Filed Pursuant to Rule 424(b)3
Registration Number: 333-132233
METLIFE INSURANCE COMPANY OF CONNECTICUT
FIXED ANNUITY
The MetLife Insurance Company of Connecticut (formerly, The Travelers Insurance
Company)* Fixed Annuity is a flexible premium group deferred annuity Contract
("the Contract and/or Certificates") which provides a guaranteed fixed rate of
return for your investment. We offer the Contract to employers for use with
retirement plans and programs that qualify for favorable federal tax treatment.
Where permitted by state law, we reserve the right to restrict purchase payments
into the Contract. If you surrender your Contract, your Cash Value may be
subject to a market adjusted value calculation and surrender charges.
This prospectus explains:
o the Contract and Certificate;
o MetLife Insurance Company of Connecticut;
o the Interest Rates;
o Surrenders and Partial Surrenders;
o Surrender Charges;
o Market Adjusted Value;
o Death Benefit;
o Annuity Payments;
o other aspects of the Contract.
The group annuity contracts may be issued to employers on an unallocated or
allocated basis. This Contract is issued by MetLife Insurance Company of
Connecticut. The Company is located at One Cityplace, 185 Asylum Street,
Hartford, Connecticut 06103-3415. The telephone number is 1-800-233-3591. MLI
Distribution LLC (formerly, Travelers Distribution LLC), One Cityplace,
Hartford, Connecticut 06103-3415 is the principal underwriter and distributor of
the Contracts.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR THE ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MUTUAL FUNDS, ANNUITIES AND INSURANCE PRODUCTS ARE NOT DEPOSITS OF ANY BANK, AND
ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY.
PROSPECTUS DATED MAY 1, 2006.
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*THE TRAVELERS INSURANCE COMPANY HAS FILED FOR APPROVAL TO CHANGE ITS NAME TO
METLIFE INSURANCE COMPANY OF CONNECTICUT. THE CHANGE WILL BE EFFECTIVE MAY 1,
2006 PENDING REGULATORY APPROVAL. YOU WILL RECEIVE A CONTRACT ENDORSEMENT
NOTIFYING YOU OF THE NAME CHANGE ONCE IT HAS OCCURRED.
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TABLE OF CONTENTS
Special Terms...................................... 1 Income Annuity Payments ................... 16
Summary............................................ 3 After Death & Death Benefits:
The Insurance Company.............................. 4 Non-Qualified Annuities.................... 17
The Contract....................................... 4 Qualified Annuity Contracts..................... 18
Application and Purchase Payments............. 4 Taxation of Qualified Annuity Contracts......... 18
Interest Periods................................... 4 Mandatory Distributions for Qualified
Establishment of Interest Rates............... 5 Plans........................................ 18
Surrenders......................................... 5 Individual Retirement Annuities................. 19
Transfers.......................................... 5 Roth IRAs ...................................... 19
Restrictions on Financial Transactions........ 6 Keogh........................................... 20
Charges and Deductions............................. 6 Section 403(b) Plans and Arrangements........... 20
Surrender Charge.............................. 6 Designated Roth Accounts for 403(b) Plans....... 21
Contract Discontinuation and Market Qualified Pension and Profit-Sharing Plans...... 22
Adjusted Value.............................. 7 Section 457 Plans............................... 23
Premium Taxes................................. 9 Taxation of Death Benefit Proceeds.............. 24
Reductions of Charges......................... 9 Penalty Tax for Premature Distributions......... 24
Death Benefit...................................... 10 The Employee Retirement Income
Distribution Rules............................. 10 Security Act of 1974....................... 24
Annuity Options.................................... 10 Federal Income Tax Withholding &
Election of Maturity Date and Settlement Eligible Rollover Distributions............ 25
Options.................................... 10 Other Non-Periodic Distributions................ 25
Change of Maturity Date or Annuity Periodic Distributions ......................... 25
Option........................................ 11 Tax Advice ..................................... 26
Investments by the Company....................... 12 Other Tax Considerations ....................... 26
Annual Statement................................... 12 Hurricane Relief ............................... 26
Amendment of the Contracts......................... 12 Puerto Rico Tax Considerations ................. 26
Distribution of the Contracts..................... 12 Non-Resident Aliens ............................ 27
Federal Tax Considerations....................... 14 Information Incorporated by Reference........... 27
General .................................... 14 Experts......................................... 27
Non-Qualified Annuities..................... 15 Appendix A...................................... A-1
Ownership of the Investments............... 16 Appendix B: Texas Optional
Partial and Full Withdrawals............... 16 Retirement Program......................... B-1
SPECIAL TERMS
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In this prospectus, the following terms have the indicated meanings:
ANNUITANT -- The person upon whose life the Contract is issued.
ANNUITY -- Payment of income for a stated period or amount.
APPROVED PRODUCTS -- Products approved by the MetLife Insurance Company of
Connecticut.
BENEFICIARY(IES) -- Beneficiary of this Contract is the Plan Trustee, unless the
Plan provides otherwise.
CASH SURRENDER VALUE -- The Cash Value less surrender charges and any applicable
Premium Tax.
CASH VALUE -- the value of net Purchase Payments in Your Account or an
Individual Account less the amount of any surrenders, plus interest, sometimes
referred to as "Account Value."
CERTIFICATE DATE -- The date on which a certificate is issued, as shown on the
Certificate Specifications page.
CERTIFICATE OF PARTICIPATION -- A certificate stating the benefits to which each
Participant is entitled under this Contract if issued.
CERTIFICATE YEAR -- A twelve-month period beginning on the Certificate Date and
each anniversary thereof. This may or may not coincide with the Plan year.
CODE -- The Internal Revenue Code of 1986, as amended, and all related laws and
regulations, which are in effect during the term of this Contract.
COMPANY (WE, US, OUR) -- MetLife Insurance Company of Connecticut.
DUE PROOF OF DEATH -- (i) A copy of a certified death certificate; (ii) a copy
of a certified decree of a court of competent jurisdiction as to the finding of
death, (iii) a written statement by a medical doctor who attended the deceased;
or (iv) any other proof satisfactory to Us.
EXCESS PLAN CONTRIBUTIONS -- Plan contributions including excess deferrals,
excess contributions, excess aggregate contributions, excess annual additions,
and excess nondeductible contributions that require correction by the Plan
Administrator, excluding reversions upon Plan Termination.
FIXED ACCOUNT -- Part of the general account of the Company, which may invest in
stocks, bonds, money market investments, real estate mortgages, real estate and
other investments.
FIXED ANNUITY -- An Annuity with payments that remain fixed as to dollar amount
throughout the payment period.
INDIVIDUAL ACCOUNT -- Account Value/Cash Value credited to a Participant or
Beneficiary under this Contract.
MATURITY DATE -- The date on which Annuity payments begin.
OUR OFFICE -- The home offices of MetLife Insurance Company of Connecticut
located at One Cityplace, Hartford Connecticut 06103-3415. Please send all
correspondence to Annuity Operations and Services, Hartford, Connecticut
06199-0026.
PARTICIPANT -- An eligible person who is a member in Your Plan.
PLAN -- The Plan or the arrangement under Section 403(b) of the Code used in a
retirement plan or program whereby the Purchase Payments and any gains are
intended to qualify under Sections 401, 403, or 457 of the Code. We are not a
party to the Plan. We do not assume the responsibilities of the Plan
Administrator, nor are We bound by the terms of the Plan. All records pertaining
to the Plan will be open for inspection by Us.
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PLAN ADMINISTRATOR -- The corporation or other entity so specified on the
application or purchase order. If none is specified, the Plan Trustee is the
Plan Administrator.
PLAN TERMINATION -- Termination of Your Plan, including partial Plan
Termination, as determined by Us.
PLAN TRUSTEE -- The trustee specified in the Contract Specifications.
PREMIUM TAX -- The amount of tax, if any, charged by the state or municipality.
Generally, We will deduct any applicable Premium Tax from the Cash Value either
upon Surrender, annuitization, death, or at the time a Purchase Payment is made,
but no earlier than when We have the liability under state law.
PURCHASE PAYMENTS -- Payments of premium You make on behalf of the Participants
under this Contract.
SEPARATION FROM SERVICE -- The termination or permanent severance of a
Participant's employment with the employer for any reason that is a separation
from service within the meaning of the Plan. However, termination of a
Participant's employment with the employer as a result of the sale of all or
part of the employer's business (including divisions or subsidiaries of the
employer) will not be considered Separation from Service unless the Participant
actually loses his/her job or is not immediately included in a pension or profit
sharing plan of the successor employer.
SURRENDER -- Funds distributed from the Contract or certificate for retirement,
Separation from Service, loans, hardship withdrawals, death, disability, return
of Excess Plan Contributions, payment of certain Plan expenses as mutually
agreed upon, Contract Discontinuance, or transfers to other Plan funding
vehicles. Such surrender may or may not be subject to surrender charges and the
market adjusted value calculations.
SURRENDER DATE -- The date We receive Your Written Request or a Participant's
Written Request if so authorized, for a Surrender.
VALUATION DATE -- A date on which the Contract is valued.
WRITTEN REQUEST -- Written information including requests for Contract,
Beneficiary, ownership transfers, surrenders or other changes sent to Us in a
written form satisfactory to Us and received in good order at Our Office.
Requests for changes are subject to any action taken prior to Our receipt of the
written information.
YOU, YOUR -- The Contract Owner.
YOUR ACCOUNT -- Cash Value attributed to Purchase Payments plus interest
credited to you under this Contract.
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SUMMARY
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The MetLife Insurance Company of Connecticut Fixed Annuity is a flexible premium
group deferred fixed annuity contract available to certain types of retirement
plans and programs that receive favorable tax treatment under the Code such as
qualified pension and profit sharing plans, tax deferred annuity plans (for
public school teachers and employees and employees of certain other tax-exempt
and qualifying employers) and deferred compensation plans of state and local
governments.
This prospectus describes both the Contract and the Certificate. The Contract
and Certificate have similar features and provisions. An employer as the
Contract Owner purchases the Contract to fund its Qualified Plan. The employer
can purchase the Contract on an allocated or unallocated basis. If the employer
purchases the Contract on an allocated basis, the employee participating in the
Qualified Plan ("Participant") will be issued a Certificate. Generally,
allocated contracts are issued to tax deferred annuity plans. If the employer
purchases the Contract on an unallocated basis, the employer will be responsible
for any accounts for the Participant and no Certificates will be issued by us.
Generally, unallocated contracts are issued to qualified pension and profit
sharing plans and deferred compensation plans of state and local governments.
The Contract is offered by MetLife Insurance Company of Connecticut. It is a
wholly owned subsidiary of MetLife, Inc. The Contract is available only in those
states where it has been approved for sale.
We deposit your Purchase Payments in Our Fixed Account. For each Purchase
Payment, We establish an interest rate "period " and guarantee a rate of
interest for that Purchase Payment for twelve months. At the end of the twelve
months, We will establish a renewal rate of interest. (See "Interest Periods").
You may surrender your Contract at any time before the Maturity Date, but the
Cash Value may be subject to a surrender charge and/or Our market adjusted value
calculations. You may also take partial surrenders from your Contract; partial
surrenders may be subject to a surrender charge. However, if your Contract was
issued as part of a tax deferred annuity plan, deferred compensation plan or
combined qualified plan/tax deferred annuity plan, You or a Participant, if
authorized, may take partial surrenders after the first Contract/Certificate
Year annually of up to 10% of the Cash Value of Your Account/Individual Account
as of the first Valuation Date of any given Contract/Certificate Year without
the imposition of a surrender charge. We may waive surrender charges in certain
instances. (See "Surrenders"). We also may deduct any applicable premium taxes
from the amounts You surrender. A Participant may be subject to income tax and a
10% penalty tax if he or she is younger than 59 1/2 at the time of the full or
partial surrender, and the full or partial surrender may also be subject to
income tax withholding. (See "Federal Tax Considerations").
The market adjusted value calculations reflect the relationship between the
interest rate on new deposits for this class of contracts on the date of
surrender and the interest rate credited to amounts in Your Contract on the date
of surrender. The Company has no specific formula for determining initial
interest rates or renewal interest rates. However, such determination will
generally reflect interest rates available on the types of debt instruments in
which the Company intends to invest the amounts invested in the Contract. In
addition, the Company's management may also consider various other factors in
determining these rates for a given period, including regulatory and tax
requirements; sales commission and administrative expenses borne by the Company;
general economic trends; and competitive factors. (See Investments by the
Company.) It is possible that the amount You receive upon surrender may be less
than Your Purchase Payments if interest rates increase. It is also possible that
if interest rates decrease, the amount You receive upon surrender may be Your
net Purchase Payments plus accrued interest. On the Maturity Date You specified,
the Company will make either a lump sum payment or start to pay a series of
payments based on the Annuity Options you select. (See "Annuity Period").
If a Participant dies before the Maturity Date, the Contract provides for a
death benefit which is the Cash Value of the Participant's Individual Account,
less any applicable premium tax as of the date We receive Due Proof of Death.
(See "Death Benefit").
We will deduct any applicable premium taxes from Cash Value either upon death,
surrender, annuitization, or at the time You make a Purchase Payment to the
Contract. (See "Surrenders Premium Taxes").
3
The terms and conditions of the Plan govern what is available to Participants.
Participants should carefully consider the features of their employer's Plan,
which may be different from the Contract and Certificate described in this
prospectus. In addition, certain features described in this prospectus may vary
from your Contract because of differences in applicable state law.
We offer a variety of fixed and variable annuity contracts. They offer features,
including variable investment options, fees and/or charges that are different
from those described in this prospectus. Upon request, Your agent can provide
You with more information about those Contracts.
THE INSURANCE COMPANY
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MetLife Insurance Company of Connecticut (formerly The Travelers Insurance
Company) is a stock insurance company chartered in 1863 in Connecticut and
continuously engaged in the insurance business since that time. It is licensed
to conduct life insurance business in all states of the United States, the
District of Columbia, Puerto Rico, Guam, the U.S. and British Virgin Islands,
and the Bahamas. The Company is a wholly-owned subsidiary of MetLife, Inc., a
publicly traded company. MetLife, Inc., through it subsidiaries and affiliates,
is a leading provider of insurance and other financial services to individual
and institutional customers. The Company's home office is located at One
Cityplace, Hartford, Connecticut 06103-3415.
THE CONTRACT
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APPLICATION AND PURCHASE PAYMENTS
You may purchase a Contract through an authorized agent. The agent will send
Your completed application or order to purchase, along with a minimum Purchase
Payment of at least $1,000 for the Contract and $20 for each certificate to Us,
and We will determine whether to accept or reject your application or order to
purchase. If We accept your application or order to purchase, one of Our legally
authorized officers will prepare and execute a Contract within two business days
after We receive that application or order. We then will send the Contract to
you through your sales representative.
We may:
o accept Purchase Payments up to $3 million without prior approval;
o contact You or Your agent if the application or order form is not
properly completed; and/ or
o return your entire application or order form and Purchase Payment
within thirty days if not properly completed.
We sell the Contract for use with certain qualified retirement plans. Please be
aware that the Contract includes features such as tax deferral on accumulated
earnings. Qualified retirement plans provide their own tax deferral benefit.
Please consult a tax adviser to determine whether this Contract is an
appropriate investment for You. See Appendix A for information concerning
qualified plans.
You may make additional Purchase Payments of at least $1,000 ($20 per
Certificate) at any time before the Maturity Date. We will apply any subsequent
net Purchase Payment You make within two Business Days after We receive it.
INTEREST PERIODS
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We deposit each net Purchase Payment (I.E., a Purchase Payment less any
applicable Premium Tax charge) in our Fixed Account where We credit the Payment
with interest daily at an effective annual interest rate between 1.0% and 3.0%
for allocated contracts and 1.0% for unallocated contracts, depending on
applicable states' statutory minimum requirements. We may, however, in our sole
discretion, credit interest above the statutory minimum requirements. The actual
minimum interest rate for your Contract will be on the Contract Specifications
page. This rate will not change for the life of the Contract and will apply to
any Certificates issues under the Contract.
4
The amount of interest We credit to a particular net Purchase Payment varies
with that Purchase Payment's interest rate "period". We establish an interest
rate "period " for each net Purchase Payment, and guarantee that rate for twelve
months. At the end of that twelve-month guarantee period, We will determine and
credit a renewal interest rate. We guarantee that renewal rate until the end of
the current calendar year. After that, We will declare the second and all future
renewal rates each subsequent January 1 and guarantee such rates through
December 31 of each year.
ESTABLISHMENT OF INTEREST RATES
When you purchase Your Contract, You will know the initial interest rate for
your Purchase Payment. The Company has no specific formula for determining
interest rates in the future. The interest rates will be declared from time to
time as market conditions dictate. (See "Investments by the Company"). The
Company may consider various factors in determining interest rates for a given
period, including regulatory and tax requirements, sales commissions,
administrative expenses, general economic trends, and competitive factors. THE
COMPANY'S MANAGEMENT WILL MAKE THE FINAL DETERMINATION AS TO ANY DECLARED
INTEREST RATES AND ANY INTEREST IN EXCESS OF THE MINIMUM INTEREST RATE ALLOWED
UNDER STATE LAW. THE COMPANY CANNOT PREDICT NOR GUARANTEE THE RATES OF ANY
FUTURE DECLARED INTEREST IN EXCESS OF THE MINIMUM RATE.
The Company will make the final determination as to interest rates to be
declared. We cannot predict nor can we guarantee future interest rates.
SURRENDERS
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There are two sets of rules when considering surrenders or partial surrenders
from Your Contract. The first are rules and procedures that apply to surrenders
and partial surrenders under the Contract; We discuss these provisions in this
prospectus. The second are rules specific to Your Plan. Please consult Your Plan
for information as to those provisions.
The Contract allows You to make a full or partial surrender by Written Request
before the Maturity Date, subject to the surrender charges and in some
instances, adjusted market value calculations. In addition, Participants, if so
authorized, may make partial surrenders. We may discontinue the Contract or
terminate a Participant's Individual Account under certain circumstances.
We will determine Your Cash Surrender Value (or Cash Surrender Value in an
Individual Account) as of the next Valuation Date following Our receipt of a
Written Request by You or the Participant, if so authorized. We may defer
payment of any surrender up to six months from the date We receive Your notice
of surrender, or such lesser period if required by state law. State law requires
that if We defer payment for more than 30 days, We will pay the state required
annual interest rate on the amount that we defer.
For the purposes of processing partial surrenders, We will take the amount
surrendered from the most recent "period" first, and then from each subsequent
"period" in descending order on a last-in, first out basis. Upon request, We
will inform You of the amount payable upon a full or partial surrender. Any full
or partial surrender may be subject to ordinary income tax and, if a Participant
is younger than age 59 1/2 at the time of the full or partial surrender, a 10%
penalty tax may apply. A full or partial surrender may also be subject to income
tax withholding. A Participant may not be able to take partial surrenders from
his or her Individual Account before age 59 1/2. A Participant should discuss
his or her options with a qualified tax advisor. (See "Federal Tax
Considerations".)
TRANSFERS
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You may transfer amounts from the Fixed Account to products within Your Plan and
to Approved Products not issued by Us. If you transfer Cash Value to Approved
Products not issued by Us, Your transfers may not exceed 20% per
Contract/Certificate Year of the Cash Value in the Fixed Account valued on each
Contract/Certificate Year anniversary. We reserve the right to modify the amount
available for transfer to Approved Products and to products not issued by Us.
5
RESTRICTIONS ON FINANCIAL TRANSACTIONS
Federal laws designed to counter terrorism and prevent money laundering might,
in certain circumstances, require us to block a Contract Owner's ability to make
certain transactions and thereby refuse to accept any request for withdrawals,
surrenders, or death benefits, until the instructions are received from the
appropriate regulator. We may also be required to provide additional information
about you and your Contract to government regulators.
CHARGES AND DEDUCTIONS
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We will deduct the charges described below to cover our costs and expenses, the
services provided, and our risks assumed under the Contracts. We incur certain
costs and expenses for the distribution and administration of the Contract and
for providing the benefits payable thereunder. Our administrative services and
risks may include:
o processing applications for and issuing the Contracts and certificates
thereunder;
o maintaining Contract owner and Participant records;
o administering Annuity payments;
o furnishing accounting services;
o reconciling and depositing cash receipts;
o providing Contract confirmations and periodic statements;
o providing toll-free inquiry services; and
o the risk that our costs in providing the services will exceed our
revenues from Contract charges (which cannot be changed).
The amount of the charge may not necessarily correspond to the costs associated
with providing the services or benefits stated in the Contract. We may realize a
profit on one or more of the charges, and may use any such profit for any
corporate purpose.
SURRENDER CHARGE
We do not assess front-end sales charges. We may, however, assess a surrender
charge on full and partial surrenders made before the end of the eighth
Contract/Certificate Year. The surrender charge for an allocated Contract is
calculated based on the age of each Certificate. The surrender charge for an
unallocated Contract is calculated based on the age of the Contract. The maximum
surrender charge is computed as a percentage of the Cash Value being surrendered
and is as follows:
CHARGE AS A PERCENTAGE
CONTRACT/CERTIFICATE YEAR OF CASH VALUE
------------------------- -------------
1-2 5%
3-4 4%
5-6 3%
7 2%
8 1%
9+ 0%
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We will not assess a surrender charge on:
o transfers to Approved Products within Your Plan
o certain benefit distributions that become payable under the terms of a
Plan and other distributions, including:
o retirement, death, or disability of a Participant (as
defined by Code section 72(m)(7));
o Separation from Service;
o hardship withdrawals as defined by the Code;
o minimum distributions as defined by the Code;
o return on Excess Plan Contributions;
o certain Plan expenses as mutually agreed upon between You
and Us;
o transfers to an employer stock fund as mutually agreed upon
between You and Us; and
o annuitization under this Contract.
o if the market adjusted value is greater than the Cash Value of the
Contract as of the date of discontinuance, and You elect to receive
the Cash Value of the Contract in equal installments over a 5-year
period.
Unless payment of surrender charges are provided in a different manner, We will
reduce your requested distribution by any applicable surrender charges.
In addition, for Contracts issued to tax deferred annuity plans, deferred
compensation plans or combined qualified plans/tax deferred annuity plans, We
may allow You or a Participant, if authorized, after the first
Contract/Certificate Year to take partial surrenders annually of up to 10% of
the Cash Value in Your Account/Individual Account as of the first Valuation Date
of any given Contract Year without the imposition of a surrender charge. The
free withdrawal allowance does not apply to full surrenders transferred directly
to annuity contracts issued by other financial institutions. We reserve the
right to modify the free withdrawal amount.
We reserve the right to modify the surrender charge provisions for Contracts
issued in the future. This will not affect Your Contract if the Contract is in
effect before the modification to the surrender charge is effective.
CONTRACT DISCONTINUATION AND MARKET ADJUSTED VALUE
Under certain circumstances, We may discontinue the Contract.
You may discontinue this Contract by Written Request at any time for any reason.
If the Contract is discontinued, any Certificates issued under the Contract will
be discontinued.
We reserve the right to discontinue this Contract if:
o the Cash Value of Your Contract is less than the termination amount
shown on your Contract Specifications page. We state a termination
amount on your Contract Specifications page. In general, this amount
is $2,000 of the Cash Value of a Participant's Individual Account (the
amount is $2,000 per Account for an allocated Contract and $20,000 per
unallocated Contract). If the Cash Value in a Participant's Individual
Account is less than that stated termination amount, We reserve the
right to terminate that Account and move the Cash Value of that
Participant's Individual Account to Your Account. We will move to Your
Account at Your direction any Cash Value to which a Participant is not
entitled under the Plan upon termination;
o We determine within Our sole discretion and judgment that the Plan or
administration of the Plan is not in conformity with applicable law;
or
o We receive notice that is satisfactory to Us of Plan Termination.
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If you discontinue this Contract because of Plan Termination and the Plan
certifies to Us that the Plan Termination is the result of the dissolution or
liquidation of the employer under US Code Title 11 procedures, We will
distribute the Cash Surrender Value directly to the employees entitled to share
in such distributions in accordance with the Plan relating to Plan Termination.
Distribution may be in the form of cash payments, Annuity options, or deferred
annuities.
The following events will not trigger a market adjusted value:
o retirement, death, or disability of a Participant (as
defined by Code section 72(m)(7));
o Separation from Service;
o hardship withdrawals as defined by the Code;
o minimum distributions as defined by the Code;
o return on Excess Plan Contributions;
o certain Plan expenses as mutually agreed upon between You
and Us;
o transfers to an employer stock fund as mutually agreed upon
between You and Us; and
o annuitization under this Contract.
However, if you discontinue this Contract for any other reason than the events
described immediately above or because of Our exercise of Our right to
discontinue the Contract, We will determine the market adjusted value of the
Contract. The market adjusted value is the current value as of the date of
discontinuance and reflects the relationship between the rate of interest
credited to funds on deposit under the Contract at the time of discontinuance to
the rate of interest credited on new deposits for this class of contracts at the
time of discontinuance. The market adjusted value may be greater than or less
than the Cash Value of the Contract.
If the market adjusted value is less than the Cash Value of your Contract as of
the date of discontinuance, We will pay You Your choice of:
(a) the market adjusted value, less any amounts deducted on surrender, in
one lump sum within 60 days of the date of discontinuance; or
(b) the Cash Surrender Value of the Contract in equal installments over a
5-year period. We determine the amount deducted on surrender, if any,
as of the date of discontinuance and will apply that amount to all
installment payments. We will credit interest to the remaining Cash
Value during this installment period at a fixed effective annual
interest rate of not less than the interest rate required under state
insurance law. We will make the first payment no later than 60 days
following Our mailing the written notice to You at the most current
address available on Our records. We will mail the remaining payments
on each anniversary of the discontinuance date for 4 years. Allowable
distributions shown of Your Contract Specifications page are not
allowed during the 5-year installment period.
If the market adjusted value is greater than the Cash Value of the Contract as
of the date of discontinuance, We will pay You Your Choice of:
(a) the Cash Surrender Value of the Contract within 60 days of the date of
discontinuance; or
(b) the Cash Value of the Contract in equal installments over a 5-year
period. We will credit interest on the remaining Cash Value of the
Contract during the installment period at a fixed annual rate of
interest of not less than the interest rate required under state
insurance law. We will make the first payment no later than 60 days
following Our mailing of the written notice to You at the most current
address available on Our records. We will mail the remaining payments
on each anniversary of the discontinuance date for 4 years. We do not
allow the allowable distributions shown on Your Contract
Specifications page during the 5-year installment period.
8
MARKET ADJUSTED VALUE FORMULA: Payment on a partial or full surrender may be
adjusted up or down by the application of the market adjusted value calculation.
The market adjusted value formula is:
MARKET ADJUSTED VALUE = CASH VALUE X (1+RO)(5) / (1+R1+.0025)(5)
Where:
RO is the average interest rate credited to amounts in the Contract on the date
of discontinuance, and R1 is the interest rate on new deposits for this class of
contracts on the date of discontinuance.
The Market Adjusted Value will increase the account value when the credited
rates on new deposits are more than 0.25% (0.0025) higher than the average
interest rate credited to the Contract. The Market Adjusted Value will decrease
the account value when the credited rates on new deposits are lower than the
average interest rate credited to the Contract, or less than 0.25% (0.0025)
higher.
EXAMPLE OF NEGATIVE MARKET ADJUSTED VALUE: A negative Market Adjusted Value
results when credited interest rates are higher on new deposits than the average
interest rate credited to the Contract.
Assume new deposits are crediting 4.50%, and the average interest rate credited
to the Contract is 4.00%. The cash value at the time of discontinuance is
$100,000.
The Market Adjusted Value would be
$96,470.95 = $100,000 * (1+0.04)^5 / (1+0.045+0.0025)^5
EXAMPLE OF POSITIVE MARKET ADJUSTED VALUE: A positive Market Adjusted Value
generally results when credited interest rates are lower on new deposits than
the average interest rate credited to the Contract.
Assume new deposits are credited 4.50%, and the average interest rate credited
to the Contract is 5.00%. The cash value at the time of discontinuance is
$100,000.
The Market Adjusted Value would be
$101,199.03 = $100,000 * (1+0.05)^5 / (1+0.045+0.0025)^5
PREMIUM TAXES
Certain state and local governments impose premium taxes. These taxes currently
range from 0% to 3.5%, depending upon the jurisdiction. The Company is
responsible for paying these taxes and will determine the method used to recover
premium tax expenses incurred. The Company will deduct any applicable premium
taxes from the Cash Value either upon death, surrender, annuitization, or at the
time the Purchase Payment is made to the Contract, but no earlier than when the
Company has a tax liability under state law.
REDUCTIONS OF CHARGES
We may reduce or eliminate certain charges or alter the manner in which the
particular charge is deducted. Generally, these types of changes will be based
on anticipated lower sales expenses or fewer sales services due to:
o the size of the group participating in the Contract;
o an existing relationship to the contract owner;
o use of mass enrollment procedures; or
o performance of sales functions by a third party which We would
otherwise perform.
Please see your Contract for any reduction of charges provisions applicable to
You.
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DEATH BENEFIT
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If applicable under Your Plan, We may pay a death benefit in a single sum to the
Beneficiary if a Participant dies before the Maturity Date. We also may pay a
death benefit under certain circumstances if the Annuitant dies on or after the
Maturity Date.
The death benefit before the Maturity Date equals the Cash Value of a
Participant's Individual Account less any applicable premium tax as of the date
We receive Due Proof of Death. If the Annuitant dies on or after the Maturity
Date, the death benefit will consist of any benefit remaining under the Annuity
option then in effect.
We will pay interest on death proceeds of a Participant's Individual Account in
accordance with regulation in effect by the state whose laws apply to the
Contract.
DISTRIBUTION RULES
The distributions required by federal tax law differ for qualified plans
depending on the type of Plan. Upon receipt of Due Proof of Death, the
Beneficiary will instruct us how to treat the proceeds, subject to the
distribution rules discussed below.
In general, the Beneficiary will receive any remaining contractual benefits upon
the death of the Participant. The Beneficiary may receive the remaining benefits
in a single sum or elect one of the settlement options. If the Participant dies
after any mandatory distribution has begun but before his or her entire interest
has been distributed, the remaining interest must be paid out at least as
rapidly as it was being paid out under the method of payment in effect at the
time of death. If the Participant dies before the distribution of his or her
entire interest has begun, the entire interest must be distributed within five
years after the Participant's death or an Annuity payable over no longer than
life or life expectancy must be distributed to an electing Beneficiary starting
within one year of the Participant's death. A spousal designated Beneficiary may
elect to defer distributions until the Participant would have attained the age
of 70 1/2.
Please see Your Contract and Your tax advisor for more information.
ANNUITY OPTIONS
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ELECTION OF MATURITY DATE AND SETTLEMENT OPTIONS
You can select a Maturity Date when you apply for the Contract and/or when We
issue a certificate thereunder; if You do not, the default age for certificate
maturity is when a Participant reaches age 70 1/2.
You may elect to have all or a portion of the Cash Surrender Value of an
Individual Account paid in a lump sum, or You may elect to have Your Cash
Surrender Value or a portion thereof, distributed under any of the Annuity
options described below. In addition, any amount payable from the Contact may be
applied to an Annuity option. A Participant, if authorized, may apply any
proceeds payable from his or her Individual Account to an Annuity Option.
To elect an Annuity option, You must send a Written Request to Our Office at
least 30 days before such election is to become effective. If no option is
elected for qualified Contracts, We will apply the Cash Surrender Value to
Option 4 to provide a Joint and Last Survivor Life Annuity.
You must provide Us with the following information when you elect an Annuity
option:
o the Participant's name, address, date of birth, and social security
number;
o the amount to be distributed in the form of an Annuity option;
o the Annuity option which is to be purchased;
o the date the Annuity option payments are to begin;
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o if the form of the Annuity provides a death benefit in the event of
the Participant's death, the name, relationship, and address of the
Beneficiary as designated by You; and
o any other data We may require.
CHANGE OF MATURITY DATE OR ANNUITY OPTION
You may change the Maturity Date at any time as long as such change is made in
writing and is received by Us at least 30 days before the scheduled Maturity
Date or date the Annuity option is scheduled to become effective. Once an
Annuity option has begun, it may not be changed.
ANNUITY OPTIONS
You or a Participant, if authorized, may elect any one of the following Annuity
options. Annuity payments may be available on a monthly, quarterly, semiannual,
or annual basis. The minimum amount that may be applied to Annuity options is
$2,000 unless We consent to a smaller amount. If any periodic payments due are
less than $100, We reserve the right to make payments at less frequent
intervals.
We use the Life Annuity Tables to determine the first monthly payment. They show
the dollar amount of the first monthly Annuity payment which can be purchased
with each $1,000 applied. The amount applied to an Annuity will be the Cash
Surrender Value attributable to a Participant's Individual Account as of 14 days
before the Maturity Date. We reserve the right to require satisfactory proof of
age of any person on whose life We base Annuity payments before making the first
payment under any of these options.
Any Cash Surrender Value We apply to an Annuity option will provide payments at
least equal to those provided if the same amount was applied to purchase a
single premium immediate Annuity We offer at that time for the same class of
contracts. If it would produce a larger payment, We agree that We will determine
the Annuity payment using the Life Annuity Tables in effect on the Maturity
Date.
As provided in your Contract, We may adjust the age used to determine Annuity
payments, and We may deduct premium taxes from Annuity payments.
OPTION 1 -- LIFE ANNUITY -- NO REFUND: The Company will make Annuity payments
during the lifetime of the Annuitant ending with the last monthly payment before
death. This option offers the maximum periodic payment, since there is no
assurance of a minimum number of payments or provision for a death benefit for
Beneficiaries.
OPTION 2 -- LIFE ANNUITY WITH 120, 180, OR 240 MONTHLY PAYMENTS ASSURED: The
Company will make monthly Annuity payments during the lifetime of the Annuitant,
with the agreement that if, at the death of that person, payments have been made
for less than 120,180, or 240 months as elected, We will continue making
payments to the Beneficiary during the remainder of the period.
OPTION 3 -- JOINT AND LAST SURVIVOR LIFE ANNUITY: The Company will make monthly
annuity payments during the joint lifetime of the Annuitant and a second person.
On the death of either person, We will continue making payments to the survivor.
No further payments will be made following the death of the survivor.
OPTION 4 -- JOINT AND LAST SURVIVOR LIFE ANNUITY - ANNUITY REDUCED ON DEATH OF
PRIMARY PAYEE: The Company will make monthly Annuity payments during the joint
lifetime of two persons on whose lives We base the payments. We will designate
one of the two persons as the primary payee. We will designate the other person
as the secondary payee. On the death of the secondary payee, if survived by the
primary payee, We will continue to make monthly Annuity payments to the primary
payee in the same amount that would have been payable during the joint lifetime
of the two persons.
On the death of the primary payee, if survived by the secondary payee, We will
continue to make monthly Annuity payments to the secondary payee in an amount
equal to 50% of the payments, which would have been made during the lifetime of
the primary payee.
No further payments will be made following the death of the survivor.
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OPTION 5 -- PAYMENTS FOR A FIXED PERIOD: The Company will make monthly payments
for the period selected. If at the death of the Annuitant payments have been
made for less than the period selected, the Company will continue to make
payments to the Beneficiary during the remainder of that period.
OPTION 6 -- OTHER ANNUITY OPTIONS: The Company will make other arrangements for
Annuity payments as may be mutually agreed upon by You and Us.
INVESTMENTS BY THE COMPANY
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We must invest our assets according to applicable state laws regarding the
nature, quality and diversification of investments that may be made by life
insurance companies. In general, these laws permit investments, within specified
limits and subject to certain qualifications, in federal, state and municipal
obligations, corporate bonds, preferred and common stocks, real estate
mortgages, real estate and certain other investments.
In establishing interest rates, the Company will consider the yields on fixed
income securities that are part of the Company's current investment strategy for
the Contracts at the time that the interest rates are established. (See
"Establishment of Interest Rates".) The current investment strategy for the
Contracts is to invest in fixed income securities, including public bonds,
privately placed bonds, and mortgages, some of which may be zero coupon
securities. While this generally describes our investment strategy, We are not
obligated to follow any particular strategy except as may be required by federal
and state laws.
ANNUAL STATEMENT
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After the end of each calendar year, You will receive a statement that will
show:
o Your Cash Value as of the end of the preceding year;
o all transactions regarding Your Contract during the year;
o Your Cash Value at the end of the current year; and
o the interest credited to Your Contract.
AMENDMENT OF THE CONTRACTS
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We reserve the right to amend the Contracts to comply with applicable Federal or
state laws or regulations. We will notify You in writing of any such amendments.
DISTRIBUTION OF THE CONTRACTS
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DISTRIBUTION AND PRINCIPAL UNDERWRITING AGREEMENT. MetLife Insurance Company of
Connecticut and MetLife Life and Annuity Company of Connecticut (together the
"Company") have appointed MLI Distribution LLC (formerly, Travelers Distribution
LLC) ("MLIDLLC") to serve as the principal underwriter and distributor of the
securities offered through this prospectus, pursuant to the terms of a
Distribution and Principal Underwriting Agreement. MLIDLLC, which is an
affiliate of the Company, also acts as the principal underwriter and distributor
of other annuity contracts and variable annuity contracts and variable life
insurance policies issued by the Company and its affiliated companies. The
Company reimburses MLIDLLC for expenses MLIDLLC incurs in distributing the
Contracts (e.g. commissions payable to retail broker-dealers who sell the
Contracts). MLIDLLC does not retain any fees under the Contracts.
MLIDLLC's principal executive offices are located at One Cityplace, Hartford,
Connecticut 06103. MLIDLLC is registered as a broker-dealer with the Securities
and Exchange Commission ("SEC") under the Securities Exchange Act of 1934, as
well as the securities commissions in the states in which it operates, and is a
member of the National Association of Securities Dealers, Inc. ("NASD").
MLIDLLC and the Company enter into selling agreements with affiliated and
unaffiliated broker-dealers who are registered with the SEC and are members of
the NASD, and with entities that may offer the Contracts but are exempt
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from registration. Applications for the Contract are solicited by registered
representatives who are associated persons of such affiliated or unaffiliated
broker-dealer firms. Such representatives act as appointed agents of the Company
under applicable state insurance law and must be licensed to sell variable
insurance products. The Company intends to offer the Contract in all
jurisdictions where it is licensed to do business and where the Contract is
approved. The Contracts are offered on a continuous basis.
COMPENSATION. Broker-dealers who have selling agreements with MLIDLLC and the
Company are paid compensation for the promotion and sale of the Contracts.
Registered representatives who solicit sales of the Contract typically receive a
portion of the compensation payable to the broker-dealer firm. The amount the
registered representative receives depends on the agreement between the firm and
the registered representative. This agreement may also provide for the payment
of other types of cash and non-cash compensation and other benefits. A
broker-dealer firm or registered representative of a firm may receive different
compensation for selling one product over another and/or may be inclined to
favor one product provider over another product provider due to differing
compensation rates.
We generally pay compensation as a percentage of purchase payments invested in
the Contract. Alternatively, we may pay lower compensation on purchase payments
but pay periodic asset-based compensation based on all or a portion of the
Contract/Certificate Value. The amount and timing of compensation may vary
depending on the selling agreement but is not expected to exceed 6% of Purchase
Payments (if up-front compensation is paid to registered representatives).
The Company and MLIDLLC have also entered into preferred distribution
arrangements with certain broker-dealer firms. These arrangements are sometimes
called "shelf space" arrangements. Under these arrangements, the Company and
MLIDLLC pay separate, additional compensation to the broker-dealer firm for
services the broker-dealer provides in connection with the distribution of the
Company's products. These services may include providing the Company with access
to the distribution network of the broker-dealer, the hiring and training of the
broker-dealer's sales personnel, the sponsoring of conferences and seminars by
the broker-dealer, or general marketing services performed by the broker-dealer.
The broker-dealer may also provide other services or incur other costs in
connection with distributing the Company's products.
These preferred distribution arrangements will not be offered to all
broker-dealer firms and the terms of such arrangements may differ between
broker-dealer firms. Compensation payable under such arrangements may be based
on aggregate, net or anticipated sales of the Contracts, total assets
attributable to sales of the Contract by registered representatives of the
broker-dealer firm or based on the length of time that a Contract Owner has
owned the Contract. Any such compensation payable to a broker-dealer firm will
be made by MLIDLLC or the Company out of their own assets and will not result in
any additional direct charge to you. Such compensation may cause the
broker-dealer firm and its registered representatives to favor the Company's
products. The Company and MLIDLLC have entered into preferred distribution
arrangements with their affiliates Tower Square Securities, Inc. and as well as
with unaffiliated broker-dealer firms. The Company may enter into similar
arrangements with its other affiliates Metropolitan Life Insurance Company,
Walnut Street Securities, Inc. and New England Securities Corporation. A list of
unaffiliated broker-dealer firms which have entered into such arrangements is on
our website.
SALE OF THE CONTRACTS BY AFFILIATES OF THE COMPANY. The Company and MLIDLLC may
offer the Contracts through retail broker-dealer firms that are affiliates of
the Company, including Tower Square Securities, Inc., Metropolitan Life
Insurance Company, Walnut Street Securities, Inc. and New England Securities
Corporation. The compensation paid to affiliated broker-dealer firms for sales
of the Contracts is generally not expected to exceed, on a present value basis,
the percentages described above. These broker-dealer firms pay their registered
representatives all or a portion of the commissions received for their sales of
Contracts; some firms may retain a portion of commissions. The amount the
broker-dealer firms pass on to their registered representatives is determined in
accordance with their internal compensation programs. These programs may also
include other types of cash compensation, such as bonuses, equity awards (such
as stock options), training allowances, supplementary salary, financing
arrangements, marketing support, medical and other insurance benefits,
retirement benefits, non-qualified deferred compensation plans, and other
benefits. For registered representatives of certain affiliates, the amount of
this additional cash compensation is based primarily on the amount of
proprietary products sold and serviced by the representative. Proprietary
products are those issued by the Company or its affiliates. The managers who
supervise these registered representatives may also be entitled to additional
cash compensation based on the sale of proprietary products by their
representatives. Because the additional cash compensation paid to these
registered representatives and their managers is primarily based on sales of
proprietary products, these registered representatives and their managers have
an incentive to favor the sale of proprietary products over other products
issued by non-affiliates.
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Registered representatives of our affiliate, Metropolitan Life Insurance
Company, receive cash payments for the products they sell and service based upon
a `gross dealer concession' model. The cash payment is equal to a percentage of
the gross dealer concession. For MetLife registered representatives other than
those in our MetLife Resources (MLR) Division, the percentage is determined by a
formula that takes into consideration the amount of premiums and purchase
payments applied to proprietary products that the registered representative
sells and services. The percentage could be as high as 100%. (MLR registered
representatives receive compensation based upon premiums and purchase payments
applied to all products sold and serviced by the representative.) In addition,
all MetLife registered representative are entitled to the additional
compensation described above based on sales of proprietary products. Because
sales of proprietary products are a factor determining the percentage of gross
dealer concession and/or the amount of additional compensation to which MetLife
registered representatives are entitled, they have an incentive to favor the
sale of proprietary products. In addition, because their sales managers'
compensation is based on the sales made by the representatives they supervise,
these sales managers also have an incentive to favor the sale of proprietary
products.
The Company's affiliates also offer their registered representatives and their
managers non-cash compensation incentives, such as conferences, trips, prizes
and awards. Other non-cash compensation payments may be made for other services
that are not directly related to the sale of products. These payments may
include support services in the form of recruitment and training of personnel,
production of promotional materials and similar services.
FEDERAL TAX CONSIDERATIONS
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GENERAL
The Company is taxed as a life insurance company under Subchapter L of the Code.
Generally, amounts credited to a contract are not taxable until received by the
Contract Owner, participant or Beneficiary, either in the form of annuity
payments or other distributions. Tax consequences and limits are described
further below for each annuity program. The following general discussion of the
federal income tax consequences related to your investment in this Contract is
not intended to cover all situations, and is not meant to provide legal or tax
advice. Because of the complexity of the law and the fact that the tax results
will vary depending upon many factors, you should consult with your tax and/or
legal advisor regarding the tax implications of purchasing this Contract based
upon your individual situation.
Congress has recognized the value of saving for retirement by providing certain
tax benefits for annuities. The Internal Revenue Code ("Code") governs how
earnings on your investment in the Contract are ultimately taxed, depending upon
the type of Contract, Qualified or Non-qualified, and the manner in which the
money is distributed, as briefly described below. In analyzing the benefits of
tax deferral it is important to note that the Jobs and Growth Tax Relief
Reconciliation Act of 2003 reduced the marginal tax rates on long-term capital
gains and dividends to 5% and 15%. The reduced rates apply during 2003 through
2008, and thereafter will increase to prior levels. Earnings under annuity
Contracts, like interest payable as fixed investments (notes, bonds, etc.),
continue to be taxed as ordinary income (current top rate of 35%).
Under current Federal income tax law, the taxable portion of distribution under
variable annuity contracts and qualified plans (including IRAs) is not eligible
for the reduced tax rate applicable to long-term capital gains and dividends.
We are not responsible for determining if your employer's plan or arrangement
satisfies the requirements of the Code and/or ERISA (the Employee Retirement
Income Security Act of 1974). If the Annuity is subject to the Retirement Equity
Act because it is part of a plan subject to ERISA, the participant's spouse has
certain rights which may be waived with the written consent of the spouse.
Consult your tax advisor.
The rules for state and local income taxes may differ from the Federal income
tax rules. Contract Owners and prospectus contract owners of the Contract should
consult their own tax advisors and the law of the applicable taxing jurisdiction
to determine what rules and tax benefits apply to the contract.
FEDERAL ESTATE TAXES. While no attempt is being made to discuss the Federal
estate tax implications of the Contract, you should keep in mind that the value
of an annuity contract owned by a decedent and payable to
14
a beneficiary by virtue of surviving the decedent is included in the decedent's
gross estate. Depending on the terms of the annuity contract, the value of the
annuity included in the gross estate may be the value of the lump sum payment
payable to the designated beneficiary or the actuarial value of the payments to
be received by the beneficiary. Consult an estate planning advisor for more
information.
GENERATION-SKIPPING TRANSFER TAX. Under certain circumstances, the Code may
impose a "generation skipping transfer tax" when all or part of an annuity
contract is transferred to, or a death benefit is paid to, an individual two or
more generations younger than the Contract owner. Regulations issued under the
Code may require us to deduct the tax from your Contract, or from any applicable
payment, and pay it directly to the IRS. Consult a tax advisor or attorney prior
to naming a beneficiary or other payee under the Income Annuity to determine
whether this tax may apply.
To the extent permitted under Federal income tax law, the Separate Account may
claim the benefit of certain tax credits attributable to taxes paid by certain
of the Variable Funding Options to foreign jurisdictions.
NON-QUALIFIED ANNUITIES
As the owner of a non-qualified annuity, you do not receive any tax benefit
(deduction or deferral of income) on Purchase Payments, but you will not be
taxed on increases in the value of your Contract until a distribution occurs --
either as a withdrawal (distribution made prior to the Maturity Date), or as
periodic Annuity Payments. When a withdrawal is made, you are taxed on the
amount of the withdrawal that is considered earnings under federal tax laws.
Similarly, when you receive an Annuity Payment, part of each periodic payment is
considered a return of your Purchase Payments and will not be taxed. The
remaining portion of the Annuity Payment (i.e., any earnings) will be considered
ordinary income for federal income tax purposes.
If a non-qualified annuity is owned by other than an individual (e.g. by a
corporation), however, increases in the value of the Contract attributable to
Purchase Payments made after February 28, 1986 are includable in income annually
and taxed at ordinary income tax rates. Furthermore, for contracts issued after
April 22, 1987, if you transfer the Contract to another person or entity without
adequate consideration, all deferred increases in value will be includable in
your income for federal income tax purposes at the time of the transfer.
The tax law treats all non-qualified deferred annuities issued after October 21,
1988 by the same company (or its affiliates) to the same owner during any one
calendar year as one annuity. This may cause a greater portion of your
withdrawals from the Deferred Annuity to be treated as income than would
otherwise be the case. Although the law is not clear, the aggregation rule may
also adversely affect the tax treatment of payments received under an income
annuity where the owner has purchased more than one non-qualified annuity during
the same calendar year from the same or an affiliated company after October 21,
1988, and is not receiving income payments from all annuities at the same time.
Under section 1035 of the Code, your Non-Qualified Contract may be exchanged for
another Non- Qualified annuity without paying income taxes if certain Code
requirements are met and income payments have not yet commenced. Code Section
1035 provides that no gain or loss is recognized when an annuity contract or a
portion of an existing annuity account balance is received in exchange for a
life, endowment, or annuity Contract. Since different annuity contracts have
different expenses, fees and benefits, a tax-free exchange (or a portion
thereof) could result in your investment becoming subject to higher or lower
fees and/or expenses.
For partial exchanges under section 1035, it is conceivable that the IRS could
require aggregation of the several contracts if distributions have been taken
from any of the contracts after the exchange within a certain period of time
(e.g. 24 months) resulting in greater taxable income and adverse tax
consequences such as imposition of the 10% penalty if the taxpayer has not
attained age 59 1/2 at the time of the distribution(s).
Additionally, consolidation of contracts under a section 1035 exchange will
cause an aggregation of contract values and may adversely impact gain reported
and possible imposition of the 10% penalty if the taxpayer is under age 59 1/2
at the time of distribution from a consolidated contract.
Where otherwise permitted under the Deferred Annuity, pledges, direct or
indirect borrowing against the value of the contract and other types of
transfers of all or a portion of your Account Balance may result in the
immediate taxation of the gain in your Deferred Annuity. This rule may not apply
to certain transfers between spouses or between ex-spouses which are considered
incident to divorce as defined by the Code.
15
Consult your tax advisor prior to changing the annuitant or prior to changing
the date you have determined to commence income payments, if permitted under the
terms of your contract. It is conceivable that the IRS could consider such
actions to be a taxable exchange of annuity contracts.
OWNERSHIP OF THE INVESTMENTS
In certain circumstances, owners of annuity contracts have been considered to be
the owners of the underlying investments for Federal income tax purposes due to
their ability to exercise investment control over those assets. When this is the
case, the Contract Owners have been currently taxed on income and gains
attributable to the underlying investments. While we believe that the Contract
does not give the Contract Owner investment control over the underlying
investments, we reserve the right to modify the Contract as necessary to prevent
a Contract Owner from being treated as the owner of the underlying investments
supporting the Contract.
PARTIAL AND FULL WITHDRAWALS
Any withdrawal is generally treated as coming first from earnings (determined
based on the difference between the account balance prior to any surrender
charges and the remaining basis, immediately prior to the withdrawal) and only
after all earnings are paid out from your contributions (and thus a nontaxable
return of principal). However, this rule does not apply to payments made under
income annuities. Such payments are subject to an "exclusion ratio" or
"excludable amount" which determines how much of each payment is a non-taxable
return of your contributions/purchase payments and how much is a taxable payment
of earnings. Once the total amount treated as a return of your
contributions/purchase payments equals the amount of such contributions/purchase
payments, all remaining payments are fully taxable
Generally, when you (or your beneficiary in the case of a death benefit) make a
partial withdrawal from your Non-Qualified Annuity, the Code treats such a
withdrawal as:
o First coming from earnings (and thus subject to income tax); and
o Then from your purchase payments (which are not subject to income
tax).
This rule does not apply to payments made pursuant to an income pay-out option
under your Contract.
In the case of a full withdrawal, the withdrawn amounts are treated as first
coming from your non-taxable return of purchase payments and then from a taxable
payment of earnings. In the event the proceeds on full surrender of your
Contract are less than remaining purchase payments you may be able to claim a
loss: consult a tax advisor as to whether a loss is allowable, the character of
such loss and where to claim it in your Federal Income Tax return.
INCOME ANNUITY PAYMENTS
Generally, different tax rules apply to payments made generally pursuant to an
Income Annuity or pay-out option under your Deferred Annuity than to withdrawals
and payments received before the annuity starting date.
Income payments are subject to an "excludable amount" or "exclusion ratio" which
determines how much of each payment is treated as:
o A non-taxable return of your purchase payment; and
o A taxable payment of earnings.
Partial Annuitizations: At the present time the IRS has not approved the use of
an exclusion ratio or exclusion amount when only part of your account balance is
used to convert to income payments. CONSULT YOUR TAX ATTORNEY PRIOR TO PARTIALLY
ANNUITIZING YOUR CONTRACT.
Income payments and amounts received on the exercise of a full withdrawal or
partial withdrawal option under your Non-qualified Qualified Income Annuity may
not be transferred in a tax-free exchange into another annuity contract. In
accordance with our procedures, such amounts will instead be taxable under the
rules for income payment or withdrawals, whichever is applicable.
16
Additionally, if you are under age 59 1/2 at the time income payments commence
and intend the income payments to constitute an exception to the 10% penalty
tax, any attempt to make a tax-free transfer or rollover (whether for
non-qualified or qualified annuities) prior to the later of (a) age 59 1/2, or
(b) five years after income payments commence will generally invalidate the
exception and subject you to income tax, additional penalties and interest.
Generally, once the total amount treated as a non-taxable return of your
purchase payment equals your purchase payment, then all remaining payments are
fully taxable. We will withhold a portion of the taxable amount of your income
payment for income taxes, unless you elect otherwise. The amount we withhold is
determined by the Code.
Under the Code, withdrawals or income payments from Non-Qualified qualified
annuities need not be made by a particular age. However, it is possible that the
IRS may determine that you must take a lump sum withdrawal or elect to receive
income payments by a certain age (e.g., 85).
AFTER DEATH & DEATH BENEFITS: NON-QUALIFIED ANNUITIES
The death benefit under an annuity is generally taxable to the recipient
beneficiary or other payee, such as your estate, in the same manner as
distributions made to the contract owner (using the rules for withdrawals or
income payments, whichever is applicable).
If you die before the annuity starting date, as defined under Treasury
Regulations, we must make payment of your entire interest in the Contract within
five years of the date of your death or begin payments for a period and in a
manner allowed by the Code ( and any regulations thereunder) to your beneficiary
within one year of the date of your death. If your spouse is your beneficiary,
he or she may elect to continue as "contract owner" of the Contract.
If the Contract is issued in your name after your death for the benefit of your
designated beneficiary with a purchase payment which is directly transferred to
the Contract from another non-qualified account or non-qualified annuity you
owned, the entire interest in the Contract including the value of all benefits
in addition to the account balance must be distributed to your designated
beneficiary under the required minimum distribution rules under the Code that
apply after your death. Additionally, the death benefit must continue to be
distributed to your beneficiary's beneficiary in a manner at least as rapidly as
the method of distribution in effect at the time of your beneficiary's death.
If you die before the annuity starting date, as defined under Treasury
Regulations, we must make payment of your entire interest in the Contract within
five years of the date of your death or begin payments for a period and in a
manner allowed by the Code (and any regulations thereunder) to your beneficiary
within one year of the date of your death. If your spouse is your beneficiary,
he or she may elect to continue as "contract owner" of the Contract.
After your death, if your designated beneficiary does not timely elect in
accordance with our procedures a method for the payment of the death benefit
complying with the Code, the remaining interest in the Contract must be
distributed within five years of the date of your death.
If you die on or after the "annuity starting date," as defined under Treasury
Regulations, payments must continue to be made at least as rapidly as under the
income type being used as of the date of your death.
If you die before all purchase payments are returned, the unreturned amount may
be deductible on your final income tax return or deductible by either your
beneficiary, if income payments continue after your death, or by your estate or
your beneficiary if paid in a lump sum.
In the case of joint owners, the above rules will be applied on the death of any
contract owner.
Where the contract owner is not a natural person, these rules will be applied on
the death of or change of any annuitant (if changes to the annuitant are
permitted under the Contract).
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QUALIFIED ANNUITY CONTRACTS
If you purchase your Contract with proceeds of an eligible rollover distribution
from any qualified employee pension plan or individual retirement annuity (IRA),
or deductible IRA contributions, your Contract is referred to as a Qualified
Contract. Some examples of Qualified Contracts are: IRAs, tax-sheltered
annuities established by public school systems or certain tax-exempt
organizations under Code Section 403(b), corporate sponsored pension and
profit-sharing plans (including 401(k) plans), Keogh Plans (for self-employed
individuals), and certain other qualified deferred compensation plans. Another
type of Qualified Contract is a Roth IRA, under which after-tax contributions
accumulate until maturity, when amounts (including earnings) may be withdrawn
tax-free. The rights and benefits under a Qualified Contract may be limited by
the terms of the retirement plan, regardless of the terms and conditions of the
Contract. Plan participants making contributions to Qualified Contracts will be
subject to the required minimum distribution rules as provided by the Code and
described below.
All IRAs, TSAs (ERISA and non-ERISA) ss.457(b), ss.403(a), SEP and SIMPLE plans
and 401(a) and 401(k) plans (hereinafter "Qualified Plans" unless otherwise
specified) receive tax deferral under the Code. Although there are no additional
tax benefits by funding your Qualified Plan with an annuity, doing so does offer
you additional insurance benefits such as the availability of a guaranteed
income for life.
TAXATION OF QUALIFIED ANNUITY CONTRACTS
Under a qualified annuity, since amounts paid into the Contract have generally
not yet been taxed, the full amount of such distributions, including the amount
attributable to Purchase Payments, whether paid in the form of lump-sum
withdrawals or Annuity Payments, are generally taxed at the ordinary income tax
rate unless the distribution is transferred to an eligible rollover account or
contract. The Contract is available as a vehicle for IRA rollovers and for other
Qualified Contracts.
There are special rules which govern the taxation of Qualified Contracts,
including withdrawal restrictions, requirements for mandatory distributions, and
contribution limits. Amounts rolled over to the Contract from other qualified
plan funding vehicles are generally not subject to current taxation.
MANDATORY DISTRIBUTIONS FOR QUALIFIED PLANS
Federal tax law requires that minimum annual distributions begin by April 1st of
the calendar year following the calendar year in which an IRA owner attains age
70 1/2. Participants in qualified plans and 403(b) annuities may defer minimum
distributions until the later of April 1st of the calendar year following the
calendar year in which they attain age 70 1/2 or the year of retirement (except
for 5% or more owners). If you own more than one individual retirement annuity
and/or account, you may satisfy the minimum distribution rules on an aggregate
basis (i.e. determine the total amount of required distributions from all IRAs
and take the required amount from any one or more IRAs). A similar aggregate
approach is available to meet your 403(b) minimum distribution requirements if
you have multiple 403(b) annuities. Recently promulgated Treasury regulations
changed the distribution requirements; therefore, it is important that you
consult your tax adviser as to the impact of these regulations on your personal
situation.
Final income tax regulations regarding minimum distribution requirements were
released in June 2004. These regulations affect both deferred and income
annuities. Under these new rules, effective with respect to minimum
distributions required for the 2006 distribution year, in general, the value of
all benefits under a deferred annuity (including death benefits in excess of
cash value must be added to the Contract Value in computing the amount required
to be distributed over the applicable period. We will provide You with
additional information as to the amount of your interest in the Contract that is
subject to required minimum distributions under this new rule and either compute
the required amount for You or offer to do so at Your request. The new rules are
not entirely clear and you should consult your own tax advisors as to how these
rules affect your own Contract.
MINIMUM DISTRIBUTIONS FOR BENEFICIARIES UPON THE CONTRACT OWNER'S DEATH: Upon
the death of the Contract Owner and/or Annuitant of a Qualified Contract, the
funds remaining in the Contract must be completely withdrawn within 5 years from
the date of death (including in a single lump sum) or minimum distributions may
be taken over the life expectancy of the individual beneficiaries (and in
certain situations, trusts for individuals), provided such distributions are
payable at least annually and begin within one year from the date of death.
Special rules apply in the case of an IRA where the beneficiary is the surviving
spouse, which allow the spouse
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to assume the Contract as owner. Alternative rules permit a spousal beneficiary
under a qualified contract, including an IRA, to defer the minimum distribution
requirements until the end of the year in which the deceased owner would have
attained age 70 1/2, or to rollover the death proceeds to his or her own IRA or
to another eligible retirement plan in which he or she participates.
NOTE TO PARTICIPANTS IN QUALIFIED PLANS INCLUDING 401, 403 (B), 457 AS WELL AS
IRA OWNERS:
While annual plan contribution limits may be increased from time to time by
Congress and the IRS for federal income tax purposes, these limits must be
adopted by each state for the higher limits to be effective at a state income
tax level. In other words, permissible contribution limit for income tax
purposes may be different at the federal level from your state's income tax
laws. Please consult your employer or tax adviser regarding this issue.
INDIVIDUAL RETIREMENT ANNUITIES
To the extent of earned income for the year and not exceeding the applicable
limit for the taxable year, an individual may make deductible contributions to
an individual retirement annuity (IRA). The applicable limit ($2,000 per year
prior to 2002) has been increased by the Economic Growth and Tax Relief
Reconciliation Act of 2001 ("EGTRRA"). The limit is $3,000 for calendar years
2002-2004, $4,000 for calendar years 2005-2007, and will be indexed for
inflation in years subsequent to 2008. Additional "catch-up contributions" may
be made to an IRA by individuals age 50 or over. There are certain limits on the
deductible amount based on the adjusted gross income of the individual and
spouse and on their participation in a retirement plan. If an individual is
married and the spouse is not employed, the individual may establish IRAs for
the individual and spouse. Purchase Payments may then be made annually into IRAs
for both spouses in the maximum amount of 100% of earned income up to a combined
limit based on the individual limits outlined above.
Deductible contributions to an IRA and Roth IRA must be aggregated for purposes
of the individual Code Section 408A limits and the Code Section 219 limits (age
50+catch-up).
Partial or full distributions are treated as ordinary income, except that
amounts contributed after 1986 on a non-deductible basis are not includable in
income when distributed. An additional tax of 10% will apply to any taxable
distribution from the IRA that is received by the participant before the age of
59 1/2 except by reason of death, disability or as part of a series of payments
for life or life expectancy. Distributions must commence by April 1st of the
calendar year after the close of the calendar year in which the individual
attains the age of 70 1/2. Certain other mandatory distribution rules apply on
the death of the individual. The individual must maintain personal and tax
return records of any non-deductible contributions and distributions.
Section 408 (k) of the Code provides for the purchase of a Simplified Employee
Pension (SEP) plan. A SEP is funded through an IRA and can accept an annual
employer contribution limited to the lesser of $42,000 or 100% of pay for each
participant in 2005 ($44,000 for 2006).
ROTH IRAs
Effective January 1, 1998, Section 408A of the Code permits certain individuals
to contribute to a Roth IRA. Eligibility to make contributions is based upon
income, and the applicable limits vary based on marital status and/or whether
the contribution is a rollover contribution from another IRA or an annual
contribution. Contributions to a Roth IRA, which are subject to certain
limitations, (similar to the annual limits for traditional IRAs), are not
deductible and must be made in cash or as a rollover or transfer from another
Roth IRA or other IRA. A conversion of "traditional" IRA to a Roth IRA may be
subject to tax and other special rules apply. You should consult a tax adviser
before combining any converted amounts with other Roth IRA contributions,
including any other conversion amounts from other tax years.
Qualified distributions from a Roth IRA are tax-free. A qualified distribution
requires that the Roth IRA has been held for at least 5 years, and the
distribution is made after age 59 1/2, on death or disability of the owner, or
for a limited amount ($10,000) for a qualified first time home purchase for the
owner or certain relatives. Income tax and a 10% penalty tax may apply to
distributions made (1) before age 59 1/2 (subject to certain exceptions) or (2)
during five taxable years starting with the year in which the first contribution
is made to the Roth IRA.
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CONVERSION
You may convert/rollover an existing IRA to a Roth IRA if your modified adjusted
gross income does not exceed $100,000 in the year you convert. If you are
married but file separately, you may not convert a Traditional IRA into a Roth
IRA.
Except to the extent you have non-deductible IRA contributions, the amount
converted from an existing IRA into a Roth IRA is taxable. Generally, the 10%
early withdrawal penalty does not apply to conversions/rollovers. (See
discussion below).
Unless you elect otherwise, amounts you convert from a Traditional IRA to a Roth
IRA will be subject to income tax withholding. The amount withheld is determined
by the Code.
Note: new IRS guidance requires that in the case of a redesignation of a
Traditional IRA into a Roth IRA under the same Contract, the amount that is
treated as a taxable distribution is the entire value of the contract, in
addition to the account balance. The method(s) under which this value must be
determined has not been finalized by the IRS. However, interim guidance has been
issued which provides the Issuer may use a method similar to that used in
determining the required minimum distribution (but without certain exceptions
and assumptions being permitted). Additionally, issuers are required to increase
the value subject to tax in the year of the redesignation by any front loads or
non-recurring charges (this could include contractual withdrawal charges)
imposed in the 12 months prior to the conversion. If your Contract permits such
redesignation, consult your tax advisor prior to redesignating your Traditional
IRA to a Roth.
If you mistakenly convert or otherwise wish to change your Roth IRA contribution
to a Traditional IRA contribution, the tax law allows you to reverse your
conversion provided you do so before you file your tax return for the year of
the contribution and if certain conditions are met.
In general, a taxpayer may be permitted to revoke or recharacterize a previous
conversion from a Traditional IRA to a Roth IRA provided that certain conditions
are met. Consult your tax advisor and the instructions to IRS Form 8606 which
indicates how and when the recharacterization must be made to be valid and how
amounts should be reported. The income tax regulations also impose a waiting
period to make a reconversion after such a reversal or recharacterization.
KEOGH
A Keogh plan is generally a qualified retirement plan (defined contribution or
defined benefit) that covers a self-employed person. Other employees may also be
covered. Special rules apply to contribution limits in the case of a
self-employed person. The tax rules work similarly to the withdrawal,
distribution and eligible distribution rules as under IRAs. However, there may
be some differences: consult your tax advisor.
SECTION 403(b) PLANS AND ARRANGEMENTS
Purchase Payments for a tax-deferred annuity contract (including salary
reduction contributions) may be made by an employer for employees under annuity
plans adopted by public educational organizations and certain organizations
which are tax exempt under Section 501 (c) (3) of the Code. Within statutory
limits ($14,000 in 2005, $15,000 in 2006), such salary reduction contributions
are not currently includable in the gross income of the participants. Additional
"catch-up contributions" may be made by individuals age 50 or over. Increases in
the value of the Contract attributable to these Purchase Payments are similarly
not subject to current taxation. Instead, both the contributions to the
tax-sheltered annuity and the income in the Contract are taxable as ordinary
income when distributed.
An additional tax of 10% will apply to any taxable distribution received by the
participant before the age of 59 1/2, except when due to death, disability, or
as part of a series of payments for life or life expectancy, or made after the
age of 55 with separation from service. There are other statutory exceptions
that may apply in certain situations.
Amounts attributable to salary reductions made to a tax-sheltered annuity and
income thereon may not be withdrawn prior to attaining the age of 59 1/2,
separation from service, death, total and permanent disability, or in the case
of hardship as defined by federal tax law and regulations. Hardship withdrawals
are available only to the extent of the salary reduction contributions and not
from the income attributable to such contributions. These restrictions do not
apply to assets held generally as of December 31, 1988.
20
Distributions must begin by April 1st of the calendar year following the later
of the calendar year in which the participant attains the age of 70 1/2 or the
calendar year in which the Participant retires. Certain other mandatory
distribution rules apply at the death of the participant.
Certain distributions, including most partial or full redemptions or
"term-for-years" distributions of less than 10 years, are eligible for direct
rollover to another 403 (b) contract, certain qualified plans or to an
Individual Retirement Arrangement (IRA) without federal income tax or
withholding.
To the extent an eligible rollover distribution is not directly rolled over to
another 403 (b) contract, an IRA or eligible qualified contract, 20% of the
taxable amount must be withheld. In addition, current tax may be avoided on
eligible rollover distributions which were not directly transferred to a
qualified retirement program if the participant makes a rollover to a qualified
retirement plan or IRA within 60 days of the distribution.
Distributions in the form of annuity payments are taxable to the participant or
Beneficiary as ordinary income in the year of receipt, except that any
distribution that is considered the participant's "investment in the Contract"
is treated as a return of capital and is not taxable.
DESIGNATED ROTH ACCOUNTS FOR 403(B) & 401(K) PLANS.
Effective January 1, 2006, employers that have established and maintain TSA or
401(k) plans ("collectively the Plan") may also establish a Qualified Roth
Contribution Program under Section 402A of the Code ("Designated Roth Accounts")
to accept after tax contributions as part of the TSA or 401(k) plan. In
accordance with our administrative procedures, on or about May 15, 2006, we may
permit these contributions to be made as purchase payments to a Section 403(b)
Contract or to a Contract issued under a 401(k) program under the following
conditions:
1. The employer maintaining the plan has demonstrated to our satisfaction
that Designated Roth Accounts are permitted under the Plan.
2. In accordance with our administrative procedures, the amount of
elective deferrals has been irrevocably designated as an after-tax
contribution to the Designated Roth Account.
3. All state regulatory approvals have been obtained to permit the
Contract to accept such after-tax elective deferral contributions
(and, where permitted under the Qualified Roth Contribution Program
and the Contract, rollovers and trustee-to trustee transfers from
other Designated Roth Accounts).
4. In accordance with our procedures and in a form satisfactory to us, we
may accept rollovers from other funding vehicles under any Qualified
Roth Contribution Program of the same type in which the employee
participates as well as trustee-to-trustee transfers from other
funding vehicles under the same Qualified Roth Contribution Program
for which the participant is making elective deferral contributions to
the Contract.
5. No other contribution types (including employer contributions,
matching contributions, etc.) will be allowed as designated Roth
contributions, unless they become permitted under the Code.
6. If permitted under the federal tax law, we may permit both pre-tax
contributions under a 403(b) plan as well as after-tax contributions
under that Plan's Qualified Roth Contribution Program to be made under
the same Contract as well as rollover contributions and contributions
by trustee-to-trustee transfers. In such cases, we will account
separately for the designated Roth contributions and the earnings
thereon from the contributions and earnings made under the pre-tax TSA
plan or pre-tax 401(k) plan (whether made as elective deferrals,
rollover contributions or trustee-to-trustee transfers). As between
the pre-tax or traditional Plan and the Qualified Roth Contribution
Program, we will allocate any living benefits or death benefits
provided under the Contract on a reasonable basis, as permitted under
the tax law. However, we reserve the right to require a separate TSA
Contract to accept designated Roth TSA contributions and a separate
section 401(k) Contract to accept designated Roth 401(k)
contributions.
7. We may refuse to accept contributions made as rollovers and
trustee-to-trustee transfers, unless we are furnished with a breakdown
as between participant contributions and earnings at the time of the
contribution.
21
Many of the federal income tax rules pertaining to Designated Roth Accounts have
not yet been finalized. Both you and your employer should consult their own tax
and legal advisors prior to making or permitting contributions to be made to a
Qualified Roth Contribution Program.
The following general tax rules are based on our understanding of the Code and
any regulations issued through December 31,2005, and are subject to change and
to different interpretation as well as additional guidance in respect to areas
not previously addressed:
o The employer must permit contributions under a pre-tax 403(b) or
pretax 401 (k) plan in order to permit contributions to be irrevocably
designated and made part of the Qualified Roth Contribution Program.
o Elective deferral contributions to the Designated Roth Account must be
aggregated with all other elective deferral contributions made by a
taxpayer for purposes of the individual Code Section 402(g) limits and
the Code Section 414(v) limits (age 50+catch-up) as well as
contribution limits that apply under the Plan.
o In general, the same tax law rules with respect to restricted monies,
triggering events and permitted distributions will apply to the
Designated Roth Accounts under the Plan, if such amounts have been
held under any Designated Roth Account for at least 5 years, as apply
to the traditional pre-tax accounts under the Plan ( e.g., death or
disability of participant, severance from employment, attainment of
age 59 1/2, or hardship (withdrawals only with respect to
contributions), if permitted under the Plan).
o If the amounts have been held under any Designated Roth Account of a
participant for at least five years, and are made on account of death,
disability, or after attainment of age 59 1/2, then any withdrawal,
distribution or payment of these amounts is generally free of Federal
income tax ( "Qualified Distribution").
o Unlike Roth IRAs, withdrawal, distributions and payments that do not
meet the five year rule will generally be taxed on a pro-rated basis
with respect to earnings and after-tax contributions. The 10% penalty
tax will generally apply on the same basis as a traditional pre-tax
account under the Plan. Additionally, rollover distributions may only
be made tax-free into another Designated Roth Account or into a Roth
IRA.
o Some states may not permit contributions to be made to a Qualified
Roth Contribution Program or may require additional conforming
legislation for these rules to become effective.
QUALIFIED PENSION AND PROFIT-SHARING PLANS
Like most other contributions made under a qualified pension or profit-sharing
trust described in Section 401 (a) of the Code and exempt from tax under Section
501(a) of the Code, a Purchase Payment made by an employer (including salary
reduction contributions under Section 401(k) of the Code) is not currently
taxable to the participant and increases in the value of a contract are not
subject to taxation until received by a participant or Beneficiary. For 2005,
the applicable limits are $42,000 for total contributions and $14,000 ($44,000
and $15,000 for 2006) for salary reduction contributions made pursuant to Code
Section 401(k). Additional "catch-up contributions" may be made by individuals
age 50 or over ($4000 for 2005, and $5000 for 2006).
Distributions in the form of annuity payments are taxable to the participant or
Beneficiary as ordinary income in the year of receipt, except that any
distribution that is considered the participant's "investment in the contract"
is treated as a return of capital and is not taxable. Certain eligible rollover
distributions including most partial and full surrenders or term-for-years
distributions of less than 10 years are eligible for direct rollover to an
eligible retirement plan or to an IRA without federal income tax withholding.
If a distribution that is eligible for rollover is not directly rolled over to
another qualified retirement plan or IRA, 20% of the taxable amount must be
withheld. In addition, current tax may be avoided on eligible rollover
distributions that were not directly transferred to a qualified retirement
program if the participant makes a rollover contribution to a qualified
retirement plan or IRA within 60 days of the distribution.
22
Distributions must begin by April 1st of the calendar year following the later
of the calendar year in which you attain age 70 1/2 or the calendar year in
which you retire, except that if you are a 5% owner as defined in Code Section
416(i)(1)(B), distributions must begin by April 1st of the calendar year
following the calendar year in which you attain age 70 1/2. Certain other
mandatory distribution rules apply on the death of the participant.
An additional tax of 10% will apply to any taxable distribution received by the
participant before the age of 59 1/2, except by reason of death, disability or
as part of a series of payments for life or life expectancy, or at early
retirement at or after the age of 55. There are other statutory exceptions which
may apply in certain situations. Amounts attributable to salary reduction
contributions under Code Section 401(k) and income thereon may not be withdrawn
prior to severance from employment, death, total and permanent disability,
attainment of age 59 1/2, or in the case of hardship.
SECTION 457 PLANS
Section 457 of the Code allows employees and independent contractors of state
and local governments and tax-exempt organizations to defer a portion of their
salaries or compensation to retirement years without paying current income tax
on either the deferrals or the earnings on the deferrals. Such deferrals are
subject to limits similar to those applicable to 403(b) and 401(k) plans.
Such plans are not available for churches and qualified church controlled
organizations.
The Owner of contracts issued under Section 457 plans by non-governmental
employers is the employer of the participant and amounts may not be made
available to participants (or beneficiaries) until separation from service,
retirement or death or an unforeseeable emergency as determined by Treasury
Regulations. The proceeds of annuity contracts purchased by Section 457 plans
are subject to the claims of general creditors of the employer or contractor. A
different rule applies with respect to Section 457 plans that are established by
governmental employers. The contract must be for the exclusive benefit of the
plan participants (and their beneficiaries), and the governmental employer (and
their creditors) must have no claim on the contract.
Distributions must begin by April 1st of the calendar year following the later
of the calendar year in which the participant attains the age of 70 1/2 or the
calendar year in which the participant retires. Certain other mandatory
distribution rules apply upon the death of the participant.
All distributions from plans that meet the requirements of Section 457 of the
Code are taxable as ordinary income in the year paid or made available to the
participant or Beneficiary.
Generally, monies in your Contract can not be "made available" to you until you,
reach age 70 1/2, leave your job or your employer changes or have an unforeseen
emergency (as defined by the Code)
The tax rules for taxation of distributions and withdrawals work similarly as to
those for IRAs. However the 10% penalty tax only applies to distributions and
withdrawals that are attributable to rollovers from IRAs and other eligible
retirement plans, and do not apply at all to 457(b) plans of tax exempt
employers other than state or local governmental units. Distributions and
withdrawals under a 457(b) plan of a tax exempt employer that is not a
governmental unit are generally taxed under the rules applicable to wages.
Consult your tax advisor.
LOANS: In the case of a 457(b) plan maintained by a state or local government,
the plan may permit loans. The Code and applicable income tax regulations limit
the amount that may be borrowed from your 457(b) plan and all employer plans in
the aggregate and also require that loans be repaid, at a minimum, in scheduled
level payments over a certain term.
Your 457(b) plan will indicate whether plan loans are permitted. The terms of
the loan are governed by your loan agreement with the plan. Failure to satisfy
loan limits under the Code or to make any scheduled payments according to the
terms of your loan agreement and Federal tax law could have adverse tax
consequences. Consult a tax advisor and read your loan agreement and Contract
prior to taking any loan.
23
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a Contract because of the death of an owner or
Annuitant. Generally, such amounts are includable in the income of the recipient
as follows: (i) if distributed in a lump sum, they are taxed in the same manner
as a full surrender of the Contract; or (ii) if distributed under a payment
option, they are taxed in the same way as Annuity Payments.
PENALTY TAX FOR PREMATURE DISTRIBUTIONS
Taxable distributions taken before the Contract Owner has reached the age of
59 1/2 will be subject to a 10% additional tax penalty unless the distribution
is taken in a series of periodic distributions for life or life expectancy, or
unless the distribution follows the death or disability of the Contract Owner.
Other exceptions may be available in certain qualified plans. The 10% additional
tax is in addition to any penalties that may apply under your Contract and the
normal income taxes due on the distribution.
In general this does not apply to section 457(b) annuities. However, it does
apply to distributions from Contracts under Section 457(b) plans of employers
which are state or local governments to the extent that the distribution is
attributable to rollovers accepted from other types of eligible retirement
plans.
THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974
Under the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended,
certain special provisions may apply to the Contract if the Owner of a Section
403(b) plan Contract or the owner of a contract issued to certain qualified
plans requests that the Contract be issued to conform to ERISA or if the Company
has notice that the Contract was issued pursuant to a plan subject to ERISA.
ERISA requires that certain Annuity Options, withdrawals or other payments and
any application for a loan secured by the Contract may not be made until the
Participant has filed a Qualified Election with the plan administrator. Under
certain plans, ERISA also requires that a designation of a Beneficiary other
than the participant's spouse be deemed invalid unless the participant has filed
a Qualified Election.
A Qualified Election must include either the written consent of the
Participant's spouse, notarized or witnessed by an authorized plan
representative, or the participant's certification that there is no spouse or
that the spouse cannot be located.
The Company intends to administer all contracts to which ERISA applies in a
manner consistent with the direction of the plan administrator regarding the
provisions of the plan, in accordance with applicable law. Because these
requirements differ according to the plan, a person contemplating the purchase
of an annuity contract should consider the provisions of the plan.
FEDERAL INCOME TAX WITHHOLDING & ELIGIBLE ROLLOVER DISTRIBUTIONS
The portion of a distribution that is taxable income to the recipient will be
subject to federal income tax withholding, generally pursuant to Section 3405 of
the Code. The application of this provision is summarized below.
We are required to withhold 20% of the portion of your withdrawal that
constitutes an "eligible rollover distribution" for Federal income taxes. We are
not required to withhold this money if you direct us or the trustee or the
custodian of the plan to directly rollover your eligible rollover distribution
to a traditional IRA or another eligible retirement plan.
Generally, an "eligible rollover distribution" is any taxable amount you (or a
spousal designated beneficiary or "alternate payee" under the Code) receives
from your Contract. In certain cases, after-tax amounts may also be considered
eligible rollover distributions.
24
However, it does not include taxable distributions that are:
(1) Part of a series of substantially equal payments being made at least
annually for:
o your life or life expectancy
o both you and your beneficiary's lives or life expectancies or
o a specified period of 10 years or more
(2) Generally, income payments made under a permissible income annuity on
or after the required beginning date are not eligible rollover
distributions
(3) Withdrawals to satisfy minimum distribution requirements
(4) Certain withdrawals on account of financial hardship
Other exceptions to the definition of eligible rollover distribution may exist.
Effective March 28, 2005, certain mandatory distributions made to participants
in an amount in excess of $1,000 must be automatically rolled over to an IRA
designated by the plan administrator, unless the participant elects to receive
it in cash or roll it over to a different IRA or eligible retirement plan of his
or her own choosing. Generally, transitional rules apply as to when plans have
to be amended. Special effective date rules apply for governmental plans and
church plans.
ELIGIBLE ROLLOVER DISTRIBUTIONS
A distribution including a rollover that is not a direct rollover will require
the 20% withholding, and the 10% additional tax penalty on premature withdrawals
may apply to any amount not added back in the rollover. The 20% withholding may
be recovered when the participant or Beneficiary files a personal income tax
return for the year if a rollover was completed within 60 days of receipt of the
funds, except to the extent that the participant or spousal Beneficiary is
otherwise underwithheld or short on estimated taxes for that year.
OTHER NON-PERIODIC DISTRIBUTIONS (FULL OR PARTIAL REDEMPTIONS)
To the extent not subject to the mandatory 20% withholding as described in
above, the portion of a no periodic distribution which constitutes taxable
income will be subject to federal income tax withholding, to the extent such
aggregate distributions exceed $200 for the year, unless the recipient elects
not to have taxes withheld. If an election to opt out of withholding is not
provided, 10% of the taxable portion of the distribution will be withheld as
federal income tax; provided that the recipient may elect any other percentage.
Election forms will be provided at the time distributions are requested. This
form of withholding applies to all annuity programs.
PERIODIC DISTRIBUTIONS (DISTRIBUTIONS PAYABLE OVER A PERIOD GREATER THAN ONE
YEAR)
The portion of a periodic distribution that constitutes taxable income will be
subject to federal income tax withholding under the wage withholding tables as
if the recipient were married claiming three exemptions. A recipient may elect
not to have income taxes withheld or have income taxes withheld at a different
rate by providing a completed election form. Election forms will be provided at
the time distributions are requested. This form of withholding applies to all
annuity programs.
Recipients who elect not to have withholding made are liable for payment of
federal income tax on the taxable portion of the distribution. All recipients
may also be subject to penalties under the estimated tax payment rules if
withholding and estimated tax payments are not sufficient.
25
Recipients who do not provide a social security number or other taxpayer
identification number will not be permitted to elect out of withholding.
Additionally, United States citizens residing outside of the country, or U.S.
legal residents temporarily residing outside the country, are subject to
different withholding rules and cannot elect out of withholding.
TAX ADVICE
Because of the complexity of the law and the fact that the tax results will vary
according to the factual status of the individual involved, a person
contemplating purchase of an annuity contract and/or an Owner, participant or
Beneficiary who may make elections under a contract should consult with a
qualified tax or legal adviser prior to such purchase or the making of an
election. It should be understood that the foregoing description of the federal
income tax consequences under these contracts is not exhaustive and that special
rules are provided with respect to situations not discussed here. It should be
understood that if a tax benefited plan loses its exempt status, employees could
lose some of the tax benefits described. For further information, a qualified
tax adviser should be consulted.
OTHER TAX CONSIDERATIONS
HURRICANE RELIEF
DISTRIBUTIONS: Your plan may provide for "qualified hurricane distributions"
pursuant to the Katrina Emergency Tax Relief Act of 2005 and the Gulf
Opportunity Zone Act of 2005. Subject to an aggregate limit of $100,000 among
all eligible retirement plans, a participant's qualified hurricane distributions
are not subject to the 10% early withdrawal penalty that might otherwise apply
to a qualified annuity under section 72(t).
To the extent a participant "repays" a qualified hurricane distribution by
contributing within three years of the distribution date to an eligible
retirement plan that accepts rollover contributions, it will generally be
treated as a timely direct trustee-to-trustee transfer and will not be subject
to income tax. To the extent a participant does not repay a qualified hurricane
distribution within three years, he or she will include the distribution in
gross income ratably over the three-tax year period, beginning with the tax year
in which the distribution is received, unless the participant elects to opt out
of three-year averaging by including the qualified hurricane distribution in
gross income for the year it is received. Consult your independent tax advisor
to determine if hurricane relief is available to Your particular situation.
LOANS: Your plan may provide for increased limits and delayed repayment of
participant loans, where otherwise permitted by your plan, pursuant to the
Katrina Emergency Tax Relief Act of 2005 and the Gulf Opportunity Zone Act of
2005. An eligible retirement plan other than an IRA may allow a plan loan to
delay loan repayment by certain individuals impacted by Hurricanes Katrina, Rita
and Wilma , whose principal places of abode on certain dates were located in
statutorily defined disaster areas and who sustained an economic loss due to the
hurricane. Generally, if the due date for any repayment with respect to such
loan occurs during a period beginning on September 23, 2005 (for purposes of
Hurricane Katrina) or October 23, 2005 (for purposes of Hurricanes Rita and
Wilma) and ending on December 31, 2006, then such due date may be delayed for
one year. Note: For purposes of these loan rules, an individual cannot be a
qualified individual with respect to more than one hurricane. Consult your
independent tax advisor to determine if hurricane relief is available to Your
particular situation.
PUERTO RICO TAX CONSIDERATIONS
The Puerto Rico Internal Revenue Code of 1994 (the "1994 Code") taxes
distributions from non-qualified annuity contracts differently than in the U.S.
Distributions that are not in the form of an annuity (including partial
surrenders and period certain payments) are treated under the 1994 Code first as
a return of investment. Therefore, a substantial portion of the amounts
distributed will generally be excluded from gross income for Puerto Rico tax
purposes until the cumulative amount paid exceeds your tax basis. The amount of
income on annuity distributions (payable over your lifetime) is also calculated
differently under the 1994 Code. Since Puerto Rico residents are also subject to
U.S. income tax on all income other than income sourced to Puerto Rico, and the
Internal Revenue Service issued guidance in 2004 which indicated that the income
from an annuity contract issued by a U.S. life insurer would be considered U.S.
source income, the timing of recognition of income from an annuity contract
could vary between the two jurisdictions. Although the 1994 Code provides
26
a credit against the Puerto Rico income tax for U.S. income taxes paid, an
individual may not get full credit because of the timing differences. You should
consult with a personal tax adviser regarding the tax consequences of purchasing
an annuity contract and/or any proposed distribution, particularly a partial
distribution or election to annuitize.
NON-RESIDENT ALIENS
Distributions to non-resident aliens ("NRAs") are subject to special and complex
tax and withholding rules under the Code with respect to U.S. source income,
some of which are based upon the particular facts and circumstances of the
Contract Owner, the beneficiary and the transaction itself. As stated above, the
IRS has taken the position that income from the Contract received by NRAs is
considered U.S. source income. In addition, Annuity Payments to NRAs in many
countries are exempt from U.S. tax (or subject to lower rates) based upon a tax
treaty, provided that the Contract Owner complies with the applicable
requirements. NRAs should seek guidance from a tax adviser regarding their
personal situation.
INFORMATION INCORPORATED BY REFERENCE
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Under the Securities Act of 1933, the Company has filed with the Commission a
registration statement (the "Registration Statement") relating to the Contracts
offered by this prospectus. This prospectus has been filed as a part of the
Registration Statement and does not contain all of the information set forth in
the Registration Statement and the exhibits, and reference is hereby made to
such Registration Statement and exhibits for further information relating to the
Company and the Contracts.
The Company's latest annual report on Form 10-K has been filed with the
Commission. It is incorporated by reference into this prospectus. The Form 10-K
for the period ended December 31, 2005 contains additional information about the
Company, including audited consolidated financial statements for the Company's
latest fiscal year. The Company filed its Form 10-K on March 31, 2006 via Edgar
File No. 33-33-03094. All other reports filed by the Company pursuant to Section
13(a) or 15(d) of the Exchange Act (such as quarterly and periodic reports) or
proxy or information statements filed pursuant to Section 14 of the Exchange Act
since the end of the fiscal year ending December 31, 2005 are also incorporated
by reference into this prospectus.
There have been no material changes in the Company's affairs which have occurred
since the end of the latest fiscal year for which audited consolidated financial
statements were included in the latest Form 10-K or which have not been
described in a Form 10-Q or Form 8-K filed by the Company under the Exchange
Act.
If requested, the Company will furnish, without charge, a copy of any and all of
the reports or documents that have been incorporated by reference into this
prospectus. You may direct your requests to the Company at Annuity Operations
and Services, One Cityplace, Hartford, CT 06103-3415. The telephone number is
1-800-233-3591. You may also access the incorporated reports and other documents
at www.metlife.com
You may also read and copy any materials that the Company files with the SEC at
the SEC's Public Reference Room at 100 F Street, N.E., Washington, DC 20549. The
public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC at (http://www.sec.gov).
EXPERTS
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Legal matters in connection with federal laws and regulations affecting the
issue and sale of the Contracts described in this prospectus and the
organization of the Company, its authority to issue such Contracts under
Connecticut law and the validity of the forms of the Contracts under Connecticut
law have been passed on by legal counsel for the Company.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
The consolidated financial statements of The Travelers Insurance Company (the
"Company") (which report expresses an unqualified opinion and includes an
explanatory paragraph referring to the acquisition of the Company by MetLife
Inc. on July 1, 2005 and the application of the purchase method of accounting to
the assets
27
and liabilities of the Company as required by the U.S. Securities and Exchange
Commission Staff Accounting Bulletin 5.J., PUSH DOWN BASIS OF ACCOUNTING
REQUIRED IN CERTAIN LIMITED CIRCUMSTANCES and such assets and liabilities were
measured at their fair values as of the acquisition date in conformity with
Statement of Financial Accounting Standards No.141, BUSINESS COMBINATIONS) as of
December 31, 2005 and the related consolidated statements of income,
stockholder's equity, and cash flows for the six months ended December 31, 2005
(SUCCESSOR), and June 30, 2005 (PREDECESSOR) and the consolidated financial
statement schedules as of December 31, 2005 (SUCCESSOR), and the six months
ended December 31, 2005 (SUCCESSOR), and June 30, 2005 (PREDECESSOR)
incorporated by reference in this Prospectus have been audited by Deloitte &
Touche LLP, an independent registered public accounting firm, as stated in their
reports appearing herein, and are included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing. The
principal business address of Deloitte & Touche LLP is Two World Financial
Center, New York, New York 10281-1414.
The consolidated financial statements and schedules of The Travelers Insurance
Company and subsidiaries as of December 31, 2004 and for each of the years in
the two-year period ended December 31, 2004, have been incorporated by reference
herein in reliance upon the reports of KPMG LLP, independent registered public
accounting firm, also incorporated by reference herein, and upon the authority
of said firm as experts in accounting and auditing. The audit reports covering
The Travelers Insurance Company and subsidiaries refer to changes in the
Company's methods of accounting for certain nontraditional long-duration
contracts and for separate accounts in 2004 and for variable interest entities
in 2003.
28
APPENDIX A
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Plans eligible to purchase the Contract are pension and profit sharing plans
qualified under ss.401 (a) of the Internal Revenue Code, Section 403 (b) ERISA
plans, and eligible state deferred compensation plans under ss.457 of the Code
("Qualified Plans"). Trustees should consider whether the Plan permits the
investment of Plan assets in the Contract, the distribution of such an annuity
and payment of death benefits in accordance with the requirements of the federal
income tax rules. Assuming continued Plan qualification and operation, earnings
on Plan assets will accumulate value on a tax-deferred basis even if the Plan is
not funded by this Contract. Trustees therefore should consider features of the
Contract other than tax-deferral before investing in the Contract. In addition,
because required minimum distributions must generally begin for annuitants after
age 70 1/2, trustees should consider whether that the Contract may not be an
appropriate purchase for annuitants approaching or over age 70 1/2.
To apply for this Contract, the trustee or other applicant must complete an
application or purchase order for the Group Annuity Contract and make a Purchase
Payment. A Group Annuity Contract will then be issued to the applicant. While
certificates may or may not be issued, each Purchase Payment is confirmed to the
contract owner. Surrenders under the Group Annuity Contract may be made at the
election of the contract owner, from the Account established under the Contract.
Account surrenders are subject to the same limitations, adjustments and charges
as surrenders made under a certificate (see "Surrenders"). Cash Surrender Values
may be taken in cash or applied to purchase annuities for the Contract Owners'
Qualified Plan participants.
Because there might not be individual participant accounts, the qualified Group
Annuity Contract issued in connection with a Qualified Plan may not provide for
death benefits. Annuities purchased for Qualified Plan participants may provide
for a payment upon the death of the Annuitant depending on the option chosen
(see "Annuity Options"). Additionally, since there might not be Annuitants prior
to the actual purchase of an Annuity by the contract owner, the provisions
regarding the Maturity Date may not be applicable.
A-1
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APPENDIX B
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WHAT YOU NEED TO KNOW IF YOU ARE A TEXAS OPTIONAL RETIREMENT PROGRAM PARTICIPANT
If you are a participant in the Texas Optional Retirement Program, Texas law
permits us to make withdrawals on your behalf only if you die, retire or
terminate employment in all Texas institutions of higher education, as defined
under Texas law. Any withdrawal you ask for requires a written statement from
the appropriate Texas institution of higher education verifying your vesting
status and (if applicable) termination of employment. Also, we require a written
statement from you that you are not transferring employment to another Texas
institution of higher education. If you retire or terminate employment in all
Texas institutions of higher education or die before being vested, amounts
provided by the state's matching contribution will be refunded to the
appropriate Texas institution. We may change these restrictions or add others
without your consent to the extent necessary to maintain compliance with the
law.
B-1
METLIFE INSURANCE COMPANY OF CONNECTICUT*
FIXED ANNUITY
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*The Travelers Insurance Company has filed for approval to change its name to
MetLife Insurance Company of Connecticut. The change will be effective May 1,
2006 pending regulatory approval. You will receive a Contract endorsement
notifying you of the name change once it has occurred.
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Book 74 May 1, 2006