Principal Life Insurance Co Separate Account B
Filed: 11 Apr 12, 12:00am
April 11, 2012
VIA EDGAR
Rebecca A. Marquigny, Esq.
Senior Counsel
Office of Insurance Products
Division of Investment Management
U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
RE: Principal Life Insurance Company Separate Account B
Principal Life Insurance Company
Post-Effective Amendment No. 19 Under the Securities Act of 1933
Amendment No. 148 Under the Investment Company Act of 1940
File Nos. 333-116220 & 811-02091
Dear Ms. Marquigny:
This letter is in response to the comments provided by the Staff of the Securities and Exchange Commission (the “Commission”), which were communicated in a letter dated February 25, 2012, regarding Post-Effective Amendment No. 19 under the Securities Act of 1933 (“1933 Act”) and Amendment No. 148 under the Investment Company Act of 1940 to the registration statement filed on Form N-4 (the “Post-Effective Amendment”). The Post-Effective Amendment was filed with the Commission on January 11, 2012 pursuant to Rule 485(a) under the 1933 Act. Capitalized terms have the same meanings given them in the Post-Effective Amendment. Changes in response to the Staff comments as described below will be made by the Registrant in a post-effective amendment to the registration statement that will be filed with the Commission pursuant to Rule 485(b) under the 1933 Act.
The Company’s response to the Staff’s comments are set forth below. In addition, Company made changes for all applicable comments from the Staff’s March 6, 2012, PLIS letter. For convenience, each response is preceded by the applicable Staff comment. Attached to this response letter is a blackline draft of the prospectus (compared to the January 11, 2012 version filed with the Post-Effective Amendment). Page number references are from the attached, blackline draft of the prospectus.
RESPONSES TO STAFF COMMENTS
COMMENT 1. Cover Page: RequiredDisclosure.
a. Item 1(a)(v). Please include the statement that all additional information, notjust the Statement ofAdditional Information, is available without charge.
RESPONSE: The words “and all additional information” are added to the sentence offering a free copy of the SAI on page 1 of the prospectus.
b. Item 1(a)(viii). Please show the names of all the portfoliocompanies onthe outside cover page perItem 1(a)(viii). The staff would not object ifthe list offunds is shown onthe inside cover ifitdoes not fit onthe outside front cover page. See Form N-4,General Instruction J.4(a). Please keepthe list offunds,the footnote references,and the footnote text on the same page so all relevantinformation appears together. Finally,please rewrite the text of footnote 2 in plain English.Specifically,state that fund offunds expenses may be higherthanotherfund types because theexpenses of the selected fund include the expenses ofthe funds it holds.
RESPONSE: The names of all the portfolio companies, the footnote reference, and the footnote text are now all together on page 2 of the prospectus. Footnote 2 is revised.
c. Bonus Credit Disclosure. Please move the cautionary disclosure about the credit feature frompage 2to the front cover page and bold,underline or otherwise highlight the 3rd and 4thsentences inthe gray box.
RESPONSE: The disclosure in the gray box regarding the Premium Payment Credit Rider is now on page 1 of the prospectus, and the 3rd and 4th sentences in the gray box are now in bold.
d. Additional Cover Page Disclosure. The inside cover page disclosure (p. 2)says certain Contractfeatures and investment options are not available to all purchasers but does not clearlyidentify which ones. Expresslyname the features and options that are not available to all purchasers orclearly state how a prospective purchaser can find this information (e.g., provide a toll-free numbertocall fordetails orcross-reference to the prospectus section that provides the relevant availabilityinformation). Also,please confirm that the prospectus describes all material variations amongvarious jurisdictions or brokers offeringandsellingthe policy.
RESPONSE: We outline the material state variations in the prospectus. Currently, we have no broker offering variations; this language is for potential offerings in the future. Last, we added an 800 number if a customer has any questions.
COMMENT 2. Glossary (pp. 6-7).
a. Generally. Currently, definedterms are hard toidentifyinthe body ofthe prospectus becausethey do notstand out visually andmayhave anordinary meaningas well. Please make definedterms visually distinguishable from the rest ofthe prospectus text each time they appear(e.g.,bold,italicized,CAPITALIZED, underlined,etc.). Also,please add definitions for“APR” and“CashSurrenderValue” which are not explained until page 49.
RESPONSE: Defined terms are now italicized throughout the prospectus, except in the Table of Contents and headings. “APR” and “Cash Surrender Value” are now defined.
b. Accumulated Value. The definitions ofAccumulated Value,DCA Plus AccumulatedValue,Fixed Account AccumulatedValue,andSeparate Account DivisionAccumulatedValue are allcircular. Please define them independently.
RESPONSE: The definitions for these 4 terms are revised and defined independently.
c. DCA Plus Account. Please clarify that the DCA Plus Account guarantees the rate ofinterest acontractownerearns on assets in the account, not the amount ofinterest those assets will earn.
RESPONSE: The definition of “DCA Plus Account” is revised to reflect this.
COMMENT 3. Fee Table Presentation:Generally (pp. 8-11).
a. Consistent Terminology. Inthe tables, please call each charge by the same name it is called inthe prospectus (e.g.,“SurrenderCharge” ratherthan“Highest deferredsurrendercharge). Likewise,consider adopting aunique name for one of the two Transaction Fee charges soinvestors do not getconfused.
RESPONSE: We revised the fee table and now just use the term “Surrender Charge.” Further, we combined the 2 transaction fees into one row, but cannot rename them, as this would be inconsistent and confusing with the data page of our contract.
b. Extraneous Table Text. Please limit the text in the table and,whereverpossible, present onlynumerical information in the 2nd and 3rd columns. Forexample, inthe Transaction Expense Table’s 3rdline item (“Transaction Fees foreach unscheduled partial surrender”), considersubstituting“theamount surrendered” for“each unscheduledpartial surrender” andmovingthe remaining text to the1stcolumnor a footnote. Likewise, forState Premium Taxes,all ofthe information afterthe word“NOTE” couldbe movedto a footnote.
RESPONSE: We revised the tables and limited the text as much as possible, moving language to footnotes.
c. Consistent Presentation. Please use the same 2-column,“Maximum” and“Current” presentation forall charges (includingthe Annual Fee).
RESPONSE: We made this change.
COMMENT 4. Transaction Expense Table & Footnotes (pp. 8, 11). Instruction 12 toItem 3states that “[i]f theRegistrant (or any other party pursuant to an agreement withthe Registrant)charges any othertransactionfee,” the maximum charge forthat fee should bedisclosed in the table. (Emphasisadded). The table does not include a line item representing the fund level transfer charges describedin Footnote 4. Rather,Footnote 4says the Separate Account may assess fund level transfer fees inthe future in addition tothe transaction charges in the table. It says Principal also may deduct thecost of anyfuture transaction charges the Separate Account or underlying funds adopt in response to regulatory requirements. What is the purpose of this disclosure? Is Principal trying to reserve the right to pass on a specific regulatory expense? Please explainin supplementary correspondence tothe Staff.
RESPONSE: In today’s rapidly changing regulatory environment, we are unsure what future fees federal or state regulators might require us to assess. Therefore, this language is intended to provide us with the flexibility to respond to these requirements, and where allowed, consider passing them on to the customer.
COMMENT 5. Periodic Expenses Table (p. 9).
a. Separate Account Charges. Please revise the presentation ofSeparate Account Annual Expensesso the Mortality andExpense Risks Charge and the Administration Charge are shown as independentline items followedby a Total Separate Account Annual Expense forall non-optional charges. Asthe example charges are based onthe maximum charges forthe most expensivecombination ofoptional benefits,please consider including aseparate line showing followingthe GMWB 2-SL/JL Rider line to show the combinedsum of (i)the total separate account expenses at the top ofthe table; plus (ii) the most expensive combination ofoptional riders available. In a footnote,state theassumptions usedto determine the rider charges and say that total charges may behigher or lower ifactual andassumed values differ. (The Staff does not object if you assume the GMWB 2-SL/JL riderbenefit base and variable account value are equal.). Ifyouchoose not toinclude this total chargeinformationhere,the expense example preamble shouldgive the value GMWB 2-SL/JL ridercharge usedto compute the figures in the chart. Also, in afootnote to the GMWB 2-SL/JL rider bullet pointinthe preamble,please explainthe assumptions used to compute this charge.
RESPONSE: We revised the Periodic Expense table and added the GMWB 2-SL/JL rider to the expense example preamble.
b. Charges Stated asPercentages of aQuarterly Base. Please insert the word“annual” before theword“average” in the parentheticals in the first column of the table.
RESPONSE: We changed the column headings to reflect an “annual” charge. However, we could not add to the parenthetical of the first column as this would not be correct. Please see footnote 7 for the explanation of this calculation.
COMMENT 6. Portfolio Expenses (p. 10). Please confirm that anyfee waivers reflected in the table’s portfolioexpense numbers will be contractual and not voluntary.
RESPONSE: The fee waivers reflected in the table’s portfolio expense numbers are contractual.
COMMENT 7. Expense Examples (p. 12).
a. Example Assumptions. Please confirm that the expense example figures will reflect contractualfee waivers onlyfor the duration ofthe contractual period.
RESPONSE: The expense example figures reflect contractual fee waivers only for the duration of the contractual period.
b. GMWB 2-SL/JL Rider Charge (“GMWB Charge”). Please identifythe amount ofthe GMWB Charge inthe example narrative. What facts did you assume inorder to calculate this charge? Forinstance, ifyoucalculated it assumingan Investment Back withdrawal benefit base equal to the variable account value,state this in a footnote. If a different assumption applies, provide that informationinstead.
RESPONSE: We added a new footnote 1 after the example table. Further, we are following the contract and the rider provision calculations as described in those documents.
COMMENT 8. Summary:Investment Limitations (p.12). In the 2nd set of bullet points, please say where to find the current fund prospectuses mentioned in the 1st bullet point. Also in the 3rd bullet point, specifically name the riders and briefly summarize the investment limitations they impose (e.g., “the GMWB 2-SL/JL Rider requires contract owners to allocate 100% of their variable account assets to one of two designated balanced fund options for the life of the contract”).
RESPONSE: We modified the second set of bullet points to address the Staff’s concerns.
COMMENT 9. Summary:Transfers (p. 13). The reference to “[t]his section” in the last sentence immediately above the heading “Surrenders” is unclear. Does it refer to the cross-referencedsectioninthe priorsentence orthe entire “Transfers” section inthe synopsis? Please clarify.
RESPONSE: We clarified this by adding the word “Transfers” before the word “section.”
COMMENT 10. Summary:Surrenders (p. 13). In the 3rdprimary bullet,“total surrenders” couldmeantwo different things: (a)surrender ofthe entire contract; or (b) requested partial surrender value plus relatedsurrendercharges. Please clarifyor define in the glossary. Also, if applicable, insert the word “cumulative” between “year,” and “partial surrenders” in the 2nd to last bullet point.
RESPONSE: We clarified this language to address the Staff’s concerns.
COMMENT 11. Summary: Charges & Deductions (p. 13).
a. 1stBullet Point. Please restate foraccuracy. No sales charge is deducted from the premium value at the time of payment. However, the contract still imposes a sales charge on premium payments; itjust does so through a CDSC.
RESPONSE: We clarified this language.
b. 3rdBullet Point. Please include the names of the optional riders andtheir fees in the summary asyou have done forall othercontract-level charges.
RESPONSE: We listed the optional riders and their fees.
COMMENT 12. Summary:Death Benefit (p. 14). Please state the value ofthe standard death benefit andthe default form of payment. Also,summarize the death benefit(s) providedby the optional riders.
RESPONSE: We stated the value of the standard death benefit. Regarding the default form of payment, we do not have one, as we pay to the state after the required period of time. Last, we summarized the optional riders’ death benefits.
COMMENT 13. Summary:Optional Riders (p. 14). The synopsis shouldsummarize all of the keyfeatures ofthe offering. See Guide 7to Form N-4. Please add abrief description ofeachoptional rider,the benefitit provides,the restrictions it imposes and, if significant,the consequences of specific contracttransactions underthe rider (e.g.,excessive withdrawals may significantly reduce orcompletelyeliminate the withdrawal value available underthe rider...).
RESPONSE: We added a brief description of each optional rider. With such changes, we are confident that our level of disclosure is consistent with the guidance in Item 7 of the N-4.
COMMENT 14. Item 4(a): Condensed Financial Information. Please include a cross-reference indicating thelocation ofthe CondensedFinancial Information in the Appendix. The cross-reference shouldappearinthe place where the CondensedFinancial Information would otherwise have appeared in the prospectus pursuant toItem 4(a). See Cova Financial Services Life Insurance Co., et al.,SECNo-ActionLetter (April 15, 1996).
RESPONSE: We made this change on page 16 of the attached, blackline draft of the prospectus.
COMMENT 15. AccumulatedValue (pp. 17-18). Please supplementally explain to the Staff how the optional rider charges are factored into total Separate Account annual expenses (variable “d”) forthe purposes ofthe net investment factorequation. Specifically, explain how the following sentence works when afee is based on a percentage of average quarterly accumulated value: “[t]he Separate Accountcharges are calculatedby dividing the annual amount of the charge by 365andmultiplyingbythenumber of days inthe valuation period.” Doyou base the annual amount of the charge on the highest quarterlyvalue? If not, how does this calculationaccount for a situationinwhich the sum of the four quarterly charges is more thanit wouldbe if the quarterly charge was annualized? In essence, how does this work for the situations described in footnote 6to Periodic Fee Table?
RESPONSE: Contracts witha Premium Payment Credit Rider have a different net investment factor than contracts without it. The GMWB rider charges are not part of the net investment factor. Therefore, the “average quarterly accumulated value” is not used to calculate the GMWB charge.
COMMENT 16. Telephone andInternet Services (pp. 18-19). The acronym “APR” appears in the 4thbulletpoint but is not describeduntil page 49. Please define it in the glossary orcross-reference the related prospectus description. Also,please confirm that the website linkunder“Internet” directs the readertothe information described. The Staff was not able tolocate it from the current URL.
RESPONSE: We defined APR in the glossary and revised the reference here. The website link offers a secured login for customers. Once a valid customer logs in, the contract information is viewable.
COMMENT 17. Transaction Fee (p. 22). Please state how the contractownerwill be notified if Principalexercises its right to charge this fee andmake correspondingchanges to the detailed narrative sectionlater inthe prospectus (p. 47). Provide the equivalent forthe Annual Fee section onpage 22too.
RESPONSE: We added disclosure regarding notification to these sections.
COMMENT 18. GMWBCharge (p. 23).Please be more specific whenyou describe the deduction ofthis charge.What does “taken at the end of the calendar quarter” mean? Whenis the charge calculated?
RESPONSE: We clarified this language per the Staff’s comments.
COMMENT 19. Fixed Account andDCAPlus Accounts (p. 25). The disclosure states that the “SeparateAccount expenses are not assessedagainst any Fixed Account orDCA Plus Account Values” andthat the Fixed Account accumulated value includes interest creditedto the FixedAccount. Please reconcile these statements withthe assessment of the Premium Payment Credit Rider maximumcharge described inthe fee table.
RESPONSE: Currently, the charge for the Premium Payment Credit Rider is taken from the Separate Account. However, we are reserving the right to reduce the Fixed Account interest rate in the future. We modified the table to better clarify this.
COMMENT 20. Living Benefit:GMWB -Introduction (p. 27). As this contract only offers one GMWBridertonew contractowners,the statement that purchasers “may have only one GMWBrider on [their] Contracts” is confusing. Please clarifyor remove it.
RESPONSE: We moved this sentence to the end of the paragraph to help clarify. As existing clients may already have a rider, we need to keep the language.
COMMENT 21. GMWB Overview (pp. 27-29)
a. Significant Consequences. Please use some visually distinguishable font (e.g., italics,bold,etc.)to highlight the last sentence of the ���Bonus feature” description onpage 27and the sentence on thefollowing page which begins “[i]fyoutake withdrawals inan amount that exceeds an availablewithdrawal benefit payment....”
RESPONSE: We bolded both sentences.
b. Additional death benefit (p. 27). If correct,please clarifythat certain death benefit options are only available toeligible beneficiaries.
RESPONSE: We added the word “eligible” to clarify the language.
COMMENT 22. Withdrawal Benefit Base (p. 30). Please clarify the practical effect of the last sentence underthis heading.
RESPONSE: We are informing the customer how to maintain benefits. After the For Life withdrawal benefit base reduces to zero, the For Life withdrawal option is no longer available unless new premium payments are made.
COMMENT 23. Withdrawal Benefit Payments:TaxDisclosure (pp. 31-32). Underthe “‘Joint Life ForLife’withdrawal benefit payments” heading,the first “Note” says the contract will be interpretedandadministered according to the Internal Revenue Code, butalso says “[s]tate variations may apply.”Please explainthe 2ndstatement. Likewise,please explain the references to“72t distributions” whichappear in the “Note” section under“Calculatingthe ForLife Withdrawal Benefit Payment” heading onthe following page.
RESPONSE: Some states permitting civil unions or same-sex marriage require insurance companies to allow partners to continue the contract under state law, even though federal law does not allow any tax benefit to accrue to the continuing partner. The reference to 72t in the second “Note” is just an alert for the customer. Under 72t, a customer can receive substantially equal payments without an IRS tax penalty, even if under age 59½. However, these withdrawals are excess withdrawals.
COMMENT 24. Excess Withdrawals (p. 34). In the disclosure afterthe bold heading“Effect on withdrawal benefit base,” please provide a plainEnglish explanation of what this equationdoes. Forthe relatedequation directly below it (“Effect on remainingwithdrawal benefit base”),add asimilarplain Englishexplanation, butalso describe how the two equations are different in a practical sense.
RESPONSE: We added disclosure clarifying these two equations.
COMMENT 25. RMD Program (p. 35). Please visually highlight the 2ndsentence inthe RMD Program “NOTE.”
RESPONSE: We bolded this sentence.
COMMENT 26. GMWB Step-Up (pp. 36-37). What is the practical effect of the “NOTE” information? Explain.
RESPONSE: If a customer takes withdrawals in amounts that reduce the remaining withdrawal benefit base to zero, the remaining withdrawal benefit base is not eligible for a GMWB Step-Up. This remains true even if additional premium payments are made. The product design and the rider costs will not support a GMWB Step-Up under this scenario.
COMMENT 27. Effect ofthe Contract AccumulatedValue ReachingZero...” (pp. 37-38). Identify the defaultwithdrawal option that applies if the contractownerdoes not specify achoice.
RESPONSE: We added disclosure to address the Staff’s concern.
COMMENT 28. Termination and Reinstatement ofthe Rider (p. 41). Given the significance of the first sentence underthis heading,please use a different font orsome othermethod of drawingattention toit.
RESPONSE: We made this sentence bold.
COMMENT 29. Premium Payment Credit Rider (pp. 45-46). Inaddition to the list offactors individualcontractowners should consider (top of page 26),please expresslyidentify the circumstances inwhich all contractowners will be worse off with the credit than without it.
RESPONSE: We revised the language and laid out the scenarios that could affect customers. This was necessary, as not all scenarios affect all customers.
COMMENT 30. Annuity Benefit Payment Options (pp. 51-52). Please considerdisclosing the minimum guaranteed interest rate for the fixed payout options.
RESPONSE: The minimum guaranteed interest rate for the fixed payout options is dependent upon the customer’s selections. Further, it varies between benefit options, the time the contract was issued, and future changes. Trying to disclose this could make the prospectus quickly become out of date. Therefore, after careful consideration, we did not make any change.
COMMENT 31. Assignment and Change ofOwnership (pp. 55-56).Please state any significant consequenceseither of these actions may have on the GMWBRider,if any.
RESPONSE: We added language for these two sections and the “Beneficiary” section.
COMMENT 32. Distribution ofthe Contract (p. 58). If Princor is anaffiliatedcompany,please state this and disclose how it is affiliatedwiththe registrant.
RESPONSE: We revised the language regarding Princor’s affiliation with Registrant.
COMMENT 33. Principal Life Insurance Company Separate Account B (p. 62). Please revise the disclosure describingthe insurance company’s general andseparate account obligations so a readerwill understand how that distinction applies to the optional livingbenefits offered. Specifically,explainthat ifthe optional benefit value exceeds the value in the separate account,benefit payments based onthat excess are: (1)obligations ofthe general account, not the separate account; and (2)subject to the rights of the insurance company’s othercreditors and, ultimately, its overall claims payingability.
RESPONSE: We revised this disclosure language to address the Staff’s concerns.
COMMENT 34. Item 5(f)Disclosure. Please provide the information requiredby Item 5(f) of Form N-4orconfirm that the prospectus includes all the disclosure responsive tothis requirement.
RESPONSE: We added language on page one of the prospectus. In addition, a phone number is provided in Section 1, The Contract/Telephone Services and Section 11, General Information About The Company/The Underlying Mutual Funds. We believe the disclosure complies with this Form N-4 requirement.
COMMENT 35. Legal Proceedings (p. 63). Ifcorrect,please disclose that there are also nolegal proceedingsinvolving Registrant’s principal underwriter, depositor orany ofRegistrants subsidiaries forwhich disclosure is requiredunder Item 13 ofForm N-4.
RESPONSE: We revised the language pursuant to Item 13 of Form N-4.
COMMENT 36. Householding (p. 63). Please confirm that Principal’s householdingpolicy is administered in amannerconsistent with Rule 30e-1(f)underthe Investment CompanyAct.
RESPONSE: We confirm this.
COMMENT 37. Payments to Financial Intermediaries (pp. 63- 64).PerItem 6(d) ofForm N-4,please state thecommissions paidto dealers as a percentage of purchase payments orpoint the Staff to theprospectus sectionwhere this informationis already disclosed. Also,with respect to the fund offunds,please include narrative disclosure clarifying whether any underlying funds pay 12b-1 fees tothe Insurance Companyor its affiliates.
RESPONSE: The commissions paid to dealers are provided under the subsection entitled “Distribution of the Contract” of Section 9, Additional Information About The Contract. Further, we added disclosure regarding the fund of funds and 12b-1 fees.
COMMENT 38. Table ofSeparate Account Divisions (pp. 66-76). In the description ofanyfundthat isstructuredas a fund offunds,please indicate this inthe summary.
RESPONSE: We added a parenthetical to each fund that is a fund of funds.
COMMENT 39. Principal Underwriter (SAI, p. 3). Please confirm that all the information responsive toItem 20(d)is disclosed orwill be includedwhenthe filing is updatedtoinclude the required financials.
RESPONSE: We confirm this.
COMMENT 40. Calculation ofPerformance Data (SAI, pp. 5-9).
a. Performance Presentations. When describing each type of performance calculation,pleaseclarify which formulas represent those “inaccordance withthe standards definedby the SEC” andthose that are not,as well as the differences betweenthe two.
RESPONSE: We added language to clarify this.
b. Non-StandardizedPerformance and Premium Payment Credits. Please note that if a bonus/credit enhancement is reflected innon-standardized performance,the CDSCmust also be reflected. Consequently,the table on page 9 of the SAIis not permitted because it shows hypothetical performance of contracts with the Premium Payment Credit Rider butwithout theSurrenderCharge. Please remove it.
RESPONSE: The performance calculations for this table include the higher fee, but not the credit. Therefore, the table is permissable.
COMMENT 41. Item 24(b)(8) (Part C). UnderItem 24(b)(8), thedescription of(8h1)and (8h2) identifies theseexhibits as “Form of” Participation and“Rule 22c-2Agreements “with Principal Variable ContractsFunds (as filed on May 1, 2008),”respectively. Please file copies of the actual agreement(s)as requiredby Item 24 of Form N-4 or, inyour response letter,affirmatively represent that thecorresponding real agreements are all substantiallyidentical to the forms previously filedas Exhibits.
RESPONSE: We affirmatively represent the forms previously filed are all substantially identical to the actual agreements.
COMMENT 42. Item 29(b) (Part C). Please provide the principal business address forDeborah J. Barnhart orinclude the same footnote reference that applies everyotherPrincipal Financial Groupdirector, officer or partner inthe chart.
RESPONSE: We added the footnote for Ms. Barnhart.
* * *
We understand that the Registrant is responsible for the accuracy and adequacy of the disclosure in the filing and that Staff comments or our changes to the disclosure in response to the Staff comments do not foreclose the Commission from taking any action with respect to the filing. In addition, the Registrant may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
Please feel free to call me at (515) 362-2384 with any questions or comments.
Sincerely,
/s/ Jeffrey M. Pierick
Jeffrey M. Pierick
Counsel - Law Department
Principal Financial Group
S-006-W86
711 High Street
Des Moines, IA 50392
Direct (515) 362-2384
FAX (866) 496-6527
pierick.jeff@principal.com
JMP/kcr
Enclosure