,000
immediately prior to the withdrawal, the Protected Payment Base
is reduced to $96,900 and the Remaining Protected Balance is
reduced to $88,300.
The Values shown below are based on the following assumptions
immediately before the excess withdrawal:
•
Contract Value = $90,000
•
Protected Payment Base = $100,000
•
Remaining Protected Balance = $92,375
•
Protected Payment Amount = $1,250
A withdrawal of $4,000 was taken, which exceeds the Protected
Payment Amount of $1,250 for the Contract Year. The Protected
Payment Base and Remaining Protected Balance will be reduced
based on the following calculation:
First, determine the excess withdrawal amount. The excess
withdrawal amount is the total withdrawal amount less the
Protected Payment Amount. Numerically, the excess withdrawal
amount is $2,750 (total withdrawal amount – Protected
Payment Amount; $4,000 – $1,250 = $2,750).
Second, determine the ratio for the proportionate reduction. The
ratio is the excess withdrawal amount determined above divided
by (Contract Value – Protected Payment Amount).
Numerically, the ratio is 3.10%
($2,750 ¸
($90,000 – $1,250);
$2,750 ¸
$88,750 = 0.0310 or 3.10%).
Third, determine the new Protected Payment Base. The Protected
Payment Base will be reduced on a proportionate basis. The
Protected Payment Base is multiplied by 1 less the ratio
determined above. Numerically, the new Protected Payment Base is
$96,900 (Protected Payment Base × (1-ratio);
$100,000 × (1-3.10%); $100,000 ×
96.90% = $96,900).
Fourth, determine the new Remaining Protected Balance. The
Remaining Protected Balance is reduced either on a proportionate
basis or by the total withdrawal amount, whichever results in
the lower Remaining Protected Balance amount.
To determine the proportionate reduction, the Remaining
Protected Balance is reduced by the Protected Payment Amount
multiplied by 1 less the ratio determined above. Numerically,
after the proportionate reduction, the Remaining Protected
Balance is $88,300 (Remaining Protected Balance –
Protected Payment Amount) × (1-ratio);
($92,375 – $1,250) × (1-3.10%);
$91,125 × 96.90% = $88,300).
To determine the total withdrawal amount reduction, the
Remaining Protected Balance is reduced by the total withdrawal
amount. Numerically, after the Remaining Protected Balance is
reduced by the total withdrawal amount, the Remaining Protected
Balance is $88,375 (Remaining Protected Balance –
total withdrawal amount; $92,375 – $4,000 =
$88,375).
Therefore, since $88,300 (proportionate method) is less than
$88,375 (total withdrawal amount method) the new Remaining
Protected Balance is $88,300.
Example
#7 – Lifetime Income.
The values shown below are based on the following assumptions:
•
Initial Purchase Payment = $100,000
•
Rider Effective Date = Contract Date
•
No subsequent Purchase Payments are received.
•
Owner is age
591/2
or older when the first withdrawal was taken.
•
Withdrawals, each equal to 5% of the Protected Payment Base are
taken each Contract Year.
•
No Automatic Reset or Owner-Elected Reset is assumed during the
life of the Rider.
88
Protected
Protected
Remaining
Contract
End of Year
Annual
Payment
Payment
Protected
Year
Withdrawal
Contract Value
Credit
Base
Amount
Balance
1
$5,000
$96,489
$0
$100,000
$5,000
$95,000
2
$5,000
$94,384
$0
$100,000
$5,000
$90,000
3
$5,000
$92,215
$0
$100,000
$5,000
$85,000
4
$5,000
$89,982
$0
$100,000
$5,000
$80,000
5
$5,000
$87,681
$0
$100,000
$5,000
$75,000
6
$5,000
$85,311
$0
$100,000
$5,000
$70,000
7
$5,000
$82,871
$0
$100,000
$5,000
$65,000
8
$5,000
$80,357
$0
$100,000
$5,000
$60,000
9
$5,000
$77,768
$0
$100,000
$5,000
$55,000
10
$5,000
$75,101
$0
$100,000
$5,000
$50,000
11
$5,000
$72,354
$0
$100,000
$5,000
$45,000
12
$5,000
$69,524
$0
$100,000
$5,000
$40,000
13
$5,000
$66,610
$0
$100,000
$5,000
$35,000
14
$5,000
$63,608
$0
$100,000
$5,000
$30,000
15
$5,000
$60,517
$0
$100,000
$5,000
$25,000
16
$5,000
$57,332
$0
$100,000
$5,000
$20,000
17
$5,000
$54,052
$0
$100,000
$5,000
$15,000
18
$5,000
$50,674
$0
$100,000
$5,000
$10,000
19
$5,000
$47,194
$0
$100,000
$5,000
$5,000
20
$5,000
$43,610
$0
$100,000
$5,000
$0
21
$5,000
$39,918
$0
$100,000
$5,000
$0
22
$5,000
$36,115
$0
$100,000
$5,000
$0
23
$5,000
$32,199
$0
$100,000
$5,000
$0
24
$5,000
$28,165
$0
$100,000
$5,000
$0
25
$5,000
$24,010
$0
$100,000
$5,000
$0
26
$5,000
$19,730
$0
$100,000
$5,000
$0
27
$5,000
$15,322
$0
$100,000
$5,000
$0
28
$5,000
$10,782
$0
$100,000
$5,000
$0
29
$5,000
$6,105
$0
$100,000
$5,000
$0
30
$5,000
$1,288
$0
$100,000
$5,000
$0
31
$5,000
$0
$0
$100,000
$5,000
$0
32
$5,000
$0
$0
$100,000
$5,000
$0
33
$5,000
$0
$0
$100,000
$5,000
$0
34
$5,000
$0
$0
$100,000
$5,000
$0
On the Rider Effective Date, the initial values are set as
follows:
•
Protected Payment Base = Initial Purchase Payment =
$100,000
Protected Payment Amount = 5% of Protected Payment
Base = $5,000
Because the amount of each withdrawal does not exceed the
Protected Payment Amount immediately prior to the withdrawal
($5,000): (a) the Protected Payment Base remains unchanged;
and (b) the Remaining Protected Balance is reduced by the
amount of each withdrawal.
Since a withdrawal occurred during Contract Year 1, no annual
credit will be applied to the Protected Payment Base and
Remaining Protected Balance on any Contract Anniversary
following the withdrawal.
Since it was assumed that the Owner was age
591/2
or older when the first withdrawal was taken, withdrawals of 5%
of the Protected Payment Base will continue to be paid each year
(even after the Contract Value and Remaining Protected Balance
have been reduced to zero) until the day of the first death of
an Owner or the date of death of the sole surviving Annuitant
(death of any Annuitant for Non-Natural Owners), whichever
occurs first.
89
Form
No. 4001-10A
INDEPENDENT AUDITORS’ REPORT
Pacific Life Insurance Company and Subsidiaries:
We have audited the accompanying consolidated statements of
financial condition of Pacific Life Insurance Company and
Subsidiaries (the Company) as of December 31, 2009 and 2008, and the
related consolidated statements of operations, equity and cash flows
for each of the three years in the period ended December 31, 2009.
These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes consideration of internal
control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly,
we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Pacific
Life Insurance Company and Subsidiaries as of December 31, 2009 and
2008, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2009 in
conformity with accounting principles generally accepted in the
United States of America.
As discussed in Notes 1 and 9 to the consolidated financial
statements, the accompanying consolidated financial statements have
been retrospectively adjusted to give effect of comparative
information as a result of the aircraft leasing company transfer.
As discussed in Note 1 to the consolidated financial statements, in 2009, the Company changed
its method of accounting and reporting for other than temporary impairments of debt and equity
securities.
As discussed in Note 1 to the consolidated financial statements, in 2009, the Company adopted
new guidance requiring retrospective application and presentation requirements for
noncontrolling interest (previously known as minority interest).
Other than temporary impairments, consisting of $641 in total, net of $330 recognized in
other comprehensive income (loss) for the year ended December 31, 2009
(311
)
(580
)
(98
)
Realized investment gain on interest in PIMCO
109
Investment advisory fees
208
255
327
Aircraft leasing revenue
578
571
535
Other income
137
167
147
TOTAL REVENUES
4,902
3,764
4,880
BENEFITS AND EXPENSES
Interest credited to policyholder account balances
1,253
1,234
1,266
Policy benefits paid or provided
1,226
1,206
855
Commission expenses
691
715
690
Operating and other expenses
1,246
1,178
1,235
TOTAL BENEFITS AND EXPENSES
4,416
4,333
4,046
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
PROVISION (BENEFIT) FOR INCOME TAXES
486
(569
)
834
Provision (benefit) for income taxes
44
(315
)
129
INCOME (LOSS) FROM CONTINUING OPERATIONS
442
(254
)
705
Discontinued operations, net of taxes
(20
)
(6
)
11
Net income (loss)
422
(260
)
716
Less: net
(income) loss attributable to the noncontrolling interest from continuing operations
Net income (loss) excluding discontinued operations
$
442
($254
)
$
705
Adjustments
to reconcile net income (loss) excluding discontinued operations to net cash provided by operating activities:
Net accretion on fixed maturity securities
(142
)
(144
)
(150
)
Depreciation and amortization
281
259
255
Deferred income taxes
451
(511
)
86
Net realized investment (gain) loss
(153
)
749
(69
)
Other than temporary impairments
311
580
98
Realized investment gain on interest in PIMCO
(109
)
Net change in deferred policy acquisition costs
(202
)
(175
)
(302
)
Interest credited to policyholder account balances
1,253
1,234
1,266
Change in future policy benefits and other insurance liabilities
111
1,182
666
Other operating activities, net
85
(337
)
(33
)
NET CASH PROVIDED BY OPERATING ACTIVITIES BEFORE DISCONTINUED OPERATIONS
2,437
2,474
2,522
Net cash used in operating activities of discontinued operations
(27
)
(18
)
(71
)
NET CASH PROVIDED BY OPERATING ACTIVITIES
2,410
2,456
2,451
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed maturity and equity securities available for sale:
Purchases
(5,507
)
(2,730
)
(5,885
)
Sales
1,463
2,084
2,041
Maturities and repayments
2,542
2,136
2,718
Repayments of mortgage loans
406
470
439
Fundings of mortgage loans and real estate
(1,434
)
(1,665
)
(1,658
)
Change in policy loans
411
(510
)
(342
)
Sale of interest in PIMCO
288
Change in restricted cash
6
7
60
Purchases of derivative instruments
(20
)
(12
)
(17
)
Terminations of derivative instruments
20
84
(41
)
Proceeds from nonhedging derivative settlements
64
728
2
Payments for nonhedging derivative settlements
(1,540
)
(89
)
(43
)
Change in collateral received or pledged
(1,226
)
1,056
17
Purchases of and advance payments on aircraft leasing portfolio
(561
)
(694
)
(646
)
Other investing activities, net
42
(323
)
67
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES BEFORE DISCONTINUED OPERATIONS
(5,334
)
830
(3,288
)
Net cash provided by investing activities of discontinued operations
7
76
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
(5,334
)
837
(3,212
)
(Continued)
See Notes to Consolidated Financial Statements
PL-5
Pacific Life Insurance Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(Continued)
2009
2008
2007
(In Millions)
CASH FLOWS FROM FINANCING ACTIVITIES
Policyholder account balances:
Deposits
$
8,003
$
7,320
$
6,876
Withdrawals
(7,972
)
(7,602
)
(7,131
)
Net change in short-term debt
(45
)
50
100
Issuance of long-term debt
1,692
335
1,013
Payments of long-term debt
(433
)
(381
)
(913
)
Contribution from (dividend to) parent
200
(345
)
Other financing activities, net
1
33
69
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
1,446
(590
)
14
Net change in cash and cash equivalents
(1,478
)
2,703
(747
)
Cash and cash equivalents, beginning of year
3,397
694
1,441
CASH AND CASH EQUIVALENTS, END OF YEAR
$
1,919
$
3,397
$
694
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Income taxes paid (received), net
($143
)
($20
)
$
67
Interest paid
$
146
$
195
$
272
See Notes to Consolidated Financial Statements
PL-6
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF BUSINESS
Pacific Life Insurance Company (Pacific Life) was established in 1868 and is domiciled in the
State of Nebraska as a stock life insurance company. Pacific Life is an indirect subsidiary
of Pacific Mutual Holding Company (PMHC), a Nebraska mutual holding company, and a wholly
owned subsidiary of Pacific LifeCorp, an intermediate Delaware stock holding company. PMHC
and Pacific LifeCorp were organized pursuant to consent received from the California
Department of Insurance and the implementation of a plan of conversion to form a mutual
holding company structure in 1997 (the Conversion).
Pacific Life transferred its legal domicile from the State of California to the State of
Nebraska effective September 1, 2005. PMHC transferred its state of legal domicile from the
State of California to the State of Nebraska, effective June 29, 2007, to reunite PMHC and
Pacific Life under one regulatory authority.
Effective December 31, 2009, Pacific LifeCorp contributed its 100% stock ownership of Aviation
Capital Group Corp. (ACG) to Pacific Life (Note 9). ACG is engaged in the acquisition and
leasing of commercial jet aircraft. These financial statements and the accompanying footnotes
have been prepared by combining the previously separate financial statements of Pacific Life
and ACG as if the two entities had been combined as of the beginning of 2007, the first period
presented in these consolidated financial statements. This retrospective treatment is
prescribed by accounting principles generally accepted in the United States of America (U.S.
GAAP) whenever a transfer between entities under common control is effected.
Pacific Life and its subsidiaries and affiliates have primary business operations consisting
of life insurance, individual annuities, mutual funds, pension and institutional products, and
aircraft leasing.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements of Pacific Life and its subsidiaries (the
Company) have been prepared in accordance with U.S. GAAP and include the accounts of Pacific
Life and its majority owned and controlled subsidiaries and variable interest entities (VIEs)
in which the Company was determined to be the primary beneficiary. Noncontrolling interest is
primarily comprised of private equity funds (Note 4). All significant intercompany
transactions and balances have been eliminated in consolidation.
Pacific Life prepares its regulatory financial statements in accordance with statutory
accounting practices prescribed or permitted by the Nebraska Department of Insurance (NE DOI),
which is a comprehensive basis of accounting other than U.S. GAAP (Note 2). These
consolidated financial statements materially differ from those filed with regulatory
authorities.
The preparation of financial statements in conformity with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities as
of the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
In developing these estimates, management makes subjective and complex judgments that are
inherently uncertain and subject to material change as facts and circumstances develop.
Management has identified the following estimates as significant, as they involve a higher
degree of judgment and are subject to a significant degree of variability:
•
The fair value of investments in the absence of quoted market values
•
Investment impairments
•
Application of the consolidation rules to certain investments
•
The fair value of and accounting for derivatives
•
Aircraft valuation and impairment
•
The capitalization and amortization of deferred policy acquisition costs (DAC)
•
The liability for future policyholder benefits
•
Accounting for income taxes and the valuation of deferred income tax assets and
liabilities and unrecognized tax benefits
•
Accounting for reinsurance transactions
PL-7
•
Litigation and other contingencies
Certain reclassifications have been made to the 2008 and 2007 consolidated financial
statements to conform to the 2009 financial statement presentation. The most significant
conforming reclassification was retrospectively adjusting the consolidated financial
statements and respective notes to reflect the ACG transfer.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
Effective September 30, 2009, the Company adopted the Financial Accounting Standards Board
(FASB) Accounting Standards Codification (Codification) as the single source of authoritative
U.S. GAAP. The Codification does not create new accounting and reporting guidance, rather it
reorganized then-existing U.S. GAAP pronouncements into approximately 90 Topics within a
consistent structure. All guidance in the Codification carries an equal level of authority.
After the effective date of the Codification, all nongrandfathered accounting literature not
included in the Codification is superseded and deemed nonauthoritative. Adoption of the
Codification also changed how the Company references U.S. GAAP in its consolidated financial
statements.
In April 2009, the FASB issued additional guidance under the Codification’s Fair Value
Measurements and Disclosures Topic. This update relates to determining fair values when there
is no active market or where the price inputs being used represent distressed sales. The
Company early adopted this guidance on March 31, 2009. This update provides additional
guidance for estimating fair value when the volume and level of activity for the asset or
liability have significantly decreased. Also included is guidance on identifying
circumstances that indicate a transaction is not orderly. The adoption of this guidance
resulted in an increase of $436 million to the estimated fair value and a resulting decrease
of $436 million to gross unrealized investment loss of residential mortgage-backed securities
(RMBS) as of March 31, 2009. As of December 31, 2009, the year to date effect of this
adoption was an increase of $214 million to the estimated fair value and a decrease of $214
million to the gross unrealized investment loss of RMBS. See Note 14 for information on the
Company’s fair value measurements and expanded disclosures.
In April 2009, the FASB issued additional guidance under the Codification’s Investments – Debt
and Equity Securities Topic. For debt securities, this guidance replaces the management
assertion that it has the intent and ability to hold an impaired debt security until recovery
with the requirement that management assert if it either has the intent to sell the debt
security or if it is more likely than not the entity will be required to sell the debt
security before recovery of its amortized cost basis. If management intends to sell the debt
security or it is more likely than not the entity will be required to sell the debt security
before recovery of its amortized cost basis, an other than temporary impairment (OTTI) shall
be recognized in earnings equal to the entire difference between the debt security’s amortized
cost basis and its fair value at the reporting date. After the recognition of an OTTI, the
debt security is accounted for as if it had been purchased on the measurement date of the
OTTI, with an amortized cost basis equal to the previous amortized cost basis less the OTTI
recognized in earnings. The update also changes the presentation in the financial statements
of non credit related impairment amounts for instruments within its scope. When the entity
asserts it does not have the intent to sell the security and it is more likely than not it
will not have to sell the security before recovery of its amortized cost basis, only the
credit related impairment losses are to be recognized in earnings and non credit losses are to
be recognized in other comprehensive income (OCI). Additionally, this update provides for
enhanced presentation and disclosure of OTTIs of debt and equity securities in the
consolidated financial statements. The Company early adopted this guidance effective January1, 2009, resulting in an after tax decrease to OCI of $170 million, including an after tax DAC
impact of $5 million, and an after tax increase to retained earnings of $175 million.
Effective January 1, 2009, the FASB issued additional guidance to the Codification’s
Consolidation Topic. This guidance improves the relevance, comparability and transparency of
the financial information that a company provides in its consolidated financial statements by
establishing accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. As a result of the adoption of this
guidance, which required retrospective application of presentation requirements, total equity
as of December 31, 2008 and 2007, increased by $244 million and $214 million, respectively,
representing the noncontrolling interest, and other liabilities and total liabilities as of
December 31, 2008 and 2007 decreased by $244 million and $214 million, respectively, as a
result of reclassifying noncontrolling interest (previously known as minority interest) to
equity.
Effective January 1, 2007, the FASB issued additional guidance to the Codification’s Financial
Services – Insurance Topic. This guidance governs the accounting for DAC on internal
replacements on insurance and investment contracts. This guidance defines an internal
replacement as a modification in product benefits, features, rights, or coverages that occur
by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a
contract, or by the election of a feature or coverage within a contract. The adoption of this
guidance resulted in a reduction to DAC and the Company recorded a cumulative effect
adjustment of $29 million, after tax, which was recorded as a reduction to retained earnings
during the year ended December 31, 2007.
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INVESTMENTS
Fixed maturity and equity securities available for sale are reported at estimated fair value,
with unrealized gains and losses, net of adjustments related to DAC, future policy benefits
and deferred income taxes, recorded as a component of OCI. For mortgage-backed securities and
asset-backed securities included in fixed maturity securities available for sale, the Company
recognizes income using a constant effective yield based on anticipated prepayments and the
estimated economic life of the securities. When estimates of prepayments change, the
effective yield is recalculated to reflect actual payments to date and anticipated future
payments. For fixed rate securities, the net investment in the securities is adjusted to the
amount that would have existed had the new effective yield been applied since the acquisition
of the securities. These adjustments are reflected in net investment income. Trading
securities are reported at estimated fair value with changes in estimated fair value included
in net realized investment gain (loss).
Investment income consists primarily of interest and dividends, net investment income from
partnership interests, prepayment fees on fixed maturity securities and mortgage loans, and
income from certain derivatives. Interest is recognized on an accrual basis and dividends are
recorded on the ex-dividend date. Amortization of premium and accretion of discount on fixed
maturity securities is recorded using the effective interest method.
The Company’s available for sale securities are regularly assessed for OTTIs. If a decline in
the estimated fair value of an available for sale security is deemed to be other than
temporary, the OTTI is recorded equal to the difference between the estimated fair value and
net carrying amount of the security. If the OTTI for a debt security is attributable to both
credit and other factors, then the OTTI is bifurcated and the non credit related portion is
recorded to OCI while the credit portion is recorded as a net realized investment loss. If
the OTTI is related to credit factors only, it is recorded as a net realized investment loss.
The evaluation of OTTIs is a quantitative and qualitative process subject to significant
estimates and management judgment. The Company has rigorous controls and procedures in place
to monitor securities and identify those that are subject to greater analysis for OTTIs. The
Company has an investment impairment committee comprised of investment and accounting
professionals that reviews and evaluates securities for potential OTTIs at least on a
quarterly basis.
In evaluating whether a decline in value is other than temporary, the Company considers many
factors including, but not limited to, the following: the extent and duration of the decline
in value; the reasons for the decline (credit event, currency, or interest-rate related,
including spread widening); the ability and intent to hold the investment for a period of time
to allow for a recovery of value; and the financial condition of and near-term prospects of
the issuer.
Analysis of the probability that all cash flows will be collected under the contractual terms
of a fixed maturity security and determination as to whether the Company does not intend to
sell the security and that it is more likely than not that the Company will not be required to
sell the security before recovery of the investment were key factors in determining whether a
fixed maturity security is other than temporarily impaired.
For mortgage-backed and asset-backed securities, scrutiny was placed on the performance of the
underlying collateral and projected future cash flows. In projecting future cash flows, the
Company incorporates inputs from third-party sources and applies reasonable judgment in
developing assumptions used to estimate the probability and timing of collecting all
contractual cash flows.
In evaluating investment grade perpetual preferred securities, which do not have final
contractual cash flows, the Company applied OTTI considerations used for debt securities,
placing emphasis on the probability that all cash flows will be collected under the
contractual terms of the security and the Company’s intent and ability to hold the security to
allow for a recovery of value. Perpetual preferred securities are reported as equity
securities as they are structured in equity form, but have significant debt-like
characteristics, including periodic dividends, call features, and credit ratings and pricing
similar to debt securities. The SEC Issues Letter Clarifying Other-Than-Temporary Impairment
Guidance for Perpetual Preferred Securities issued on October 15, 2008 states that if an
investor holds a perpetual preferred security with an estimated fair value below cost that is
not attributable to the credit deterioration of the issuer, then the investor would not be
required to recognize an OTTI by asserting that it has the intent and ability to continue
holding the security for a sufficient period to allow for an anticipated recovery in market
value.
Realized gains and losses on investment transactions are determined on a specific
identification basis and are included in net realized investment gain (loss).
Mortgage loans on real estate are carried at their unpaid principal balance, net of deferred
origination fees and write-downs. Mortgage loans are considered to be impaired when
management estimates that based upon current information and events, it is probable that the
Company will not be able to collect amounts due according to the contractual terms of the
mortgage loan
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agreement. For mortgage loans deemed to be impaired, a write-down is taken for the difference
between the carrying amount and the Company’s estimate of the present value of the expected
future cash flows discounted at the current market rate and recorded in net realized
investment gain (loss). As of December 31, 2009, two loans totaling $8 million were
considered impaired, however no valuation allowance was necessary as the fair value of the
collateral was greater than the carrying amount of the related loans. The Company had no
write-downs during the years ended December 31, 2009, 2008 and 2007. Policy loans are stated
at unpaid principal balances.
Other investments primarily consist of partnership and joint ventures, real estate
investments, derivative instruments, non-marketable equity securities, and low income housing
related investments qualifying for tax credits (LIHTC). Partnership and joint venture
interests where the Company does not have a controlling interest or majority ownership are
recorded under the cost or equity method of accounting depending on the equity ownership
position. Real estate investments are carried at depreciated cost, net of write-downs, or,
for real estate acquired in satisfaction of debt, estimated fair value less estimated selling
costs at the date of acquisition, if lower than the related unpaid balance.
Investments in LIHTC are recorded under either the effective interest method, if they meet
certain requirements, including a projected positive yield based solely on guaranteed credits,
or are recorded under the equity method if these certain requirements are not met. For
investments in LIHTC recorded under the effective interest method, the amortization of the
original investment and the tax credits are recorded in the provision (benefit) for income
taxes. For investments in LIHTC recorded under the equity method, the amortization of the
initial investment is included in net investment income, and the related tax credits are
recorded in the provision (benefit) for income taxes (Note 18). The amortization recorded in
net investment income was $3 million, $5 million and $20 million for the years ended December31, 2009, 2008 and 2007, respectively.
All derivatives, whether designated in hedging relationships or not, are required to be
recorded at estimated fair value. If the derivative is designated as a cash flow hedge, the
effective portion of changes in the estimated fair value of the derivative is recorded in OCI
and recognized in earnings when the hedged item affects earnings. If the derivative is
designated as a fair value hedge, the changes in the estimated fair value of the derivative
and the hedged item are recognized in net realized investment gain (loss). The change in
value of the hedged item associated with the risk being hedged is reflected as an adjustment
to the carrying amount of the hedged item. For derivative instruments not designated as
hedges, the change in estimated fair value of the derivative is recorded in net realized
investment gain (loss). Estimated fair value exposure is calculated based on the aggregate
estimated fair value of all derivative instruments with each counterparty, net of collateral
received, in accordance with legally enforceable counterparty master netting agreements (Note
10).
The periodic cash flows for all hedging derivatives are recorded consistent with the hedged
item on an accrual basis. For derivatives that are hedging securities, these amounts are
included in net investment income. For derivatives that are hedging liabilities, these
amounts are included in interest credited to policyholder account balances. For derivatives
not designated as hedging instruments, the periodic cash flows are reflected in net realized
investment gain (loss) on an accrual basis. Upon termination of a cash flow hedging
relationship, the accumulated amount in OCI is amortized into net investment income or
interest credited to policyholder account balances over the remaining life of the hedged item.
Upon termination of a fair value hedging relationship, the accumulated adjustment to the
carrying value of the hedged item is amortized into net investment income, interest expense or
interest credited to policyholder account balances over its remaining life.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all investments with an original maturity of three months or
less. The Company entered into a series of Federal National Mortgage Association (FNMA)
pass-through dollar roll transactions during the fourth quarter of 2008. The Company
purchased FNMA pass through securities and was contractually obligated to resell the same or
substantially the same securities within 30 days of purchase. The Company classified these
dollar roll transactions as short-term secured loans and reported them as cash and cash
equivalents. As of December 31, 2009 and 2008, the loans amounted to zero and $403 million,
respectively. The fair values of the securities held in connection with the secured lending
were zero and $410 million as of December 31, 2009 and 2008, respectively.
RESTRICTED CASH
Restricted cash primarily consists of security deposits, commitment fees, maintenance reserve
payments, supplemental rental payments and rental payments received from certain lessees
related to the aircraft leasing business.
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DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new insurance business, principally commissions, medical examinations,
underwriting, policy issue and other expenses, all of which vary with and are primarily
associated with the production of new business, are deferred and recorded as an asset commonly
referred to as DAC. DAC related to internally replaced contracts (as defined in the
Codification’s Financial Services – Insurance Topic), is immediately written off to expense
and any new deferrable expenses associated with the replacement are deferred if the contract
modification substantially changes the contract. However, if the contract modification does
not substantially change the contract, the existing DAC asset remains in place and any
acquisition costs associated with the modification are immediately expensed. As of December31, 2009 and 2008, the carrying value of DAC was $4.8 billion and $5.0 billion, respectively
(Note 7).
For universal life (UL), variable annuities and other investment-type contracts, acquisition
costs are amortized through earnings in proportion to the present value of estimated gross
profits (EGPs) from projected investment, mortality and expense margins, and surrender charges
over the estimated lives of the contracts. Actual gross margins or profits may vary from
management’s estimates, which can increase or decrease the rate of DAC amortization. DAC
related to traditional policies is amortized through earnings over the premium-paying period
of the related policies in proportion to premium revenues recognized, using assumptions and
estimates consistent with those used in computing policy reserves. DAC related to certain
unrealized components in OCI, primarily unrealized gains and losses on securities available
for sale, is recorded directly to equity through OCI.
Significant assumptions in the development of EGPs include investment returns, surrender and
lapse rates, rider utilization, interest spreads, and mortality margins. The Company’s
long-term assumption for the underlying separate account investment return ranges up to 8.0%.
A change in the assumptions utilized to develop EGPs results in a change to amounts expensed
in the reporting period in which the change was made by adjusting the DAC balance to the level
DAC would have been had the EGPs been calculated using the new assumptions over the entire
amortization period. In general, favorable experience variances result in increased expected
future profitability and may lower the rate of DAC amortization, whereas unfavorable
experience variances result in decreased expected future profitability and may increase the
rate of DAC amortization. All critical assumptions utilized to develop EGPs are evaluated at
least annually and necessary revisions are made to certain assumptions to the extent that
actual or anticipated experience necessitates such a prospective change (Note 7).
The Company defers sales inducements and amortizes them over the life of the policy using the
same methodology and assumptions used to amortize DAC. The Company offers a sales inducement
to the policyholder where the policyholder receives a bonus credit, typically ranging from
0.5% to 8.0% of each deposit. The capitalized sales inducement balance included in the DAC
asset was $583 million and $552 million as of December 31, 2009 and 2008, respectively.
AIRCRAFT LEASING PORTFOLIO
Aircraft are recorded at cost, which includes certain acquisition costs, less accumulated
depreciation. Major improvements to aircraft are capitalized when incurred. The Company
evaluates carrying values of aircraft based upon changes in market and other physical and
economic conditions and will record impairment losses to recognize a loss in the value of the
aircraft when management believes that, based on estimated future cash flows, the
recoverability of the Company’s investment in an aircraft is unlikely (Note 9). The Company
had four and two non-earning aircraft in the portfolio as of December 31, 2009 and 2008,
respectively.
GOODWILL FROM ACQUISITIONS
Goodwill represents the excess of costs over the fair value of net assets acquired. Goodwill
is not amortized but is reviewed for impairment at least annually or more frequently if events
occur or circumstances indicate that the goodwill might be impaired. Goodwill from
acquisitions, included in other assets, totaled $43 million as of December 31, 2009 and 2008.
There were no goodwill impairment write-downs from continuing operations during the years
ended December 31, 2009, 2008 and 2007.
POLICYHOLDER ACCOUNT BALANCES
Policyholder account balances on UL and investment-type contracts, such as funding agreements,
annuity and deposit liabilities and guaranteed interest contracts (GICs), are valued using the
retrospective deposit method and are equal to accumulated account values, which consist of
deposits received, plus interest credited, less withdrawals and assessments (Note 11).
Interest credited to these contracts primarily ranged from 0.2% to 9.0%.
PL-11
FUTURE POLICY BENEFITS
Annuity reserves, which primarily consist of group retirement and structured settlement
annuities, are equal to the present value of estimated future payments using pricing
assumptions, as applicable, for interest rates, mortality, morbidity, retirement age and
expenses (Note 11). Interest rates used in establishing such liabilities ranged from 1.6% to
11.3%.
The Company offers a rider on certain variable annuity contracts that guarantees net principal
over a ten-year holding period, as well as riders on certain variable annuity contracts that
guarantee a minimum withdrawal benefit over specified periods, subject to certain
restrictions. These variable annuity guaranteed living benefits (GLBs) are considered
embedded derivatives and are recorded in future policy benefits (Note 11).
Policy charges assessed against policyholders that represent compensation to the Company for
services to be provided in future periods, or unearned revenue reserves (URR), are recognized
in revenue over the expected life of the contract using the same methods and assumptions used
to amortize DAC. Unearned revenue related to certain unrealized components in OCI, primarily
unrealized gains and losses on securities available for sale, is recorded directly to equity
through OCI.
Life insurance reserves are valued using the net level premium method on the basis of
actuarial assumptions appropriate at policy issue. Mortality and persistency assumptions are
generally based on the Company’s experience, which, together with interest and expense
assumptions, include a margin for possible unfavorable deviations. Interest rate assumptions
ranged from 3.0% to 9.3%. Future dividends for participating business are provided for in the
liability for future policy benefits.
As of December 31, 2009 and 2008, participating experience rated policies paying dividends
represent less than 1% of direct life insurance in force.
Estimates of future policy benefit reserves and liabilities are continually reviewed and, as
experience develops, are adjusted as necessary. Such changes in estimates are included in
earnings for the period in which such changes occur.
REINSURANCE
The Company has ceded reinsurance agreements with other insurance companies to limit potential
losses, reduce exposure arising from larger risks, provide additional capacity for future
growth, and assumed reinsurance agreements intended to offset reinsurance costs. As part of a
strategic alliance, the Company also reinsures risks associated with policies written by an
independent producer group through modified coinsurance and yearly renewable term arrangements
with this producer group’s reinsurance company.
All assets associated with business reinsured on a modified coinsurance basis remain with, and
under the control of, the Company. As part of its risk management process, the Company
routinely evaluates its reinsurance programs and may change retention limits, reinsurers or
other features at any time.
Reinsurance accounting is utilized for ceded transactions when risk transfer provisions have
been met. To meet risk transfer requirements, a reinsurance contract must include insurance
risk, consisting of both underwriting and timing risk, and a reasonable possibility of a
significant loss to the reinsurer.
Reinsurance premiums ceded and reinsurance recoveries on benefits and claims incurred are
deducted from their respective revenue and benefit and expense accounts. Prepaid reinsurance
premiums, included in other assets, are premiums that are paid in advance for future coverage.
Reinsurance recoverables, included in other assets, include balances due from reinsurance
companies for paid and unpaid losses. Amounts receivable and payable are offset for account
settlement purposes for contracts where the right of offset exists. See Note 16.
REVENUES, BENEFITS AND EXPENSES
Insurance premiums, annuity contracts with life contingencies and traditional life and term
insurance contracts, are recognized as revenue when due. Benefits and expenses are matched
against such revenues to recognize profits over the lives of the contracts. This matching is
accomplished by providing for liabilities for future policy benefits, expenses of contract
administration and the amortization of DAC and URR.
Receipts for UL and investment-type contracts are reported as deposits to either policyholder
account balances or separate account liabilities, and are not included in revenue. Policy
fees consist of mortality charges, surrender charges and expense
PL-12
charges that have been earned and assessed against related account values during the period.
The timing of policy fee revenue recognition is determined based on the nature of the fees.
Benefits and expenses include policy benefits and claims incurred in the period that are in
excess of related policyholder account balances, interest credited to policyholder account
balances, expenses of contract administration and the amortization of DAC.
Investment advisory fees are primarily fees earned from Pacific Life Fund Advisors LLC (PLFA),
a wholly owned subsidiary of Pacific Life formed in 2007, which serves as the investment
advisor for the Pacific Select Fund, an investment vehicle provided to the Company’s variable
universal life (VUL) and variable annuity contract holders, and the Pacific Life Funds, the
investment vehicle for the Company’s mutual fund products. These fees are based upon the net
asset value of the underlying portfolios, and are recorded as earned. Related subadvisory
expense is included in operating and other expenses and recorded when incurred.
Aircraft leases, which are structured as triple net leases, are accounted for as operating
leases. Aircraft leasing revenue is recognized ratably over the terms of the lease
agreements. ACG has four capital leases, which are accounted for under the provisions in the
Codification’s Leases Topic. As of December 31, 2009 and 2008, capital leases in the amount
of $8 million and $11 million, respectively, are classified in other assets.
DEPRECIATION AND AMORTIZATION
Aircraft and certain other assets are depreciated or amortized using the straight-line method
over estimated useful lives, which range from three to 40 years. Depreciation and
amortization of aircraft under operating leases and certain other assets are included in
operating and other expenses. Depreciation of investment real estate is computed using the
straight-line method over estimated useful lives, which range from five to 30 years.
Depreciation of investment real estate is included in net investment income.
INCOME TAXES
Pacific Life and its includable subsidiaries are included in the consolidated Federal income
tax return of PMHC. Pacific Life and its wholly owned, Arizona domiciled life insurance
subsidiary, Pacific Life & Annuity Company (PL&A), and Pacific Alliance Reinsurance Company of
Vermont (PAR Vermont), a Vermont-based life reinsurance company wholly owned by Pacific Life,
are taxed as life insurance companies for Federal income tax purposes. Pacific Life’s
non-insurance subsidiaries are either included in PMHC’s combined California franchise tax
return or, if necessary, file separate state tax returns. Companies included in the
consolidated Federal income tax return of PMHC and/or the combined California franchise tax
return of PMHC are allocated tax expense or benefit based principally on the effect of
including their operations in PMHC’s returns under a tax sharing agreement. Deferred tax
assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years the differences are
expected to be recovered or settled.
CONTINGENCIES
Each reporting cycle the Company evaluates all identified contingent matters on an individual
basis. A loss is recorded if probable and reasonably estimable. The Company establishes
reserves for these contingencies at the best estimate, or, if no one number within the range
of possible losses is more probable than any other, the Company records an estimated reserve
at the low end of the range of losses. See Note 21.
SEPARATE ACCOUNTS
Separate accounts primarily include variable annuity and life contracts, as well as other
guaranteed and non-guaranteed accounts. Separate account assets are recorded at estimated
fair value and represent legally segregated contract holder funds. A separate account
liability is recorded equal to the amount of separate account assets. Deposits to separate
accounts, investment income and realized and unrealized gains and losses on the separate
account assets accrue directly to contract holders and, accordingly, are not reflected in the
consolidated statements of operations or cash flows. Amounts charged to the separate account
for mortality, surrender and expense charges are included in revenues as policy fees.
For separate account funding agreements in which the Company provides a guarantee of principal
and interest to the contract holder and bears all the risks and rewards of the investments
underlying the separate account, the related investments and liabilities are recognized as
investments and liabilities in the consolidated statements of financial condition. Revenue
and expenses are recognized within the respective revenue, and benefit and expense lines in
the consolidated statements of operations.
PL-13
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments, disclosed in Notes 8, 10 and 14, has been
determined using available market information and appropriate valuation methodologies.
However, considerable judgment is often required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented may not be indicative of the
amounts the Company could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies could have a significant effect on the estimated
fair value amounts.
2.
STATUTORY FINANCIAL INFORMATION AND DIVIDEND RESTRICTIONS
STATUTORY ACCOUNTING PRACTICES
Pacific Life prepares its regulatory statutory financial statements in accordance with
statutory accounting practices prescribed or permitted by the NE DOI, which is a comprehensive
basis of accounting other than U.S. GAAP. Statutory accounting practices primarily differ
from U.S. GAAP by charging policy acquisition costs to expense as incurred, recognizing
certain policy fees as revenue when billed, establishing future policy benefit liabilities
using different actuarial assumptions, reporting surplus notes as surplus instead of debt, as
well as valuing investments and certain assets and accounting for deferred income taxes on a
different basis.
As of December 31, 2009, Pacific Life had one permitted practice approved by the NE DOI that
differed from statutory accounting practices adopted by the National Association of Insurance
Commissioners (NAIC). This permitted practice relates to the valuation of certain statutory
separate account assets that are carried at book value instead of estimated fair value.
Pacific Life’s statutory capital and surplus as of December 31, 2009 and 2008 did not reflect
unrealized losses of $29 million and $88 million, respectively, with regards to this permitted
practice. Pacific Life had a second permitted practice with a financial statement filing date
of December 31, 2008 that expired on December 30, 2009. This permitted practice allowed
Pacific Life to apply the revised version of Actuarial Guideline 39 (AG 39) for variable
annuity reserves that is contained in the final recommendations submitted by the Capital &
Surplus Relief Working Group to the Executive Committee of the NAIC. This permitted practice
resulted in lowering statutory reserves by $442 million as of December 31, 2008.
In addition, Pacific Life uses a NE DOI prescribed accounting practice for certain synthetic
GIC reserves that differs from statutory accounting practices adopted by the NAIC. As of
December 31, 2009 and 2008, this NE DOI prescribed accounting practice resulted in statutory
reserves of $20 million and $12 million, respectively, as opposed to statutory reserves of
zero and $640 million, respectively, using statutory accounting practices adopted by the NAIC.
STATUTORY NET INCOME (LOSS) AND SURPLUS
Statutory net income (loss) of Pacific Life was $652 million, ($1,529) million and $362
million for the years ended December 31, 2009, 2008 and 2007, respectively. Statutory capital
and surplus of Pacific Life was $5,006 million and $3,136 million as of December 31, 2009 and
2008, respectively.
RISK-BASED CAPITAL
Risk-based capital is a method developed by the NAIC to measure the minimum amount of capital
appropriate for an insurance company to support its overall business operations in
consideration of its size and risk profile. The formulas for determining the amount of
risk-based capital specify various weighting factors that are applied to financial balances or
various levels of activity based on the perceived degree of risk. Additionally, certain risks
are required to be measured using actuarial cash flow modeling techniques, subject to
formulaic minimums. The adequacy of a company’s actual capital is measured by a comparison to
the risk-based capital results. Companies below minimum risk-based capital requirements are
classified within certain levels, each of which requires specified corrective action. As of
December 31, 2009 and 2008, Pacific Life, PL&A and PAR Vermont exceeded the minimum risk-based
capital requirements.
DIVIDEND RESTRICTIONS
The payment of dividends by Pacific Life to Pacific LifeCorp is subject to restrictions set
forth in the State of Nebraska insurance laws. These laws require (i) notification to the NE
DOI for the declaration and payment of any dividend and (ii) approval by the NE DOI for
accumulated dividends within the preceding twelve months that exceed the greater of 10% of
statutory policyholder surplus
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as of the preceding December 31 or statutory net gain from operations for the preceding twelve
months ended December 31. Generally, these restrictions pose no short-term liquidity concerns
for Pacific LifeCorp. Based on these restrictions and 2009 statutory results, Pacific Life
could pay $629 million in dividends in 2010 to Pacific LifeCorp without prior approval from
the NE DOI, subject to the notification requirement.
No dividends were paid during 2009 and 2007. During the year ended December 31, 2008, Pacific
Life paid a cash dividend to Pacific LifeCorp of $345 million.
The maximum amount of ordinary dividends that can be paid by PL&A to Pacific Life without
restriction cannot exceed the lesser of 10% of statutory surplus as regards to policyholders,
or the statutory net gain from operations. Based on this limitation and 2009 statutory
results, PL&A could pay $23 million in dividends to Pacific Life in 2010 without prior
regulatory approval. No dividends were paid during 2009, 2008 and 2007.
OTHER
The Company has reinsurance contracts in place with a reinsurer whose financial stability has
been deteriorating. In January 2009, the reinsurer’s domiciliary state regulator issued an
order of supervision, which requires the regulator’s consent to any transaction outside the
normal course of business. The Company will continue to monitor the events surrounding this
reinsurer and evaluate its options to deal with any further deterioration of this reinsurer’s
financial condition. As of December 31, 2009, statutory reserves ceded to this reinsurer
amounted to approximately $162 million.
3.
CLOSED BLOCK
In connection with the Conversion, an arrangement known as a closed block (the Closed Block)
was established, for dividend purposes only, for the exclusive benefit of certain individual
life insurance policies that had an experience based dividend scale for 1997. The Closed
Block was designed to give reasonable assurance to holders of the Closed Block policies that
policy dividends will not change solely as a result of the Conversion.
Assets that support the Closed Block, which are primarily included in fixed maturity
securities and policy loans, amounted to $285 million and $278 million as of December 31, 2009
and 2008, respectively. Liabilities allocated to the Closed Block, which are primarily
included in future policy benefits, amounted to $307 million and $311 million as of December31, 2009 and 2008, respectively. The net contribution to income from the Closed Block was $4
million, $1 million and $1 million for the years ended December 31, 2009, 2008 and 2007,
respectively.
PL-15
4.
VARIABLE INTEREST ENTITIES
The following table presents, as of December 31, 2009 and 2008, the total assets and maximum
exposure to loss relating to VIEs, which the Company (i) has consolidated because it is the
primary beneficiary or (ii) holds a significant variable interest, but has not consolidated
because it is not the primary beneficiary:
Excludes contingent purchase obligations (Note 21) totaling $100 million and
$50 million as of December 31, 2009 and 2008, respectively.
AIRCRAFT SECURITIZATIONS
ACG has sponsored three financial asset securitizations secured by interests in aircraft. ACG
serves as the remarketing agent and provides various aircraft related services in all three
securitizations for a fee. This fee is eliminated for the two consolidated securitizations
and is included in other income as earned for the unconsolidated securitization.
In 2005, ACG sponsored a securitization transaction whereby ACG Trust III acquired 74 of ACG’s
aircraft through a private placement note offering in the amount of $1,860 million. ACG
receives all of the expected residual return from ACG Trust III. Therefore, ACG was
determined to be the primary beneficiary of this VIE and ACG Trust III is consolidated into
the consolidated financial statements of the Company. These private placement notes are the
obligation of ACG Trust III and represent debt that is non-recourse to the Company (Note 13).
Non-recourse debt consolidated from ACG Trust III was $1,309 million and $1,445 million as of
December 31, 2009 and 2008, respectively. As of December 31, 2009 and 2008, the maximum
exposure to loss, based on carrying value, was $130 million and $72 million, respectively.
Consolidated assets are reported in aircraft leasing portfolio, net, restricted cash and other
assets. Consolidated liabilities are reported in long-term debt and other liabilities.
In 2003, ACG sponsored a securitization transaction whereby Aviation Capital Group Trust II
(ACG Trust II) acquired 37 of ACG’s aircraft through a private placement note offering in the
amount of $1,027 million. ACG owns 100% of the equity of ACG Trust II and absorbs any losses
in the trust up to ACG’s equity interest. Therefore, ACG was determined to be the primary
beneficiary of this VIE and ACG Trust II is consolidated into the consolidated financial
statements of the Company. These private placement notes are the obligation of ACG Trust II
and represent debt that is non-recourse to the Company (Note 13). Non-recourse debt
consolidated from ACG Trust II was $666 million and $728 million as of December 31, 2009 and
2008, respectively. As of December 31, 2009 and 2008, the maximum exposure to loss, based on
carrying value, was $88 million and $73 million, respectively. Consolidated assets are
reported in aircraft leasing portfolio, net, restricted cash and other assets. Consolidated
liabilities are reported in long-term debt and other liabilities.
In 2000, ACG sponsored a financial asset securitization of aircraft to Aviation Capital Group
Trust (Aviation Trust). ACG and Pacific Life are beneficial interest holders in Aviation
Trust. Aviation Trust is not consolidated as the Company is not the primary beneficiary. The
carrying value is comprised of beneficial interests issued by Aviation Trust. As of December31, 2009 and 2008, the maximum exposure to loss, based on carrying value, was zero.
PL-16
PRIVATE EQUITY FUNDS
Private equity funds (the Funds) are three limited partnerships that invest in private equity
investments for outside investors, where the Company is the general partner. The Company
provides investment management services to the Funds for a fee and receives carried interest
based upon the performance of the Funds and is a VIE due to the lack of control by the other
equity investors. The Company has not guaranteed the performance, liquidity or obligations of
the Funds, and the Company’s maximum exposure to loss is equal to the carrying amounts of its
retained interest. VIE debt consolidated from the Funds was $2 million as of December 31,2009 and 2008. Consolidated assets are reported in other investments and cash and cash
equivalents and consolidated liabilities are reported in long-term debt.
ASSET-BACKED SECURITIES
As part of the Company’s investment strategy, the Company purchases primarily investment grade
beneficial interests issued from bankruptcy-remote special purpose entities (SPEs), which are
collateralized by financial assets including corporate debt. The Company has not guaranteed
the performance, liquidity or obligations of the SPEs, and the Company’s maximum exposure to
loss is limited to its carrying value of the beneficial interests in the SPEs. The Company
has no liabilities related to these VIEs. The Company has determined that it is not the
primary beneficiary of these entities as the Company does not absorb a majority of the
expected losses or receive a majority of the expected residual return. The Company does not
consolidate these entities. The investments are reported as fixed maturity securities
available for sale and had a net carrying amount of $103 million and $93 million at December31, 2009 and 2008, respectively. During the years ended December 31, 2009 and 2008, the
Company recorded OTTIs of $60 million and $117 million, respectively, related to these
securities.
FUTURE ACCOUNTING CHANGE
Effective January 1, 2010, the Company will change the methodology it employs to determine if
an entity is a VIE and, once identified, if a VIE should be included in the consolidated
financial statements. The new methodology will place more emphasis on the Company’s ability
to direct the activities that most significantly impact the entity’s financial performance.
The Company will examine anew all entities previously identified as VIEs. The Company does
not expect this change to have a material impact on its consolidated financial statements.
5.
INTEREST IN PIMCO
As of December 31, 2007, the Company owned a beneficial economic interest in Pacific
Investment Management Company LLC (PIMCO) through Allianz Global Investors of America LLC
(interest in PIMCO). PIMCO offers investment products through managed accounts and
institutional, retail and offshore mutual funds. The interest in PIMCO was reported at
estimated fair value, as determined by a contractual put and call option price, with changes
in estimated fair value reported as a component of OCI, net of taxes.
During the year ended December 31, 2008, the Company exercised a put option and sold all of
its remaining interest in PIMCO to Allianz of America, Inc., a subsidiary of Allianz SE, for
$288 million. The Company recognized a pre-tax gain of $109 million for the year ended
December 31, 2008.
6.
DISCONTINUED OPERATIONS
The Company’s broker-dealer operations and group insurance business have been reflected as
discontinued operations in the Company’s consolidated financial statements. Discontinued
operations do not include the operations of Pacific Select Distributors, Inc. (PSD), a wholly
owned broker-dealer subsidiary of Pacific Life, which primarily serves as the
underwriter/distributor of registered investment-related products and services, principally
variable life and variable annuity contracts issued by the Company, and mutual funds.
In March 2007, the Company classified its broker-dealer subsidiaries, other than PSD, as held
for sale. On June 20, 2007, a transaction closed whereby the Company sold certain of these
broker-dealer subsidiaries to an unrelated third-party. Proceeds
from the sale included cash of $53 million and a common stock interest in the buyer’s parent
of $57 million. A pre-tax gain of $54 million was recognized from this sale during the year
ended December 31, 2007. On December 31, 2007, a transaction closed whereby the Company sold
another one of its broker-dealer subsidiaries to subsidiary management. The Company incurred
a pre-tax loss of $1 million from this transaction during the year ended December 31, 2007.
As of December 31, 2007, one broker-dealer
PL-17
subsidiary remained classified as held for sale.
On March 31, 2008, a transaction closed whereby the Company sold this held for sale subsidiary
to an unrelated third-party. The Company recognized an insignificant pre-tax gain from this
transaction during the year ended December 31, 2008.
Operating results of discontinued operations were as follows:
Net gain on sale of discontinued operations, net of taxes
27
Discontinued operations, net of taxes
($20
)
($6
)
$
11
Assets and liabilities from discontinued operations are included in other assets and other
liabilities, respectively. Assets related to discontinued operations were zero and $6 million
as of December 31, 2009 and 2008, respectively. Liabilities related to discontinued
operations were zero and $13 million as of December 31, 2009 and 2008, respectively.
Cumulative pre-tax effect of adoption of new
accounting principle (Note 1)
7
(45
)
Additions:
Capitalized during the year
777
752
852
Amortization:
Allocated to commission expenses
(446
)
(444
)
(432
)
Allocated to operating expenses
(129
)
(133
)
(118
)
Total amortization
(575
)
(577
)
(550
)
Allocated to OCI
(415
)
356
(24
)
Balance, December 31
$
4,806
$
5,012
$
4,481
During the years ended December 31, 2009, 2008 and 2007, the Company revised certain
assumptions to develop EGPs for its products subject to DAC amortization (Note 1). This
resulted in increases in DAC amortization expense of $23 million and $20 million for the years
ended December 31, 2009 and 2008, respectively, and a decrease in DAC amortization expense of
$12 million for the year ended December 31, 2007. The revised EGPs also resulted in an
immaterial decrease in URR amortization for the year ended December 31, 2009, increased URR
amortization of $2 million for the year ended December 31, 2008, and decreased URR
amortization of $15 million for the year ended December 31, 2007.
PL-18
8.
INVESTMENTS
The net carrying amount, gross unrealized gains and losses, and
estimated fair value of fixed maturity and equity securities available
for sale are shown below. The net carrying amount represents
amortized cost adjusted for credit related OTTIs and changes in the
estimated fair value of fixed maturity securities attributable to the
hedged risk in a fair value hedge. See Note 14 for information on the
Company’s fair value measurement and disclosure.
U.S. Treasury securities and obligations of
U.S. government authorities and agencies
$
98
$
19
$
117
Obligations of states and political subdivisions
512
5
$
148
369
Foreign governments
211
41
7
245
Corporate securities
15,828
307
1,618
14,517
RMBS
6,133
105
1,306
4,932
Commercial mortgage-backed securities
1,191
15
106
1,100
Collateralized debt obligations
126
2
124
Other asset-backed securities
615
32
109
538
Total fixed maturity securities
$
24,714
$
524
$
3,296
$
21,942
Perpetual preferred securities
$
385
$
3
$
174
$
214
Other equity securities
2
2
Total equity securities
$
387
$
3
$
174
$
216
PL-19
The Company has investments in perpetual preferred securities that are issued primarily by
European and U.S. banks. The net carrying amount and estimated fair value of the available
for sale perpetual preferred securities was $451 million and $391 million, respectively, as of
December 31, 2009. Included in these amounts are perpetual preferred securities carried in
trusts with a net carrying amount and estimated fair value of $127 million and $116 million,
respectively, that are held in fixed maturities and included in the tables above in corporate
securities. Perpetual preferred securities reported as equity securities available for sale
are presented in the tables above as perpetual preferred securities.
The net carrying amount and estimated fair value of fixed maturity securities available for
sale as of December 31, 2009, by contractual repayment date of principal, are shown below.
Expected maturities may differ from contractual maturities as borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Net
Carrying
Gross Unrealized
Estimated
Amount
Gains
Losses
Fair Value
(In Millions)
Due in one year or less
$
1,825
$
68
$
25
$
1,868
Due after one year through five years
5,235
288
54
5,469
Due after five years through ten years
7,210
366
135
7,441
Due after ten years
4,113
247
140
4,220
18,383
969
354
18,998
Mortgage-backed and asset-backed securities
7,973
219
1,151
7,041
Total
$
26,356
$
1,188
$
1,505
$
26,039
PL-20
The following tables present the number of investments, estimated fair value and gross
unrealized losses on investments where the estimated fair value has declined and remained
continuously below the net carrying amount for less than twelve months and for twelve months
or greater. Included in the tables are gross unrealized losses for fixed maturity securities
available for sale and other securities, which include equity securities available for sale,
cost method investments, and non-marketable securities.
The Company has evaluated fixed maturity and other securities with gross unrealized losses and
determined that the unrealized losses are temporary and that the Company does not intend to
sell the securities and it is more likely than not that the Company will not be required to
sell the securities before recovery of their net carrying amounts.
Prime mortgages are loans made to borrowers with strong credit histories, whereas sub-prime
mortgage lending is the origination of residential mortgage loans to customers with weak
credit profiles. Alt-A mortgage lending is the origination of residential mortgage loans to
customers who have good credit ratings, but have limited documentation for their source of
income or some other standard input used to underwrite the mortgage loan. The slowing U.S.
housing market, greater use of affordability mortgage
PL-22
products and relaxed underwriting standards by some originators for these loans has led to
higher delinquency and loss rates, especially within the 2007 and 2006 vintage years.
The table below illustrates the breakdown of non-agency RMBS and commercial mortgage-backed
securities (CMBS) by investment rating from independent rating agencies and vintage year of
the underlying collateral as of December 31, 2009.
Net
Rating as % of
Vintage Breakdown
Carrying
Estimated
Net Carrying
2004 and
Rating
Amount
Fair Value
Amount
Prior
2005
2006
2007
2008
2009
($ In Millions)
Prime RMBS:
AAA
$
960
$
878
29
%
21
%
7
%
1
%
AA
320
279
9
%
4
%
2
%
3
%
A
252
208
8
%
1
%
2
%
3
%
2
%
BAA
525
402
16
%
2
%
7
%
6
%
1
%
BA and below
1,264
893
38
%
8
%
18
%
12
%
Total
$
3,321
$
2,660
100
%
28
%
26
%
31
%
15
%
0
%
0
%
Alt-A RMBS:
AAA
$
58
$
52
6
%
6
%
AA
13
16
1
%
1
%
A
13
9
1
%
1
%
BAA
24
23
3
%
1
%
2
%
BA and below
843
556
89
%
10
%
27
%
52
%
Total
$
951
$
656
100
%
8
%
11
%
29
%
52
%
0
%
0
%
Sub-prime RMBS:
AAA
$
230
$
179
52
%
52
%
AA
97
73
22
%
22
%
A
21
13
5
%
5
%
BAA
42
32
9
%
9
%
BA and below
53
37
12
%
1
%
9
%
1
%
1
%
Total
$
443
$
334
100
%
80
%
18
%
1
%
1
%
0
%
0
%
CMBS:
AAA
$
1,017
$
1,054
88
%
65
%
3
%
15
%
1
%
4
%
AA
66
61
6
%
4
%
2
%
A
37
32
3
%
3
%
BAA
28
22
2
%
2
%
BA
12
10
1
%
1
%
Total
$
1,160
$
1,179
100
%
73
%
3
%
0
%
17
%
1
%
6
%
As of December 31, 2009, the Company has received advances of $1.5 billion from the
Federal Home Loan Bank (FHLB) of Topeka and has issued funding agreements to the FHLB of
Topeka. Funding agreements are used as an alternative source of funds for the Company’s
spread lending business and the funding agreement liabilities are included in general account
policyholder account balances. Assets with an estimated fair value of $1.8 billion as of
December 31, 2009 are in a custodial account pledged as collateral for the funding agreements.
The Company is required to purchase stock in FHLB of Topeka each time it receives an advance.
As of December 31, 2009, the Company holds $76 million of FHLB of Topeka stock.
PL&A is a member of FHLB of San Francisco. As of December 31, 2009, no assets are pledged as
collateral. As of December 31, 2009, the Company holds $25 million of FHLB of San Francisco
stock.
PL-23
The Company had a securities lending program administered by one of the largest U.S. financial
institutions specializing in securities lending and short-term fixed-income asset management.
This securities lending program was terminated in February 2009. Securities loaned were zero
as of December 31, 2008.
Major categories of investment income and related investment expense are summarized as
follows:
As a result of the significant disruption in the housing, financial and credit markets, the
OTTI charges recorded during the year ended December 31, 2009 were primarily related to the
Company’s exposure to RMBS, certain structured securities and direct exposure to corporate
securities. The table below summarizes the OTTIs by security type (In Millions):
Included are $29 million of OTTI recorded in earnings on perpetual preferred
securities carried in trusts.
In accordance with additional guidance under the Codification’s Investments – Debt and Equity
Securities Topic effective January 1, 2009, the Company began recording the credit loss
portion of OTTI adjustments in earnings and the portion related to other factors in OCI. The
table below details the amount of OTTIs attributable to credit losses recorded in earnings for
which a portion was recognized in OCI (In Millions):
The table below presents separately the gross unrealized losses on investments for which OTTI
has been recorded in earnings in current or prior periods and the gross unrealized losses on
temporarily impaired investments for which no OTTI has been recorded.
Trading securities totaled $206 million and $114 million as of December 31, 2009 and 2008,
respectively. The cumulative unrealized gains (losses) on trading securities held as of
December 31, 2009 and 2008 were $7 million and ($19) million, respectively.
As of December 31, 2009 and 2008, fixed maturity securities of $12 million were on deposit
with state insurance departments to satisfy regulatory requirements.
Mortgage loans totaled $6,577 million and $5,622 million as of December 31, 2009 and 2008,
respectively. Mortgage loans are collateralized by commercial real estate properties
primarily located throughout the U.S. As of December 31, 2009, $1,122 million, $963 million,
$785 million, $554 million and $369 million were located in California, Washington, Florida,
Texas and Maryland, respectively. As of December 31, 2009, $543 million was located in
Canada. There were no defaults during the years ended December 31, 2009, 2008, and 2007. The
Company did not have any mortgage loans with accrued interest more than 180 days past due as
of December 31, 2009 or 2008. As of December 31, 2009, mortgage loan investments with one
commercial sponsor exceeded 10% of stockholder’s equity. The carrying value of these
investments was $725 million as of December 31, 2009.
Investments in real estate totaled $574 million and $459 million as of December 31, 2009 and
2008, respectively. There were no real estate write-downs during the years ended December 31,2009, 2008 and 2007.
PL-26
9.
AIRCRAFT LEASING PORTFOLIO, NET
Aircraft leasing portfolio, net, consisted of the following:
As of December 31, 2009, domestic and foreign future minimum rentals scheduled to be received
under the noncancelable portion of operating leases are as follows (In Millions):
2010
2011
2012
2013
2014
Thereafter
Domestic
$
23
$
19
$
15
$
13
$
13
$
28
Foreign
526
448
369
274
214
390
Total operating leases
$
549
$
467
$
384
$
287
$
227
$
418
As of December 31, 2009 and 2008, aircraft with a carrying amount of $4,954 million and $4,366
million, respectively, were assigned as collateral to secure debt (Notes 4 and 13).
During the years ended December 31, 2009, 2008 and 2007, ACG recognized pre-tax gains on the
sale of aircraft of zero, zero and $18 million, respectively, which are included in other
income.
In December 2007, ACG sold its entire ownership interest in an unconsolidated affiliate. The
transaction resulted in a pre-tax gain of $17 million, which is included in net realized
investment gain (loss) for the year ended December 31, 2007.
10.
DERIVATIVES AND HEDGING ACTIVITIES
The Company primarily utilizes derivative instruments to manage its exposure to interest rate
risk, foreign currency risk, credit risk, and equity risk. Derivative instruments are also
used to manage the duration mismatch of assets and liabilities. The Company utilizes a
variety of derivative instruments including swaps, foreign exchange forward contracts, caps,
floors and options. In addition, certain insurance products offered by the Company contain
features that are accounted for as derivatives.
Accounting for derivatives and hedging activities requires companies to recognize all
derivative instruments as either assets or liabilities at fair value in the consolidated
statements of financial condition. In accordance with accounting for derivatives and hedging
activities, the Company applies hedge accounting by designating derivative instruments as
either fair value or cash flow hedges on the date the Company enters into a derivative
contract. The Company formally documents at inception all relationships between hedging
instruments and hedged items, as well as its risk management objectives and strategy for
undertaking various hedge transactions. In this documentation, the Company specifically
identifies the asset, liability, firm commitment, or forecasted transaction that has been
designated as a hedged item and states how the hedging instrument is expected to hedge the
risks related to the hedged item. The Company formally assesses and measures effectiveness of
its hedging relationships both at the hedge inception and on an ongoing basis in accordance
with its risk management policy.
DERIVATIVES DESIGNATED AS CASH FLOW HEDGES
The Company primarily uses foreign currency interest rate swaps, forward starting interest
rate swaps and interest rate swaps to manage its exposure to variability in cash flows due to
changes in foreign currencies and the benchmark interest rate. These cash
PL-27
flows include those associated with existing assets and liabilities, as well as the forecasted
interest cash flows related to anticipated investment purchases and liability issuances. Such
anticipated investment purchases and liability issuances are considered probable to occur and
are generally completed within 22 years of the inception of the hedge.
Foreign currency interest rate swap agreements are used to convert a fixed or floating rate,
foreign-denominated asset or liability to a U.S. dollar fixed rate asset or liability. The
foreign currency interest rate swaps involve the exchange of an initial principal amount in
two currencies, and the agreement to re-exchange the currencies at a future date at an agreed
exchange rate. There are also periodic exchanges of interest payments in the two currencies
at specified intervals, calculated using agreed upon rates and the exchanged principal
amounts. The main currencies that the Company hedges are the Euro, British Pound, and
Canadian Dollar.
Forward starting interest rate swaps are used to hedge the variability in the future interest
receipts or payments stemming from the anticipated purchase of fixed rate securities or
issuance of fixed rate liabilities due to changes in benchmark interest rates. These
derivatives are predominantly used to lock in interest rate levels to match future cash flow
characteristics of assets and liabilities. Forward starting interest rate swaps involve the
exchange, at specified intervals, of interest payments resulting from the difference between
fixed and floating rate interest amounts calculated by reference to an underlying notional
amount to begin at a specified date in the future for a specified period of time. Generally,
no cash is exchanged at the outset of the contract and no principal payments are made by
either party. The notional amounts of the contracts do not represent future cash
requirements, as the Company intends to close out open positions prior to their effective
dates.
Interest rate swap agreements are used to convert a floating rate asset or liability to a
fixed rate to hedge the variability of cash flows of the hedged asset or liability due to
changes in benchmark interest rates. These derivatives are predominantly used to better match
the cash flow characteristics of certain assets and liabilities. These agreements involve the
exchange, at specified intervals, of interest payments resulting from the difference between
fixed rate and floating rate interest amounts calculated by reference to an underlying
notional amount. Generally, no cash is exchanged at the outset of the contract and no
principal payments are made by either party.
When a derivative is designated as a cash flow hedge, the effective portion of changes in the
estimated fair value of the derivative is recorded in OCI and recognized in earnings when the
hedged item affects earnings, and the ineffective portion of changes in the estimated fair
value of the derivative is recorded in net realized investment gain (loss). For the years
ended December 31, 2009, 2008 and 2007, the Company had net losses of zero, zero and $21
million, respectively, reclassified from accumulated other comprehensive income (AOCI) to
earnings resulting from the discontinuance of cash flow hedges due to forecasted transactions
that were no longer probable of occurring. Over the next twelve months, the Company
anticipates that $24 million of deferred losses on derivative instruments in AOCI will be
reclassified to earnings. For the years ended December 31, 2009, 2008 and 2007, all of the
Company’s hedged forecasted transactions were determined to be probable of occurring.
The Company had the following outstanding derivatives designated as cash flow hedges:
Notional amount represents a standard of measurement of the volume of derivatives. Notional
amount is not a quantification of market risk or credit risk and is not recorded on the
consolidated statements of financial condition. Notional amounts generally represent those
amounts used to calculate contractual cash flows to be exchanged and are not paid or received,
except for certain contracts such as currency swaps.
PL-28
DERIVATIVES DESIGNATED AS FAIR VALUE HEDGES
Interest rate swap agreements are used to convert a fixed rate asset or liability to a
floating rate to hedge the changes in estimated fair value of the hedged asset or liability
due to changes in benchmark interest rates. These derivatives are used primarily to closely
match the duration of the assets supporting specific liabilities.
When a derivative is designated as a fair value hedge, the changes in the estimated fair value
of the derivative and the hedged item are recognized in net realized investment gain (loss).
The change in value of the hedged item associated with the risk being hedged is reflected as
an adjustment to the carrying amount of the hedged item. For the years ended December 31,2009, 2008 and 2007, hedge ineffectiveness related to designated fair value hedges reflected
in net realized investment gain (loss) was $5 million, ($1) million and zero, respectively.
No component of the hedging instrument’s estimated fair value is excluded from the
determination of effectiveness.
The Company had the following outstanding derivatives designated as fair value hedges:
The Company has certain insurance and reinsurance contracts that are considered to have
embedded derivatives. When it is determined that the embedded derivative possesses economic
and risk characteristics that are not clearly and closely related to those of the host
contract and that a separate instrument with the same terms would qualify as a derivative
instrument, it is separated from the host contract and accounted for as a stand-alone
derivative. The changes in the estimated fair value of the derivatives not designated as
hedging instruments and the periodic cash flows are recognized in net realized investment gain
(loss).
The Company offers a rider on certain variable annuity contracts that guarantees net principal
over a ten-year holding period, as well as riders on certain variable annuity contracts that
guarantee a minimum withdrawal benefit over specified periods, subject to certain
restrictions. These variable annuity GLBs are considered embedded derivatives and are
recorded in future policy benefits.
GLBs on variable annuity contracts issued between January 1, 2007 and March 31, 2009 are
partially covered by reinsurance. These reinsurance arrangements are used to offset a portion
of the Company’s exposure to the GLBs for the lives of the host variable annuity contracts
issued. The ceded portion of the GLBs is considered an embedded derivative and is recorded in
other assets or other liabilities as either a reinsurance recoverable or reinsurance payable.
The Company employs hedging strategies (variable annuity derivatives) to mitigate equity risk
associated with the GLBs not covered by reinsurance. The Company utilizes total return swaps
based upon the S&P 500 Index (S&P 500) primarily to economically hedge the equity risk of the
mortality and expense fees in its variable annuity products. These contracts provide periodic
payments to the Company in exchange for the total return of the S&P 500 in the form of a
payment or receipt, depending on whether the return relative to the index on trade date is
positive or negative, respectively. Payments are recognized in realized investment loss and
receipts are recognized in realized investment gain. The Company has used interest rate swaps
to hedge fluctuations in the valuation of GLBs as a result of changes in risk free rates.
These agreements involved the exchange, at specified intervals, of interest payments resulting
from the difference between fixed rate and floating rate interest amounts calculated by
reference to an underlying notional amount.
The Company also uses equity put options to hedge equity and credit risks. These equity put
options involve the exchange of periodic fixed rate payments for the return, at the end of the
option agreement, of the equity index below a specified strike price. Generally, no cash is
exchanged at the outset of the contract and no principal payments are made by either party.
The Company offers equity indexed universal life insurance products, which credits the total
return of the S&P 500 to the policy cash value. A policyholder may allocate the policy’s net
accumulated value to one or a combination of the following: fixed return account, one year
indexed account capped at 12%, or a five year indexed account.
PL-29
The Company utilizes one year European style S&P 500 call options to hedge the annual exposure
of the indexed life insurance product’s index growth rate for the one year indexed account.
The Company also purchases five year European style S&P 500 Asian call options to hedge the
five year exposure of the indexed life insurance product’s index growth rate for the five year
indexed account.
The Company issues synthetic GICs to Employee Retirement Income Security Act of 1974 (ERISA)
qualified defined contribution employee benefit plans (ERISA Plan). The ERISA Plan uses the
contracts in its stable value fixed income option. The Company receives a fee for providing
book value accounting for the ERISA Plan stable value fixed income option. The Company does
not manage the assets underlying synthetic GICs. In the event that plan participant elections
exceed the estimated fair value of the assets or if the contract is terminated and at the end
of the termination period the book value under the contract exceeds the estimated fair value
of the assets, then the Company is required to pay the ERISA Plan the difference between book
value and estimated fair value. The Company mitigates the investment risk through
pre-approval and monitoring of the investment guidelines, requiring high quality investments
and adjustments to the plan crediting rates to compensate for unrealized losses in the
portfolios.
The Company uses credit default swaps in combination with cash instruments to reproduce the
investment characteristics of certain investments. Credit default swaps involve the receipt
or payment of fixed amounts at specific intervals in exchange for the assumption of or
protection from potential credit events associated with the underlying security. The Company
writes credit default swaps for which a payment is delivered if the underlying security of the
derivative defaults. The maximum potential amounts of future payments under credit default
swaps were $50 million and $95 million as of December 31, 2009 and 2008, respectively. As of
December 31, 2009 and 2008, the fair value of credit derivatives sold by the Company was ($17)
million and ($38) million, respectively. The terms for these instruments range from five to
seven years.
The Company had the following outstanding derivatives not designated as hedging instruments:
Derivative instruments are recorded in the Company’s consolidated statements of financial
condition at fair value and are presented as assets or liabilities determined by calculating
the net position for each derivative counterparty by legal entity, taking into account income
accruals and net cash collateral.
PL-30
The following table summarizes the gross asset or liability derivative fair value and excludes
the impact of offsetting asset and liability positions held with the same counterparty, cash
collateral payables and receivables and income accruals. See Note 14.
Total derivatives not designated as hedging instruments
503
1,851
917
3,533
Total derivatives
$
836
$
2,729
$
1,559
$
4,572
Location on the consolidated statements of financial condition:
(1)
Other investments
(2)
Other assets
(3)
Future policy benefits
(4)
Policyholder account balances
(5)
Other liabilities
PL-31
Net cash collateral received from counterparties was $237 million and $1,392 million as of
December 31, 2009 and 2008, respectively. This unrestricted cash collateral is included in
cash and cash equivalents and the obligation to return it is netted against the estimated fair
value of derivatives in other investments or other liabilities. Net cash collateral pledged
to counterparties was $137 million and $66 million as of December 31, 2009 and 2008,
respectively. A receivable representing the right to call this collateral back from the
counterparty is netted against the estimated fair value of derivatives in other investments or
other liabilities. If the net estimated fair value exposure to the counterparty is positive,
the amount is reflected in other investments, whereas, if the net estimated fair value
exposure to the counterparty is negative, the estimated fair value is included in future
policy benefits or other liabilities, depending on the nature of the derivative.
As of December 31, 2009 and 2008, the Company had also accepted collateral consisting of
various securities with an estimated fair value of $14 million and $147 million, respectively,
which are held in separate custodial accounts. The Company is permitted by contract to sell
or repledge this collateral and as of December 31, 2009 and 2008, zero and $15 million,
respectively, of the collateral had been repledged. As of December 31, 2009 and 2008, the
Company provided collateral in the form of various securities of zero and $17 million,
respectively, which are included in fixed maturity securities. The counterparties are
permitted by contract to sell or repledge this collateral.
The following table summarizes amounts recorded in net realized investment gain (loss) for
derivatives designated as fair value hedges. Gains and losses include the changes in
estimated fair value of the derivatives and the hedged items, and amounts realized on
terminations. The net of the amounts presented for each year represent the ineffective
portion of the hedge. The amounts presented do not include the periodic net coupon
settlements of the derivatives or the coupon income (expense) related to the hedged item.
The following table summarizes amounts recorded in the consolidated financial statements for
derivatives designated as cash flow hedges. Gain and losses include the changes in estimated
fair value of the derivatives and amounts realized on terminations. The amounts presented do
not include the periodic net coupon settlements of the derivatives.
Location on the consolidated statements of operations:
(1)
Net realized investment gain (loss)
(2)
Net investment income
(3)
Interest credited to policyholder account balances
PL-33
The following table summarizes amounts recorded in the consolidated financial statements for
derivatives not designated as hedging instruments. Gains and losses include the changes in
estimated fair value of the derivatives and amounts realized on terminations. The amounts
presented do not include the periodic net coupon settlements of ($1,476) million, $639 million
and ($41) million for the years ended December 31, 2009, 2008 and 2007, respectively, which
are recorded in net realized investment gain (loss).
Location on the consolidated statements of operations:
(1)
Net realized investment gain (loss)
(2)
Interest credited to policyholder account balances
CREDIT EXPOSURE AND CREDIT RISK RELATED CONTINGENT FEATURES
Credit exposure is measured on a counterparty basis as the net positive aggregate estimated
fair value, net of collateral received, if any. The credit exposure for over the counter
derivatives as of December 31, 2009 was $126 million. The maximum exposure to any single
counterparty was $41 million at December 31, 2009.
For all derivative contracts, excluding embedded derivative contracts such as variable annuity
GLBs and synthetic GICs, the Company enters into master agreements that may include a
termination event clause associated with Pacific Life’s insurer financial strength ratings
assigned by certain independent rating agencies. If Pacific Life’s insurer financial strength
rating falls below a specified level, as defined within each counterparty master agreement or,
in most cases, if one of the rating agencies ceases to provide an insurer financial strength
rating, the counterparty can terminate the master agreement with payment due based on the
estimated fair value of the underlying derivatives. As of December 31, 2009, Pacific Life’s
insurer financial strength ratings were above the specified level.
If Pacific Life’s insurer financial strength rating were to fall below the next investment
grade from its current standing, the counterparties to the derivative instruments could
request immediate and ongoing full overnight collateralization on derivative instruments in
net liability positions. The aggregate fair value of all derivative instruments with credit
risk related contingent features that are in a liability position on December 31, 2009, is
$232 million for which the Company has posted collateral of $137 million in the normal course
of business. If certain of Pacific Life’s insurer financial strength ratings were to fall one
notch as of December 31, 2009, the Company would have been required to post an additional $14
million of collateral to its counterparties.
The Company attempts to limit its credit exposure by dealing with creditworthy counterparties,
establishing risk control limits, executing legally enforceable master netting agreements, and
obtaining collateral where appropriate. In addition, each
PL-34
counterparty is reviewed to evaluate its financial stability before entering into each
agreement and throughout the period that the financial instrument is owned. All of the
Company’s credit exposure from derivative contracts is with investment grade counterparties.
For the year ended December 31, 2009, the Company has incurred losses of $4 million, included
in net realized investment gain (loss), on derivative instruments due to counterparty default
related to the bankruptcy of Lehman Brothers Special Finance. These losses were a result of
the termination of all remaining open positions with Lehman counterparties.
11.
POLICYHOLDER LIABILITIES
POLICYHOLDER ACCOUNT BALANCES
The detail of the liability for policyholder account balances is as follows:
SEPARATE ACCOUNTS AND VARIABLE ANNUITY GUARANTEED BENEFIT FEATURES
The Company issues variable annuity contracts through separate accounts for which investment
income and investment gains and losses accrue directly to, and investment risk is borne by,
the contract holder (traditional variable annuities). These contracts also include various
types of guaranteed minimum death benefit (GMDB) and GLB features. For a discussion of
certain GLBs accounted for as embedded derivatives, see Note 9.
The GMDBs provide a specified minimum return upon death. Many of these death benefits are
spousal, whereby a death benefit will be paid upon death of the first spouse. The survivor
has the option to terminate the contract or continue it and have the death benefit paid into
the contract and a second death benefit paid upon the survivor’s death. The GMDB features
include those where the Company contractually guarantees to the contract holder either (a)
return of no less than total deposits made to the contract less any partial withdrawals
(return of net deposits), (b) the highest contract value on any contract anniversary date
through age 80 minus any payments or withdrawals following the contract anniversary
(anniversary contract value), or (c) the highest of contract
PL-35
value on certain specified dates or total deposits made to the contract less any partial
withdrawals plus a minimum return (minimum return).
The guaranteed minimum income benefit (GMIB) is a GLB that provides the contract holder with a
guaranteed annuitization value after 10 years. Annuitization value is generally based on
deposits adjusted for withdrawals plus a minimum return. In general, the GMIB requires
contract holders to invest in an approved asset allocation strategy.
Information in the event of death on the various GMDB features outstanding was as follows (the
Company’s variable annuity contracts with guarantees may offer more than one type of guarantee
in each contract; therefore, the amounts listed are not mutually exclusive):
The determination of GMDB and GMIB liabilities is based on models that involve a range of
scenarios and assumptions, including those regarding expected market rates of return and
volatility, contract surrender rates and mortality experience. The following table summarizes
the GMDB and GMIB liabilities, which are recorded in future policy benefits, and changes in
these liabilities, which are reflected in policy benefits paid or provided:
Reinsurance recoverables related to GMDB reserves totaled zero and $3 million as of
December 31, 2009 and 2008, respectively, which are included with other reinsurance
receivables in other assets. Reinsurance recoverables related to GMIB reserves are not
significant.
Variable annuity contracts with guarantees were invested in separate account investment
options as follows:
Fair value adjustment for derivatives and
hedging activities
(13
)
55
Non-recourse long-term debt:
Debt recourse only to ACG
1,636
1,271
ACG non-recourse debt
761
687
Other non-recourse debt
121
121
ACG VIE debt (Note 4)
1,975
2,173
Other VIE debt (Note 4)
2
2
Total long-term debt
$
5,632
$
4,459
SHORT-TERM DEBT
ACG has a revolving credit agreement with a bank for a $105 million borrowing facility, which
was entered into in May 2009. Interest is at variable rates and the facility matures in April
2010. The amount outstanding as of December 31, 2009 was $105
million, bearing an interest rate of 4.8%. As of and during the year ended December 31, 2009,
ACG was in compliance with the debt covenants related to this facility. This credit facility
is recourse only to ACG.
ACG had a revolving credit agreement with a bank for a $150 million borrowing facility, which
was entered into in April 2008. The amount outstanding as of December 31, 2008 was $150
million, bearing an interest rate of 2.3%. This credit facility matured and was repaid in May
2009.
PL-37
Pacific Life maintains a $700 million commercial paper program. There was no commercial paper
debt outstanding as of December 31, 2009 and 2008. In addition, Pacific Life has a bank
revolving credit facility of $400 million maturing in 2012 that serves as a back-up line of
credit for the commercial paper program. This facility had no debt outstanding as of December31, 2009 and 2008. As of and during the year ended December 31, 2009, Pacific Life was in
compliance with the debt covenants related to this facility.
PL&A maintains a $40 million reverse repurchase line of credit with a commercial bank. These
borrowings are at variable rates of interest based on collateral and market conditions. There
was no debt outstanding in connection with this line of credit as of December 31, 2009 and
2008.
Pacific Life is a member of the FHLB of Topeka. Pacific Life has approval from the FHLB of
Topeka to advance amounts up to 40% of Pacific Life’s statutory general account assets
provided it has available collateral and is in compliance with debt covenant restrictions and
insurance laws and regulations. There was no debt outstanding with the FHLB of Topeka as of
December 31, 2009 and 2008. The Company had $127 million and $1.0 billion of additional
funding capacity from eligible collateral as of December 31, 2009 and 2008, respectively.
PL&A is a member of the FHLB of San Francisco. PL&A is eligible to borrow from the FHLB of
San Francisco amounts based on a percentage of statutory capital and surplus and could borrow
up to amounts of $102 million. Of this amount, half, or $51 million, can be borrowed for
terms other than overnight, out to a maximum term of nine months. These borrowings are at
variable rates of interest, collateralized by certain mortgage loan and government securities.
As of December 31, 2009 and 2008, PL&A had no debt outstanding with the FHLB of San
Francisco.
LONG-TERM DEBT
In June 2009, Pacific Life issued $1.0 billion of surplus notes at a fixed interest rate of
9.25%, maturing on June 15, 2039. Interest is payable semiannually on June 15 and December
15. Pacific Life may redeem the 9.25% surplus notes at its option, subject to the approval of
the Nebraska Director of Insurance for such optional redemption. The 9.25% surplus notes are
unsecured and subordinated to all present and future senior indebtedness and policy claims of
Pacific Life. All future payments of interest and principal on the 9.25% surplus notes can be
made only with the prior approval of the Nebraska Director of Insurance. The Company entered
into interest rate swaps converting $650 million of these surplus notes to variable rate notes
based upon the London InterBank Offered Rate (LIBOR). The interest rate swaps were designated
as fair value hedges of these surplus notes and the changes in fair value of the hedged
surplus notes associated with changes in interest rates are reflected as an adjustment to
their carrying amount. This adjustment to the carrying amount of the surplus notes, which
decreased long-term debt by $35 million as of December 31, 2009, is offset by a fair value
adjustment which has also been recorded for the interest rate swap derivative instruments.
Pacific Life has $150 million of surplus notes outstanding at a fixed interest rate of 7.9%,
maturing on December 30, 2023. Interest is payable semiannually on June 30 and December 30.
The 7.9% surplus notes may not be redeemed at the option of Pacific Life or any holder of the
surplus notes. The 7.9% surplus notes are unsecured and subordinated to all present and
future senior indebtedness and policy claims of Pacific Life. All future payments of interest
and principal on the 7.9% surplus notes can be made only with the prior approval of the
Nebraska Director of Insurance. The Company entered into interest rate swaps converting these
surplus notes to variable rate notes based upon the LIBOR. The interest rate swaps were
designated as fair value hedges of these surplus notes and the changes in fair value of the
hedged surplus notes associated with changes in interest rates are reflected as an adjustment
to their carrying amount. This adjustment to the carrying amount of the surplus notes, which
increased long-term debt by $22 million and $55 million as of December 31, 2009 and 2008,
respectively, is offset by a fair value adjustment which has also been recorded for the
interest rate swap derivative instruments.
ACG enters into various term loans with third-parties. Interest on these loans is payable
monthly, quarterly or semi-annually and ranged from 0.3% to 6.8% as of December 31, 2009 and
from 1.7% to 6.8% as of December 31, 2008. As of December 31, 2009, $1,636 million was
outstanding on these loans with maturities ranging from 2010 to 2021. Principal payments due
over the next twelve months are $297 million. As of December 31, 2008, $1,271 million was
outstanding on these loans. These loans are recourse only to ACG.
ACG enters into various acquisition facilities and bank loans to acquire aircraft. Interest
on these facilities and loans accrues at variable rates, is payable monthly and ranged from
1.6% to 3.2% as of December 31, 2009 and from 2.0% to 3.0% as of December 31, 2008. As of
December 31, 2009, $761 million was outstanding on these facilities and loans with maturities
ranging from 2010
PL-38
to 2014. As of December 31, 2008, $687 million was outstanding on these
facilities and loans. These facilities and loans are non-recourse to the Company.
ACG had a loan with Pacific Asset Funding, LLC, a wholly owned subsidiary of Pacific LifeCorp,
for $50 million, which was entered into in April 2009. Interest was at variable rates and the
loan was repaid in November 2009.
Certain subsidiaries of Pacific Asset Holding LLC (PAH), a wholly owned subsidiary of Pacific
Life, entered into various term loans with third-parties. Interest on these loans accrues at
fixed rates, is payable monthly and ranged from 5.8% to 6.2% as of December 31, 2009 and 2008.
As of December 31, 2009 and 2008, there was $87 million outstanding on these loans with
maturities ranging from 2010 to 2012. Principal payments due over the next twelve months are
$32 million. All of these loans are secured by real estate properties and are non-recourse to
the Company.
Certain subsidiaries of PAH also entered into various property improvement loans with
third-parties for a maximum loan balance of $43 million. Interest on these loans accrues at
variable rates, is payable monthly and ranged from 1.4% and 2.0% as of December 31, 2009 and
2.6% to 3.6% as of December 31, 2008. As of December 31, 2009 and 2008, there was $34 million
outstanding on these loans with maturities ranging from 2010 to 2011. Principal payments due
over the next twelve months are $26 million. All of these loans are secured by real estate
properties and are non-recourse to the Company.
14.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Codification’s Fair Value Measurements and Disclosures Topic establishes a hierarchy that
prioritizes the inputs of valuation methods used to measure fair value for financial assets
and financial liabilities that are carried at fair value. The hierarchy consists of the
following three levels that are prioritized based on observable and unobservable inputs.
Level 1
Unadjusted quoted prices for identical instruments in active markets. Level 1
financial instruments would include securities that are traded in an active exchange
market.
Level 2
Observable inputs other than Level 1 prices, such as quoted prices for similar
instruments in active markets; quoted prices for identical or similar instruments on
inactive markets; and model-derived valuations for which all significant inputs are
observable market data. Level 2 instruments include most corporate debt securities and
U.S. government and agency mortgage-backed securities that are valued by models using
inputs that are derived principally from or corroborated by observable market data.
Level 3
Valuations derived from valuation techniques in which one or more significant
inputs are unobservable. Level 3 instruments include less liquid securities for which
significant inputs are not observable in the market, such as highly structured securities
and variable annuity GLB embedded derivatives that require significant management
assumptions or estimation in the fair value measurement.
This hierarchy requires the use of observable market data when available.
PL-39
The following tables present, by fair value hierarchy level, the Company’s financial assets
and liabilities that are carried at fair value as of December 31, 2009 and 2008.
U.S. Treasury securities and
obligations of
U.S. government authorities and agencies
$
117
$
117
Obligations of states and political
subdivisions
369
369
Foreign governments
223
$
22
245
Corporate securities
12,274
2,243
14,517
RMBS
1,577
3,355
4,932
CMBS
899
201
1,100
Collateralized debt obligations
20
104
124
Other asset-backed securities
328
210
538
Total fixed maturity securities
15,807
6,135
21,942
Perpetual preferred securities
202
12
214
Other equity securities
2
2
Total equity securities
204
12
216
Trading securities (2)
17
97
114
Cash equivalents
$
2,597
2,597
Other investments
150
150
Derivatives
1,294
1,435
$
2,729
($656
)
2,073
Separate account assets (3)
41,145
275
61
41,481
Total
$
43,742
$
17,597
$
7,890
$
2,729
($656
)
$
68,573
Liabilities:
Derivatives
$
1,095
$
3,477
$
4,572
($656
)
$
3,916
Total
$
1,095
$
3,477
$
4,572
($656
)
$
3,916
(1)
Netting adjustments represent the impact of offsetting asset and liability
positions held with the same counterparty as permitted by guidance for offsetting in the
Codification’s Derivatives and Hedging Topic.
(2)
Trading securities are presented in other investments in the consolidated
statements of financial condition.
(3)
Separate account assets are measured at fair value. Investment performance
related to separate account assets is offset by corresponding amounts credited to
contract holders whose liability is reflected in the separate account liabilities.
Separate account liabilities are measured to equal the fair value of separate account
assets as prescribed by guidance in the Codification’s Financial Services – Insurance
Topic for accounting and reporting of certain non traditional long-duration contracts and
separate accounts. Separate account assets as presented in the table above differ from
the amounts presented in the consolidated statements of financial condition because cash
and receivables for securities are not subject to the guidance under the Codification’s
Fair Value Measurements and Disclosures Topic.
FAIR VALUE MEASUREMENT
The Codification’s Fair Value Measurements and Disclosures Topic defines fair value as the
price that would be received to sell the asset or paid to transfer the liability at the
measurement date. This “exit price” notion is a market-based measurement that requires a
focus on the value that market participants would assign for an asset or liability.
PL-41
The following section describes the valuation methodologies used by the Company to measure
various types of financial instruments at fair value.
FIXED MATURITY, EQUITY AND TRADING SECURITIES
The fair values of fixed maturity securities available for sale, equity securities available
for sale and trading securities are determined by management after considering external
pricing sources and internal valuation techniques.
For publicly traded securities with sufficient trading volume, prices are obtained from
third-party pricing services. For structured or complex securities that are traded
infrequently, prices are obtained from independent brokers or are valued internally using
various valuation techniques. Such techniques include matrix model pricing and internally
developed models, which incorporate observable market data, where available. Matrix model
pricing measures fair value using cash flows, which are discounted using observable market
yield curves provided by a major independent data service. The matrix model determines the
discount yield based upon significant factors that include the security’s weighted average
life and rating.
Where matrix model pricing is not used, particularly for RMBS and other asset-backed
securities, other internally derived valuation models are utilized. The inputs used to
measure fair value in the internal valuations include, but are not limited to, benchmark
yields, issuer spreads, bids, offers, reported trades, and estimated projected cash flows that
incorporate significant inputs such as defaults and delinquency rates, severity,
subordination, vintage and prepayment speeds.
For non-agency RMBS backed by prime, sub-prime and Alt-A collateral, the Company has
determined that there has been a significant decrease in the volume and level of transaction
activity indicating the need for a valuation technique not solely based on observable
transactions and/or quoted market prices. As permitted by guidance in the Codification’s Fair
Value Measurements and Disclosures Topic beginning March 31, 2009, the Company determines the
estimated fair value for these assets utilizing an internally developed weighting of
valuations derived from internal pricing models and independent pricing services. This
approach utilizes multiple valuation techniques incorporating an income approach (maximizing
the use of relevant observable inputs and minimizing the use of unobservable inputs) and a
market approach (based on data provided by independent pricing services) producing a result
more representative of an investment’s fair value as compared to a single valuation
technique. The income approach incorporates cash flows for each investment adjusted for
expected losses assuming various interest rate and housing price-level scenarios. The
adjusted cash flows are discounted using a risk premium that market participants would demand
given the risk in the modeled cash flows. The risk premium utilized is reflective of an
orderly transaction between market participants under current market conditions and includes
considerations such as liquidity and structure risk. These internally generated prices are
then reviewed in conjunction with prices obtained from multiple independent pricing services.
The internally generated prices are weighted with the prices obtained from independent pricing
services, with consideration given to the relative range of values that are most
representative of fair value under current conditions. These securities have been classified
as Level 3 financial assets.
Prices obtained from independent third-parties are generally evaluated based on the inputs
indicated above. The Company’s management analyzes and evaluates these prices and determines
whether they are reasonable estimates of fair value. Management’s analysis may include, but
is not limited to, review of third-party pricing methodologies and inputs, analysis of recent
trades, and development of internal models utilizing observable market data of comparable
securities. Based on this analysis, prices received from third-parties may be adjusted if the
Company determines that there is a more appropriate fair value based on available market
information.
Most securities priced by a major independent third-party service have been classified as
Level 2, as management has verified that the inputs used in determining their fair values are
market observable and appropriate. Other externally priced securities for which fair value
measurement inputs are not sufficiently transparent, such as securities valued based on broker
quotations, have been classified as Level 3. Internally valued securities, including adjusted
prices received from independent third-parties, where significant management assumptions have
been utilized in determining fair value, have been classified as Level 3.
CASH EQUIVALENTS
Cash equivalents include, but are not limited to, corporate discount notes and money market
mutual funds. The fair value of cash equivalents is measured at amortized cost due to the
short-term, highly liquid nature of these securities, which have original maturities of three
months or less. These investments are classified as Level 1.
PL-42
OTHER INVESTMENTS
Other investments include non-marketable equity securities that do not have readily
determinable fair values. Certain significant inputs used in determining the fair value of
these equities are based on management assumptions or contractual terms with another party
that cannot be readily observable in the market. These investments are classified as Level 3
assets.
DERIVATIVE INSTRUMENTS
Derivative instruments are reported at fair value using pricing valuation models, which
utilize market data inputs or independent broker quotations. Excluding embedded derivatives,
as of December 31, 2009, 99% of derivatives based upon notional values were priced by
valuation models, which utilize independent market data. The remaining derivatives were
priced by broker quotations. The derivatives are valued using mid-market inputs that are
predominantly observable in the market. Inputs used to value derivatives include, but are not
limited to, interest swap rates, foreign currency forward and spot rates, credit spreads and
correlations, interest and equity volatility and equity index levels. In accordance with the
Codification’s Fair Value Measurements and Disclosures Topic, a credit valuation analysis was
performed for all derivative positions to measure the risk that one of the counterparties to
the transaction will be unable to perform under the contractual terms (nonperformance risk),
and was determined to be immaterial as of December 31, 2009.
The Company performs a monthly analysis on derivative valuations, which includes both
quantitative and qualitative analysis. Examples of procedures performed include, but are not
limited to, review of pricing statistics and trends, analyzing the impacts of changes in the
market environment, and review of changes in market value for each derivative including those
derivatives priced by brokers.
Derivative instruments classified as Level 2 primarily include interest rate, currency and
certain credit default swaps. The derivative valuations are determined using pricing models
with inputs that are observable in the market or can be derived principally from or
corroborated by observable market data.
Derivative instruments classified as Level 3 include complex derivatives, such as equity
options and swaps and certain credit default swaps. Also included in Level 3 classification
for derivatives are embedded derivatives in certain insurance and reinsurance contracts.
These derivatives are valued using pricing models, which utilize both observable and
unobservable inputs and, to a lesser extent, broker quotations. A derivative instrument
containing Level 1 or Level 2 inputs will be classified as a Level 3 financial instrument in
its entirety if it has at least one significant Level 3 input.
The Company utilizes derivative instruments to manage the risk associated with certain assets
and liabilities. However, the derivative instrument may not be classified within the same
fair value hierarchy level as the associated assets and liabilities. Therefore, the realized
and unrealized gains and losses on derivatives reported in Level 3 may not reflect the
offsetting impact of the realized and unrealized gains and losses of the associated assets and
liabilities.
VARIABLE ANNUITY GLB EMBEDDED DERIVATIVES
Fair values for variable annuity GLB and related reinsurance embedded derivatives are
calculated based upon significant unobservable inputs using internally developed models
because active, observable markets do not exist for those items. As a result, variable
annuity GLB and related reinsurance embedded derivatives are categorized as Level 3. Below is
a description of the Company’s fair value methodologies for these embedded derivatives.
The Company’s fair value is calculated as an aggregation of fair value and additional risk
margins including, Behavior Risk Margin, Mortality Risk Margin and Credit Standing Adjustment.
The resulting aggregation is reconciled or calibrated, if necessary, to market information
that is, or may be, available to the Company, but may not be observable by other market
participants, including reinsurance discussions and transactions. Each of the components
described below are unobservable in the market place and requires subjectivity by the Company
in determining their value.
•
Behavior Risk Margin: This component adds a margin that market
participants would require for the risk that the Company’s assumptions about
policyholder behavior used in the fair value model could differ from actual
experience.
•
Mortality Risk Margin: This component adds a margin in mortality
assumptions, both for decrements for policyholders with GLBs, and for expected payout
lifetimes in guaranteed minimum withdrawal benefits.
PL-43
•
Credit Standing Adjustment: This component makes an adjustment that market
participants would make to reflect the chance that GLB obligations or the GLB
reinsurance recoverables will not be fulfilled (nonperformance risk).
SEPARATE ACCOUNT ASSETS
Separate account assets are primarily invested in mutual funds, but also have investments in
fixed maturity and short-term securities. Separate account assets are valued in the same
manner, and using the same pricing sources and inputs, as the fixed maturity and equity
securities available for sale of the Company. Mutual funds are included in Level 1. Most
fixed maturity securities are included in Level 2. Level 3 assets include any investments
where fair value is based on management assumptions or obtained from independent third-parties
and fair value measurement inputs are not sufficiently transparent.
LEVEL 3 RECONCILIATION
The tables below present reconciliations of the beginning and ending balances of the Level 3
financial assets and liabilities that have been measured at fair value on a recurring basis
using significant unobservable inputs.
Purchases,
Total Gains or Losses
Transfers
Sales,
Unrealized
In and/or
Issuances,
Gains
January 1,
Included in
Included in
Out of
and
December 31,
(Losses)
2009
Earnings
OCI
Level 3
Settlements
2009
Still Held (1)
(In Millions)
Assets:
U.S. Treasury securities and
obligations of U.S. government
authorities and agencies
$
6
$
6
Obligations of states and
political subdivisions
($3
)
7
$
30
34
Foreign governments
$
22
$
2
5
71
8
108
Corporate securities
2,243
(28
)
644
(974
)
402
2,287
($5
)
RMBS
3,355
(115
)
437
427
(454
)
3,650
CMBS
201
1
26
60
39
327
Collateralized debt obligations
104
(67
)
71
(4
)
104
Other asset-backed securities
210
2
10
42
(29
)
235
Total fixed maturity securities
6,135
(205
)
1,190
(361
)
(8
)
6,751
(5
)
Perpetual preferred securities
12
(17
)
12
(5
)
68
70
Other equity securities
1
4
(28
)
23
Total equity securities
12
(16
)
16
(33
)
91
70
Trading securities
97
(51
)
(17
)
29
2
Other investments
150
24
(11
)
163
Derivatives, net
(2,042
)
1,504
1
90
(447
)
1,597
Separate account assets (2)
61
6
20
14
101
12
Total
$
4,413
$
1,289
$
1,231
($425
)
$
159
$
6,667
$
1,606
PL-44
Purchases,
Transfers
Sales,
Unrealized
Total Gains or Losses
In and/or
Issuances,
Gains
January 1,
Included in
Included in
Out of
and
December 31,
(Losses)
2008
Earnings
OCI
Level 3
Settlements
2008
Still Held (1)
(In Millions)
Assets:
Foreign governments
$
32
($7
)
($3
)
$
22
Corporate securities
1,505
$
2
(329
)
$
733
332
2,243
($16
)
RMBS
431
(1
)
(168
)
3,025
68
3,355
CMBS
434
(40
)
(141
)
(52
)
201
Collateralized debt obligations
230
(90
)
(35
)
(1
)
104
Other asset-backed securities
242
(4
)
(16
)
(11
)
(1
)
210
Total fixed maturity securities
2,874
(93
)
(595
)
3,606
343
6,135
(16
)
Perpetual preferred securities
46
(33
)
(1
)
12
Other equity securities
4
(4
)
Total equity securities
50
(37
)
(1
)
12
Trading securities
47
(12
)
10
52
97
(11
)
Other investments
460
105
(133
)
(282
)
150
Derivatives, net
(103
)
(1,945
)
2
4
(2,042
)
(1,822
)
Separate account assets(2)
11
(5
)
46
9
61
(25
)
Total
$
3,339
($1,987
)
($726
)
$
3,662
$
125
$
4,413
($1,874
)
(1)
Represents the net amount of total gains or losses for the period, recorded
in earnings, attributable to the change in unrealized gains (losses) relating to assets
and liabilities classified as Level 3 that are still held as of December 31, 2009 and
2008.
(2)
The realized/unrealized gains (losses) included in net income (loss) for
separate account assets are offset by an equal amount for separate account liabilities,
which results in a net zero impact on net income (loss) for the Company.
The Company did not have any nonfinancial assets or liabilities measured at fair value on a
nonrecurring basis resulting from impairments as of December 31, 2009. The Company has not
made any changes in the valuation methodologies for nonfinancial assets and liabilities.
PL-45
The carrying amount and estimated fair value of the Company’s financial instruments that
are not carried at fair value under the Codification’s Financial Instruments Topic are as
follows:
Balance excludes embedded derivatives that are included in the fair value
hierarchy level tables above.
The following methods and assumptions were used to estimate the fair value of these financial
instruments as of December 31, 2009 and 2008:
MORTGAGE LOANS
The estimated fair value of the mortgage loan portfolio is determined by discounting the
estimated future cash flows, using current rates that are applicable to similar credit
quality, property type and average maturity of the composite portfolio.
POLICY LOANS
The carrying amounts of policy loans are a reasonable estimate of their fair values because
interest rates are generally variable and based on current market rates.
OTHER INVESTED ASSETS
Included in other invested assets are private equity investments in which the estimated fair
value of private equity investments is based on the ownership percentage of the underlying
equity of the investments.
RESTRICTED CASH
The carrying values approximate fair values due to the short-term maturities of these
instruments.
FUNDING AGREEMENTS AND GICs
The fair value of funding agreements and GICs is estimated using the rates currently offered
for deposits of similar remaining maturities.
ANNUITY AND DEPOSIT LIABILITIES
The estimated fair value of annuity and deposit liabilities approximates carrying value and
primarily includes policyholder deposits and accumulated credited interest. The estimated
fair value of deposit liabilities with no defined maturities is the amount payable on demand.
PL-46
DEBT
The carrying amount of short-term debt is a reasonable estimate of its fair value because the
interest rates are variable and based on current market rates. The estimated fair value of
long-term debt is based on market quotes, except for VIE debt and non-recourse debt, for which
the carrying amounts are reasonable estimates of their fair values because the interest rate
approximates current market rates.
15.
OTHER COMPREHENSIVE INCOME (LOSS)
The Company displays comprehensive income (loss) and its components on the consolidated
statements of equity. The disclosure of the gross components of other comprehensive income
(loss) and related taxes are as follows:
Allocation of holding (gain) loss to future policy benefits
85
(119
)
(15
)
Income tax expense (benefit)
113
(83
)
14
Cumulative effect of adoption of new accounting principle
(263
)
Income tax expense
93
Unrealized gain (loss) on derivatives and securities available for sale, net
1,385
(1,896
)
(300
)
Other, net:
Holding gain (loss) on interest in PIMCO and other security
22
(24
)
5
Income tax (expense) benefit
(8
)
9
(1
)
Reclassification of realized gain on sale of interest in PIMCO
(109
)
Income tax on realized gain
42
Net unrealized gain (loss) on interest in PIMCO and other
security
14
(82
)
4
Cumulative effect of adoption of new accounting principle,
net of tax
(20
)
Other, net of tax
33
(15
)
Other, net
47
(97
)
(16
)
Total other comprehensive income (loss), net
$
1,432
($1,993
)
($316
)
PL-47
16.
REINSURANCE
Certain no lapse guarantee rider (NLGR) benefits of Pacific Life’s UL
insurance products are subject to Actuarial Guideline 38 (AG 38)
statutory reserving requirements. AG 38 results in additional
statutory reserves on UL products with NLGRs issued after June 30,2005. U.S. GAAP benefit reserves for such riders are based on
guidance in the Codification’s Financial Services – Insurance Topic
for accounting and reporting of certain non traditional long-duration
contracts and separate accounts. Substantially all the U.S. GAAP
benefit reserves relating to NLGRs issued after June 30, 2005 are
ceded from Pacific Life to Pacific Alliance Reinsurance Ltd. (PAR
Bermuda), a Bermuda-based life reinsurance company wholly owned by
Pacific LifeCorp and PAR Vermont under reinsurance agreements. Funded
reserves and irrevocable letters of credit (LOC) held in trust
accounts with Pacific Life as beneficiary provide security for
statutory reserve credits taken by Pacific Life. Pacific LifeCorp
guarantees the obligations of PAR Bermuda and PAR Vermont under the
LOC agreement.
The Company entered into treaties to reinsure a portion of new
variable annuity business under modified coinsurance arrangements and
certain variable annuity living and death benefit riders under
coinsurance agreements. Effective January 1, 2008, the quota share on
these variable annuity reinsurance treaties was increased from a total
of 39% to 45%. Additionally, effective January 1, 2008, the Company
recaptured a portion of the variable annuity business ceded during
2007. Effective January 1, 2009, all but one reinsurance treaty
terminated for new business, reducing the quota share to 15%. The
final treaty terminated for new business issued after March 31, 2009.
Variable annuity business ceded prior to these dates continues to be
reinsured.
Reinsurance receivables and payables generally include amounts related to claims, reserves and
reserve related items. Reinsurance receivables were $404 million and $839 million as of
December 31, 2009 and 2008, respectively. Reinsurance payables were $37 million and $38
million as of December 31, 2009 and 2008, respectively.
The ceding of risk does not discharge the Company from its primary obligations to contract
owners. To the extent that the assuming companies become unable to meet their obligations
under reinsurance contracts, the Company remains contingently liable. Each reinsurer is
reviewed to evaluate its financial stability before entering into each reinsurance contract
and throughout the period that the reinsurance contract is in place.
The components of insurance premiums presented in the consolidated statements of operations
are as follows:
Included are $21 million, $13 million and $12 million of reinsurance ceded to PAR
Bermuda for the years ended December 31, 2009, 2008 and 2007, respectively.
(2)
Included are $4 million of assumed premiums from Pacific Life Re, a wholly owned
subsidiary of Pacific LifeCorp.
PL-48
17.
EMPLOYEE BENEFIT PLANS
PENSION PLANS
Prior to December 31, 2007, Pacific Life provided a defined benefit
pension plan (ERP) covering all eligible employees of the Company.
Certain subsidiaries did not participate in this plan. The
full-benefit vesting period for all participants was five years.
Pacific Life’s funding policy was to contribute amounts to the plan
sufficient to meet the minimum funding requirements set forth in
ERISA, plus such additional amounts as was determined appropriate.
All such contributions were made to a tax-exempt trust.
The Company amended the ERP to terminate effective December 31, 2007.
In anticipation of the final settlement of the defined benefit pension
plan, the plan’s investment strategy was revised and the mutual fund
investments were sold, transferred to a separate account group annuity
contract managed by the Company and invested primarily in fixed income
investments to better match the expected duration of the liabilities.
In September 2009, the Company received regulatory approval to commence the final
termination of the ERP and payment of plan benefits to the participants. The Company
completed the final distribution of plan assets to participants in December 2009. The
Company recognized settlement costs of $5 million in 2008 and recognized the final
settlement costs for the ERP totaling $72 million in 2009.
Pacific Life also maintains supplemental employee retirement plans (SERPs) for certain
eligible employees. As of December 31, 2009 and 2008, the projected benefit obligation was
$37 million and $32 million, respectively. The fair value of plan assets as of December 31,2009 and 2008 was zero. The net periodic benefit expense of the SERPs was $4 million, $5
million and $6 million for the years ended December 31, 2009, 2008 and 2007, respectively.
The following table sets forth the benefit obligations, plan assets and funded status of the
defined benefit plans:
The Company incurred a net pension expense of $79 million, $8 million and $9 million for the
years ended December 31, 2009, 2008 and 2007, respectively, as detailed in the following
table:
Weighted-average assumptions used
to determine
the ERP’s net periodic benefit
expense:
Discount rate
6.30
%
6.25
%
5.75
%
Expected long-term return on plan assets
N/A
5.25
%
6.13
%
The salary rate used to determine the net periodic benefit expense for the SERP was 4.5% for
the years ended December 31, 2009, 2008 and 2007.
Pacific Life expects to contribute $3 million to the SERP in 2010. The expected benefit
payments are as follows for the years ending December 31 (In Millions):
2010
2011
2012
2013
2014
2015-2019
$3
$3
$3
$3
$3
$15
RETIREMENT INCENTIVE SAVINGS PLAN
Pacific Life provides a Retirement Incentive Savings Plan (RISP) covering all eligible
employees of Pacific LifeCorp and certain of its subsidiaries. The RISP matches 75% of each
employee’s contributions, up to a maximum of 6% of eligible employee compensation in cash.
Contributions made by the Company to the RISP amounted to $26 million, $29 million and $25
million for the years ended December 31, 2009, 2008 and 2007, respectively, and are included
in operating expenses.
POSTRETIREMENT BENEFITS
Pacific Life provides a defined benefit health care plan and a defined benefit life insurance
plan (the Plans) that provide postretirement benefits for all eligible retirees and their
dependents. Generally, qualified employees may become eligible for these benefits if they
have reached normal retirement age, have been covered under Pacific Life’s policy as an active
employee for a minimum continuous period prior to the date retired, and have an employment
date before January 1, 1990. The Plans contain cost-sharing features such as deductibles and
coinsurance, and require retirees to make contributions, which can be adjusted annually.
Pacific Life’s commitment to qualified employees who retire after April 1, 1994 is limited to
specific dollar amounts. Pacific Life reserves the right to modify or terminate the Plans at
any time. As in the past, the general policy is to fund these benefits on a pay-as-you-go
basis.
The net periodic postretirement benefit cost for each of the years ended December 31, 2009,
2008 and 2007 was $1 million. As of December 31, 2009 and 2008, the accumulated benefit
obligation was $19 million and $18 million, respectively. The fair value of the plan assets
as of December 31, 2009 and 2008 was zero.
The discount rate used in determining the accumulated postretirement benefit obligation was
5.50% and 6.35% for 2009 and 2008, respectively.
PL-50
Benefit payments for the year ended December 31, 2009 amounted to $3 million. The
expected benefit payments are as follows for the years ending December 31 (In Millions):
2010
2011
2012
2013
2014
2015-2019
$3
$4
$4
$4
$4
$24
OTHER PLANS
The Company has deferred compensation plans that permit eligible employees to defer portions
of their compensation and earn interest on the deferred amounts. The interest rate is
determined annually. The compensation that has been deferred has been accrued and the primary
expense related to this plan, other than compensation, is interest on the deferred amounts.
The Company also has performance-based incentive compensation plans for its employees.
18.
INCOME TAXES
The provision (benefit) for income taxes is as follows:
Provision (benefit) for income taxes from continuing operations
44
(315
)
129
Provision (benefit) for income taxes on discontinued operations
(11
)
(3
)
18
Total
$
33
($318
)
$
147
A reconciliation of the provision (benefit) for income taxes from continuing operations based
on the Federal corporate statutory tax rate of 35% to the provision (benefit) for income taxes
from continuing operations reflected in the consolidated financial statements is as follows:
Provision (benefit) for income taxes at the statutory rate
$
170
($199
)
$
292
Separate account dividends received deduction
(93
)
(107
)
(103
)
Low income housing and foreign tax credits
(19
)
(31
)
(33
)
Other
(14
)
22
(27
)
Provision (benefit) for income taxes from continuing operations
$
44
($315
)
$
129
Upon adoption of new guidance to the Codification’s Income Taxes Topic relating to the
accounting for uncertainty in income taxes on January 1, 2007, the Company had unrecognized
tax benefits of $32 million, which relate entirely to an uncertain tax position regarding
refund claims for the impact of short-term capital gains on computing separate account
Dividends Received Deductions (DRD).
During the year ended December 31, 2008, the Company’s tax contingency related to the
accounting for uncertainty in income taxes increased by $402 million for a tax position for
which there was uncertainty about the timing, but not the deductibility, of certain tax
deductions. Since the benefits of the tax position were not being claimed on an original
return and the Company did not
receive cash, interest or penalties were not accrued. Due to the nature of deferred tax
accounting, the tax position does not have an impact on the annual effective tax rate.
PL-51
The $434 million tax contingency related to the accounting for uncertainty in income taxes was
decreased by $420 million as a result of events that occurred during the year ended December31, 2009. The Company effectively settled $18 million of the gross uncertain tax position
related to DRD, which resulted in the realization of $9 million of tax benefits. The Company
also resolved the uncertain tax accounting position on certain tax deductions resulting in a
$402 million decrease. The provision for income taxes from continuing operations has also
been reduced by $10 million for additional interest income resulting from favorable tax
settlements.
A reconciliation of the changes in the unrecognized tax benefits is as follows (In Millions):
Depending on the outcome of Internal Revenue Service (IRS) audits, approximately $7 million of
the unrecognized DRD tax benefits may be realized during the next twelve months. All realized
tax benefits and related interest are recorded as a discrete item that will impact the
effective tax rate in the accounting period in which the uncertain tax position is ultimately
settled.
During the years ended December 31, 2009, 2008 and 2007, the Company paid an immaterial amount
of interest and penalties to state tax authorities.
PL-52
The net deferred tax (liability) asset, included in other liabilities and other assets as of
December 31, 2009 and 2008, respectively, is comprised of the following tax effected temporary
differences:
Net deferred tax asset (liability) from continuing operations
(480
)
64
Unrealized loss on derivatives and securities available for sale
101
947
Unrealized loss on interest in PIMCO and other security
8
Deferred taxes on cumulative changes in accounting principles
120
27
Minimum pension liability and other adjustments
(10
)
8
Net deferred tax asset (liability)
($269
)
$
1,054
The tax net operating loss carryforwards relate to Federal tax losses incurred in 1998 through
2008 with a 20-year carryforward for non-life losses and a 15-year carryforward for life
losses, and California tax losses incurred in 2004 through 2008 with a ten-year carryforward.
The Codification’s Income Taxes Topic requires the reduction of deferred tax assets by a
valuation allowance if, based on the weight of available evidence, it is more likely than not
that a portion or all of the deferred tax assets will not be realized. Based on management’s
assessment, it is more likely than not that the Company’s deferred tax assets will be realized
through future taxable income and the reversal of deferred tax liabilities.
The Company files income tax returns in U.S. Federal and various state jurisdictions. The
Company is under continuous audit by the IRS and is audited periodically by some state taxing
authorities. The IRS has completed audits of the Company’s tax returns through the tax years
ended December 31, 2005 and has commenced audits for tax years 2006, 2007 and 2008. The State
of California recently concluded audits for tax years 2003 and 2004 without a material
assessment. The Company does not expect the Federal and state audits to result in any
material assessments.
PL-53
19.
SEGMENT INFORMATION
The Company has four operating segments: Life Insurance, Investment Management, Annuities &
Mutual Funds and Aircraft Leasing. These segments are managed separately and have been
identified based on differences in products and services offered. All other activity is
included in the Corporate and Other segment.
The Life Insurance segment provides a broad range of life insurance products through multiple
distribution channels operating in the upper income and corporate markets. Principal products
include UL, VUL, survivor life, interest sensitive whole life, corporate-owned life insurance
and traditional products such as whole life and term life. Distribution channels include
regional life offices, marketing organizations, broker-dealer firms, wirehouses and M
Financial, an association of independently owned and operated insurance and financial
producers.
The Investment Management segment provides investment and insurance products to institutional
investors, pension fund sponsors and structured settlement annuitants, primarily through its
home office marketing team and other intermediaries. The segment’s principal products include
GICs, synthetic GICs, funding agreement-backed notes issued to institutional investors via
medium-term note programs or to the FHLB of Topeka, as well as structured settlement annuities
issued in conjunction with personal injury awards and group retirement annuities sold to
pension plans.
The Annuities & Mutual Funds segment’s principle products include variable and fixed
annuities, and mutual funds, and are offered through multiple distribution sources.
Distribution channels include independent planners, financial institutions and
national/regional wirehouses.
The Aircraft Leasing segment (Note 9) offers aircraft leasing to the airline industry
throughout the world and provides brokerage and asset management services to other
third-parties.
The Corporate and Other segment primarily includes investment income, expenses and assets not
attributable to the operating segments, and the operations of certain subsidiaries that do not
qualify as operating segments. The Corporate and Other segment also includes the interest in
PIMCO and the elimination of intersegment transactions. Discontinued operations (Note 6) are
also included in the Corporate and Other segment.
The Company uses the same accounting policies and procedures to measure segment net income
(loss) and assets as it uses to measure its consolidated net income (loss) and assets. Net
investment income and net realized investment gain (loss) are allocated based on invested
assets purchased and held as is required for transacting the business of that segment.
Overhead expenses are allocated based on services provided. Interest expense is allocated
based on the short-term borrowing needs of the segment and is included in net investment
income. The provision (benefit) for income taxes is allocated based on each segment’s actual
tax provision (benefit).
The operating segments, excluding Aircraft Leasing, are allocated equity based on formulas
determined by management and receive a fixed interest rate of return on interdivision
debentures supporting the allocated equity. The debenture amount is reflected as investment
expense in net investment income in the Corporate and Other segment and as investment income
in the operating segments.
The Company generates substantially all of its revenues and net income from customers located
in the U.S. As of December 31, 2009 and 2008, the Company had foreign investments with an
estimated fair value of $7.2 billion and $5.8 billion, respectively. Aircraft leased to
foreign customers were $5.0 billion and $4.8 billion as of December 31, 2009 and 2008,
respectively. Revenues derived from any customer did not exceed 10% of consolidated total
revenues for the years ended December 31, 2009, 2008 and 2007.
PL-54
The following is segment information as of and for the year ended December 31, 2009:
Annuities
Life
Investment
& Mutual
Aircraft
Corporate
Insurance
Management
Funds
Leasing
and Other
Total
REVENUES
(In Millions)
Policy fees and insurance premiums
$
1,063
$
628
$
581
$
3
$
2,275
Net investment income
892
759
278
$
1
(68
)
1,862
Net realized investment gain (loss)
55
313
7
(222
)
153
OTTIs
(63
)
(176
)
(16
)
(56
)
(311
)
Investment advisory fees
18
190
208
Aircraft leasing revenue
578
578
Other income
10
112
13
2
137
Total revenues
1,920
1,266
1,458
599
(341
)
4,902
BENEFITS AND EXPENSES
Interest credited
681
379
193
1,253
Policy benefits
363
903
(40
)
1,226
Commission expenses
353
18
320
691
Operating expenses
290
26
273
59
134
782
Depreciation of aircraft
227
227
Interest expense
182
55
237
Total benefits and expenses
1,687
1,326
746
468
189
4,416
Income (loss) from continuing operations before
provision (benefit) for income taxes
233
(60
)
712
131
(530
)
486
Provision (benefit) for income taxes
66
(24
)
151
39
(188
)
44
Income (loss) from continuing operations
167
(36
)
561
92
(342
)
442
Discontinued operations, net of taxes
(20
)
(20
)
Net income (loss)
167
(36
)
561
92
(362
)
422
Less: net (income) loss attributable to the
noncontrolling
interest from continuing operations
(9
)
23
14
Net income (loss) attributable to the Company
$
167
($36
)
$
561
$
83
($339
)
$
436
Total assets
$
28,589
$
13,256
$
57,903
$
6,091
$
2,638
$
108,477
DAC
1,865
59
2,882
4,806
Separate account assets
5,590
67
46,907
52,564
Policyholder and contract liabilities
21,133
12,526
7,728
41,387
Separate account liabilities
5,590
67
46,907
52,564
PL-55
The following is segment information as of and for the year ended December 31, 2008:
Annuities
Life
Investment
& Mutual
Aircraft
Corporate
Insurance
Management
Funds
Leasing
and Other
Total
REVENUES
(In Millions)
Policy fees and insurance premiums
$
943
$
363
$
691
$
1,997
Net investment income
855
876
178
$
85
1,994
Net realized investment gain (loss)
24
51
(768
)
(56
)
(749
)
OTTIs
(69
)
(398
)
(30
)
($3
)
(80
)
(580
)
Realized investment gain on interest in PIMCO
109
109
Investment advisory fees
22
233
255
Aircraft leasing revenue
571
571
Other income
11
117
38
1
167
Total revenues
1,786
892
421
606
59
3,764
BENEFITS AND EXPENSES
Interest credited
661
440
133
1,234
Policy benefits
372
684
150
1,206
Commission expenses
268
18
429
715
Operating expenses
263
34
317
40
78
732
Depreciation of aircraft
208
208
Interest expense
221
17
238
Total benefits and expenses
1,564
1,176
1,029
469
95
4,333
Income (loss) from continuing operations before
provision (benefit) for income taxes
222
(284
)
(608
)
137
(36
)
(569
)
Provision (benefit) for income taxes
61
(103
)
(329
)
48
8
(315
)
Income (loss) from continuing operations
161
(181
)
(279
)
89
(44
)
(254
)
Discontinued operations, net of taxes
(6
)
(6
)
Net income (loss)
161
(181
)
(279
)
89
(50
)
(260
)
Less: net (income) loss attributable to the
noncontrolling
interest from continuing operations
(8
)
11
3
Net income (loss) attributable to the Company
$
161
($181
)
($279
)
$
81
($39
)
($257
)
Total assets
$
26,695
$
15,155
$
45,285
$
5,400
$
2,633
$
95,168
DAC
2,118
64
2,830
5,012
Separate account assets
4,525
284
36,696
41,505
Policyholder and contract liabilities
20,786
14,099
7,626
42,511
Separate account liabilities
4,525
284
36,696
41,505
PL-56
The following is segment information for the year ended December 31, 2007:
Annuities
Life
Investment
& Mutual
Aircraft
Corporate
Insurance
Management
Funds
Leasing
and Other
Total
REVENUES
(In Millions)
Policy fees and insurance premiums
$
777
$
224
$
779
$
1,780
Net investment income
803
905
186
$
9
$
217
2,120
Net realized investment gain (loss)
4
115
(99
)
17
32
69
OTTIs
(3
)
(95
)
(98
)
Investment advisory fees
29
298
327
Aircraft leasing revenue
535
535
Other income
9
84
50
4
147
Total revenues
1,619
1,149
1,248
611
253
4,880
BENEFITS AND EXPENSES
Interest credited
618
504
144
1,266
Policy benefits
308
535
12
855
Commission expenses
209
11
470
690
Operating expenses
252
34
346
49
88
769
Depreciation of aircraft
189
189
Interest expense
261
16
277
Total benefits and expenses
1,387
1,084
972
499
104
4,046
Income from continuing operations before
provision (benefit) for income taxes
232
65
276
112
149
834
Provision (benefit) for income taxes
58
12
(6
)
32
33
129
Income from continuing operations
174
53
282
80
116
705
Discontinued operations, net of taxes
11
11
Net income
174
53
282
80
127
716
Less: net income attributable to the noncontrolling
interest from continuing operations
(2
)
(36
)
(38
)
Net income attributable to the Company
$
174
$
53
$
282
$
78
$
91
$
678
20.
TRANSACTIONS WITH AFFILIATES
PLFA serves as the investment adviser for the Pacific Select Fund, an investment vehicle
provided to the Company’s variable life insurance policyholders and variable annuity contract
owners, and the Pacific Life Funds, the investment vehicle for the Company’s mutual fund
products. Prior to May 1, 2007, Pacific Life served in this capacity. Investment advisory
and other fees are based primarily upon the net asset value of the underlying portfolios.
These fees, included in investment advisory fees and other income, amounted to $244 million,
$287 million and $337 million for the years ended December 31, 2009, 2008 and 2007,
respectively. In addition, Pacific Life provides certain support services to the Pacific
Select Fund, the Pacific Life Funds and other affiliates based on an allocation of actual
costs. These fees amounted to $9 million, $7 million and $7 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
In addition, effective May 1, 2007, a service plan adopted by the Pacific Select Fund went
into effect whereby the fund pays PSD, as distributor of the fund, a service fee in connection
with services rendered or procured to or for shareholders of the fund or their
variable contract owners. These services may include, but are not limited to, payment of
compensation to broker-dealers, including
PL-57
PSD itself, and other financial institutions and
organizations, which assist in providing any of the services. For the years ended December31, 2009 and 2008, PSD received $86 million and $100 million, respectively, in service fees
from the Pacific Select Fund, which are recorded in other income. For the period May 1, 2007
through December 31, 2007, PSD received $74 million in service fees from the Pacific Select
Fund, which are also recorded in other income. The service fees were allocated to the
operating segments, primarily the Annuities & Mutual Funds segment (Note 19).
As discussed in Note 16, NLGR benefits are reinsured with PAR Bermuda and PAR Vermont.
ACG has derivative swap contracts with Pacific LifeCorp as the counterparty. The notional
amounts total $2.0 billion and $1.8 billion as of December 31, 2009 and 2008, respectively.
The estimated fair values of the derivatives were net liabilities of $48 million and $106
million as of December 31, 2009 and 2008, respectively.
21.
COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The Company has outstanding commitments to make investments primarily in mortgage loans,
limited partnerships and other investments, as follows (In Millions):
Years Ending December 31:
2010
$
1,005
2011 through 2014
494
2015 and thereafter
91
Total
$
1,590
The Company leases office facilities under various operating leases, which in most, but not
all cases, are noncancelable. Rent expense, which is included in operating and other
expenses, in connection with these leases was $8 million, $10 million and $13 million for the
years ended December 31, 2009, 2008 and 2007, respectively. In connection with the sale of a
block of business in 2005, PL&A is contingently liable until March 31, 2013 for certain future
rent and expense obligations, not to exceed $15 million, related to an office lease that has
been assigned to the buyer. Aggregate minimum future commitments are as follows (In
Millions):
Years Ending December 31:
2010
$
8
2011 through 2014
20
2015 and thereafter
2
Total
$
30
As of December 31, 2009, ACG has commitments with major aircraft manufacturers to purchase
aircraft at an estimated delivery price of $6,370 million with delivery from 2010 through
2017. Such purchase commitments may be funded:
•
up to $635 million in less than one year,
•
an additional $2,325 million in one to three years,
•
an additional $2,116 million in three to five years, and
•
an additional $1,021 million thereafter.
As of December 31, 2009, deposits related to these agreements totaled $273 million and are
included in other assets.
In connection with an acquisition in 2005, ACG assumed residual value support agreements with
expiration dates ranging from 2011 to 2015. The gross remaining residual value exposure under
these agreements was $99 million as of December 31, 2009 and 2008. As of December 31, 2009,
the Company has estimated that it has no measurable liability under the remaining residual
value guarantee agreements.
PL-58
In connection with the reinsurance of NLGR benefits from Pacific Life to PAR Bermuda and PAR
Vermont (Note 16), PAR Bermuda and PAR Vermont entered into a three year letter of credit
agreement with a group of banks in April 2009. This agreement allows for the issuance of
letters of credit with an expiration date of March 2012 to PAR Bermuda and PAR Vermont for up
to a combined total amount of $650 million. As of December 31, 2009, a $340 million letter of
credit had been issued from this facility for PAR Bermuda. In addition, a letter of credit
issued for PAR Vermont totaled $52 million as of December 31, 2009. Pacific LifeCorp
guarantees the obligations of PAR Bermuda and PAR Vermont under the letter of credit
agreement.
CONTINGENCIES — LITIGATION
During the year ended December 31, 2007, Pacific Life settled a national class action lawsuit,
Cooper v. Pacific Life, for a combination of cash distributions and contract credits to owners
of qualified annuity contracts who purchased their contracts between August 19, 1998, and
April 30, 2002, or paid premium payments during that time period. Pacific Life strongly
disagreed with the claims in the lawsuit. The settlement is not considered an admission or
concession with respect to any claims made in the lawsuit and did not have a material adverse
effect on the Company’s consolidated financial position. Initial distributions were made to
eligible class members in the first quarter of 2008 with subsequent annual distributions for
four years thereafter.
The Company is a respondent in a number of other legal proceedings, some of which involve
allegations for extra-contractual damages. Although the Company is confident of its position
in these matters, success is not a certainty and it is possible that in any case a judge or
jury could rule against the Company. In the opinion of management, the outcome of such
proceedings is not likely to have a material adverse effect on the Company’s consolidated
financial position. The Company believes adequate provision has been made in its consolidated
financial statements for all probable and estimable losses for litigation claims against the
Company.
CONTINGENCIES — IRS REVENUE RULING
On August 16, 2007, the IRS issued Revenue Ruling 2007-54, which provided the IRS’
interpretation of tax law regarding the computation of the DRD. On September 25, 2007, the
IRS issued Revenue Ruling 2007-61, which suspended Revenue Ruling 2007-54 and indicated the
IRS would address the proper interpretation of tax law in a regulation project that is on the
IRS’ priority guidance plan. Although no guidance has been issued, if the IRS ultimately
adopts the interpretation contained in Revenue Ruling 2007-54, the Company could lose a
substantial amount of DRD tax benefits, which could have a material adverse effect on the
Company’s consolidated financial statements.
CONTINGENCIES — OTHER
In connection with the sale of certain broker-dealer subsidiaries (Note 6), certain
indemnifications triggered by breaches of representations, warranties or covenants were
provided by the Company. Also, included in the indemnifications is indemnification for
certain third-party claims arising from the normal operation of these broker-dealers prior to
the closing and within the nine month period following the sale. The Company believes
adequate provision has been made in its consolidated financial statements for all probable and
estimable losses for litigation claims against the Company.
In the course of its business, the Company provides certain indemnifications related to other
dispositions, acquisitions, investments, lease agreements or other transactions that are
triggered by, among other things, breaches of representations, warranties or covenants
provided by the Company. These obligations are typically subject to time limitations that
vary in duration, including contractual limitations and those that arise by operation of law,
such as applicable statutes of limitation. Because the amounts of these types of
indemnifications often are not explicitly stated, the overall maximum amount of the obligation
under such indemnifications cannot be reasonably estimated. The Company has not historically
made material payments for these types of indemnifications. The estimated maximum potential
amount of future payments under these obligations is not determinable due to the lack of a
stated maximum liability for certain matters, and therefore, no related liability has been
recorded. Management believes that judgments, if any, against the Company related to such
matters are not likely to have a material adverse effect on the Company’s consolidated
financial statements.
Most of the jurisdictions in which the Company is admitted to transact business require life
insurance companies to participate in guaranty associations, which are organized to pay
contractual benefits owed pursuant to insurance policies issued by insolvent life insurance
companies. These associations levy assessments, up to prescribed limits, on all member
companies in a particular state based on the proportionate share of premiums written by member
companies in the lines of business in which the insolvent insurer operated. The Company has
not received notification of any insolvency that is expected to result in a material guaranty
fund assessment.
PL-59
In relation to the ACG Trust II securitization (Note 4), Pacific Life is contingently
obligated to purchase certain notes from ACG Trust II to cover shortfalls in amounts due to
the holders of the notes, up to certain levels as specified under the related agreements. As
of December 31, 2009, the maximum potential amount of this future investment commitment was
$100 million.
The Asset Purchase Agreements of Aviation Trust, ACG Trust II and ACG Trust III (Note 4)
provide that Pacific LifeCorp will guarantee the performance of certain obligations of ACG, as
well as provide certain indemnifications, and that Pacific Life will assume certain
obligations of ACG arising from the breach of certain representations and warranties under the
Asset Purchase Agreements. Management believes that obligations, if any, related to these
guarantees are not likely to have a material adverse effect on the Company’s consolidated
financial statements. The financial debt obligations of Aviation Trust, ACG Trust II and ACG
Trust III are non-recourse to the Company and are not guaranteed by the Company.
In connection with the operations of certain subsidiaries, Pacific Life has made commitments
to provide for additional capital funding as may be required.
See Note 10 for discussion of contingencies related to derivative instruments.
See Note 18 for discussion of other contingencies related to income taxes.
22.
SUBSEQUENT EVENTS
The Company has evaluated events subsequent to December 31, 2009 and through March 4, 2010,
the date the consolidated financial statements were available to be issued. The Company has
not evaluated subsequent events after that date for presentation in these consolidated
financial statements.
As of January 1, 2010, the Board of Directors of Pacific LifeCorp and Pacific Life authorized
a cash capital contribution to ACG in the amount of $350 million, which could be made up to
March 31, 2010.
Effective January 1, 2010, the Investment Management segment’s products were moved into other
segments of the Company. Structured settlement and group retirement annuities were moved to
the Annuities & Mutual Fund segment and the other institutional investment products became
part of the Corporate and Other segment.
PL-60
PART II
Part C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a)
Financial Statements
Part A: None
Part B:
(1)
Registrant’s Financial Statements
Audited Financial Statements dated as of
December 31, 2009 and for each of the periods presented which are
incorporated by reference from the 2009 Annual Report include the following for
Separate Account A:
Statements of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Notes to Financial Statements
Report of Independent Registered Public
Accounting Firm
(2)
Depositor’s Financial Statements
Audited Consolidated Financial Statements
dated as of December 31, 2009
and 2008, and for each of the three years in the period ended
December 31, 2009, included in
Part B include the following for Pacific Life:
Independent Auditors’ Report
Consolidated Statements of Financial Condition
Consolidated Statements of Operations
Consolidated Statements of Stockholder’s Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(b)
Exhibits
1.
(a)
Resolution of the Board of Directors of the Depositor authorizing
establishment of Separate Account A and Memorandum establishing Separate
Account A.1
(b)
Memorandum Establishing Two New Variable Accounts — Aggressive Equity
and Emerging Markets Portfolios.1
(c)
Resolution of the Board of Directors of Pacific Life Insurance
Company authorizing conformity to the terms of the current
Bylaws.2
II-1
2.
Not applicable
3.
(a)
Distribution Agreement between Pacific Life Insurance Company (formerly Pacific Mutual Life
Insurance
Company) and Pacific Select Distributors, Inc. (“PSD”)(formerly Pacific Equities Network)1
(b)
Form of Selling Agreement between Pacific Life, PSD and
Various Broker Dealers11
Item 26. Persons Controlled by or Under Common Control with Pacific Life or Separate Account A.
The following is an explanation of the organization chart of Pacific Life’s subsidiaries:
Pacific Life is a Nebraska Stock Life Insurance Company wholly-owned by Pacific LifeCorp (a
Delaware Stock Holding Company), which is, in turn, 100% owned by Pacific Mutual Holding Company (a
Nebraska Mutual Insurance Holding Company).
A Division of Pacific Life Fund Advisors LLC does business as Pacific Asset Management
Item 27. Number of Contractholders
Pacific
Voyages - Approximately
28,972
Qualified
16,911
Non Qualified
Item 28. Indemnification
(a)
The Distribution Agreement between Pacific Life and Pacific Select
Distributors, Inc. (PSD) provides substantially as follows:
Pacific Life hereby agrees to indemnify and hold harmless PSD and its
officers and directors, and employees for any expenses (including legal
expenses), losses, claims, damages, or liabilities incurred by reason of any
untrue or alleged untrue statement or representation of a material fact or any
omission or alleged omission to state a material fact required to be stated to
make other statements not misleading, if made in reliance on any prospectus,
registration statement, post effective amendment thereof, or sales materials
supplied or approved by Pacific Life or the Separate Account. Pacific Life
shall reimburse each such person for any legal or other expenses reasonably
incurred in connection with investigating or defending any such loss,
liability, damage, or claim. However, in no case shall Pacific Life be required
to indemnify for any expenses, losses, claims, damages, or liabilities which
have resulted from the willful misfeasance, bad faith, negligence, misconduct,
or wrongful act of PSD.
PSD hereby agrees to indemnify and hold harmless Pacific Life, its
officers, directors, and employees, and the Separate Account for any expenses,
losses, claims, damages, or liabilities arising out of or based upon any of the
following in connection with the offer or sale of the contracts: (1) except for
such statements made in reliance on any prospectus, registration statement or
sales material supplied or approved by Pacific Life or the Separate Account,
any untrue or alleged untrue statement or representation is made; (2) any
failure to deliver a currently effective prospectus; (3) the use of any
unauthorized sales literature by any officer, employee or agent of PSD or
Broker; (4) any willful misfeasance, bad faith, negligence, misconduct or
wrongful act. PSD shall reimburse each such person for any legal or other
expenses reasonably incurred in connection with investigating or defending any
such loss, liability, damage, or claim.
(b)
The Form of Selling Agreement between Pacific Life, Pacific Select
Distributors, Inc. (PSD) and Various Broker-Dealers and Agency (Selling Entities) provides substantially as
follows:
Pacific Life and PSD agree to indemnify and hold harmless Selling Entities, their officers,
directors, agents and employees, against any and all losses, claims, damages, or liabilities to
which they may become subject under the Securities Act, the Exchange Act, the Investment Company
Act of 1940, or other federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of a material fact or any
omission or alleged omission to state a material fact required to be stated or necessary to make
the statements made not misleading in the registration statement for the Contracts or for the
shares of Pacific Select Fund (the “Fund”) filed pursuant to the Securities Act, or any prospectus
included as a part thereof, as from time to time amended and supplemented, or in any advertisement
or sales literature provided by Pacific Life and PSD.
II-5
Selling Entities agree to, jointly and severally, hold harmless and indemnify Pacific Life and PSD
and any of their respective affiliates, employees, officers, agents and directors (collectively,
“Indemnified Persons”) against any and all claims, liabilities and expenses (including, without
limitation, losses occasioned by any rescission of any Contract pursuant to a “free look” provision
or by any return of initial purchase payment in connection with an incomplete application),
including, without limitation, reasonable attorneys’ fees and expenses and any loss attributable to
the investment experience under a Contract, that any Indemnified Person may incur from liabilities
resulting or arising out of or based upon (a) any untrue or alleged untrue statement other than
statements contained in the registration statement or prospectus relating to any Contract, (b) (i)
any inaccurate or misleading, or allegedly inaccurate or misleading sales material used in
connection with any marketing or solicitation relating to any Contract, other than sales material
provided preprinted by Pacific Life or PSD, and (ii) any use of any sales material that either has
not been specifically approved in writing by Pacific Life or PSD or that, although previously
approved in writing by Pacific Life or PSD, has been disapproved, in writing by either of them, for
further use, or (c) any act or omission of a Subagent, director, officer or employee of Selling
Entities, including, without limitation, any failure of Selling Entities or any Subagent to be
registered as required as a broker/dealer under the 1934 Act, or licensed in accordance with the
rules of any applicable SRO or insurance regulator.
II-6
Item 29. Principal Underwriters
(a)
PSD also acts as principal underwriter for Pacific
Select Variable Annuity Separate Account, Separate Account B, Pacific
Corinthian Variable Separate Account, Pacific Select Separate Account, Pacific Select Exec
Separate Account, COLI Separate Account, COLI II Separate Account, COLI III Separate Account,
COLI IV Separate Account, COLI V Separate Account, Separate Account A of Pacific Life & Annuity Company, Pacific Select Exec Separate Account of Pacific Life &
Annuity Company, Separate Account I of Pacific Life Insurance Company, Separate Account I of Pacific Life
& Annuity Company.
(b)
For information regarding PSD, reference is made to Form B-D, SEC
File No. 8-15264, which is herein incorporated by reference.
(c)
PSD retains no compensation or net discounts or commissions from
the Registrant.
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the rules under that section will be maintained by Pacific Life at 700 Newport
Center Drive, Newport Beach, California92660.
Item 31. Management Services
Not applicable
Item 32. Undertakings
The registrant hereby undertakes:
(a)
to file a post-effective amendment to this registration statement
as frequently as is necessary to ensure that the audited financial statements
in this registration statement are never more than 16 months old for so long as
payments under the variable annuity contracts may be accepted, unless otherwise
permitted.
(b)
to include either (1) as a part of any application to purchase a
contract offered by the prospectus, a space that an applicant can check to
request a Statement of Additional Information, or (2) a post card or similar
written communication affixed to or included in the prospectus that the
applicant can remove to send for a Statement of Additional Information, or (3)
to deliver a Statement of Additional Information with the Prospectus.
(c)
to deliver any Statement of Additional Information and any
financial statements required to be made available under this Form promptly
upon written or oral request.
II-7
Additional Representations
(a) The Registrant and its Depositor are relying upon American Council of
Life Insurance, SEC No-Action Letter, SEC Ref. No. 1P-6-88 (November 28, 1988)
with respect to annuity contracts offered as funding vehicles for retirement
plans meeting the requirements of Section 403(b) of the Internal Revenue Code,
and the provisions of paragraphs (1)-(4) of this letter have been complied
with.
(b) The Registrant and its Depositor are relying upon Rule 6c-7 of the
Investment Company Act of 1940 with respect to annuity contracts offered as
funding vehicles to participants in the Texas Optional Retirement Program, and
the provisions of Paragraphs (a)-(d) of the Rule have been complied with.
(c) REPRESENTATION PURSUANT TO SECTION 26(f) OF THE INVESTMENT COMPANY
ACT OF 1940: Pacific Life Insurance Company and Registrant represent that the
fees and charges to be deducted under the Variable Annuity Contract
(“Contract”) described in the prospectus contained in this registration
statement are, in the aggregate, reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed in
connection with the Contract.
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it
meets the requirements of Securities Act Rule 485(b) for
effectiveness of this Registration Statement and has caused this
Post-Effective Amendment No. 18 to the
Registration Statement on Form N-4 to be signed on its behalf by the
undersigned thereunto duly authorized in the City of Newport Beach, and the
State of California on this 20th
day of April 2010.
SEPARATE ACCOUNT A
(Registrant)
By:
PACIFIC LIFE INSURANCE COMPANY
By:
James T. Morris*
Director, Chairman, President
and Chief Executive Officer
By:
PACIFIC LIFE INSURANCE COMPANY
(Depositor)
By:
James T. Morris*
Director, Chairman, President and Chief Executive Officer
Pursuant
to the requirements of the Securities Act of 1933, Post-Effective
Amendment No. 18 to the
Registration Statement has been signed
by the following persons in the capacities and on the dates indicated:
Signature
Title
Date
James T. Morris*
Director, Chairman, President and Chief Executive Officer
(Powers of Attorney are contained in
Post-Effective Amendment No. 17 of the Registration Statement
filed on Form N-4 for Separate Account A,
File No. 333-136597, Accession No. 0000950123-09-070795, filed on
December 15, 2009,
as Exhibit 13).
Dates Referenced Herein and Documents Incorporated by Reference
