April 21, 2006
Mark Cowan
Senior Counsel
Office of Insurance Products
Division of Investment Management
United States Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
Subject: Genworth Life and Annuity Insurance Company
Genworth Life & Annuity VA Separate Account 1
SEC File Nos. 333-31172, 333-47732 and 333-63531
Dear Mr. Cowan:
On behalf of Genworth Life and Annuity Insurance Company (the "Company") and
its Genworth Life & Annuity VA Separate Account 1 (the "Separate Account"), we
hereby submit our response to comments received by the staff of the Securities
and Exchange Commission on April 11, 2006 for the above-referenced Registration
Statements. Changes to the Registration Statements will be made via EDGAR
pursuant to Rule 485(b) under the Securities Act of 1933 on or about April 26,
2006, for an effective date of May 1, 2006.
We provide the following responses to your comments, with revised pages from
one of the Registration Statements (File No. 333-47732) attached for your
reference.
Comment 1: Guaranteed Minimum Withdrawal Benefit for Life Rider - Please
provide, at the beginning of the disclosure for the rider, a short description
of the rider's features and benefits.
Response 1: We have revised the disclosure as instructed, not only for the
Guaranteed Minimum Withdrawal Benefit for Life Rider, but also for the
Guaranteed Minimum Withdrawal Benefit Rider. We have also made other revisions
to these sections to supplement the existing disclosure.
Comment 2: Payment Protection with Commutation Immediate and Deferred Variable
Annuity Rider - The "commutation charge" that is applied when the contract and
rider
Mark Cowan
Office of Insurance Products
United States Securities and Exchange Commission
Page 2
are terminated after income payments begin and commutation value is paid is
different than the surrender schedule that otherwise applies to the contract.
Please explain why this is not an exchange under Section 11 of the Investment
Company Act of 1940 or revise the disclosure.
Response 2: We have revised the disclosure to apply the surrender charge that
would otherwise apply under the contract when commutation value is paid upon a
termination of the contract and rider after income payments begin. We have also
made other revisions to this section to supplement the existing disclosure.
Please note also that File No. 333-63531 does not have a surrender charge and,
therefore, does not apply a commutation charge under the rider.
Thank you for your assistance in this matter. Should you have any questions,
please do not hesitate to contact me at 804.289.3545 or via e-mail at
michael.pappas@genworth.com.
Sincerely,
/s/ Michael D. Pappas
- ----------------------------------
Michael D. Pappas
Associate General Counsel
Mark Cowan
Office of Insurance Products
United States Securities and Exchange Commission
Page 3
Genworth Life and Annuity Insurance Company, on behalf of its Genworth Life &
Annuity VA Separate Account 1, acknowledges that:
Genworth Life and Annuity Insurance Company, on behalf of its Genworth Life &
Annuity VA Separate Account 1, is responsible for the adequacy and accuracy of
the disclosure in the filings. Staff comments or changes to disclosure in
response to Staff comments in the filings reviewed by the Staff do not
foreclose the Commission from taking any action with respect to the filing and
Genworth Life & Annuity VA Separate Account 1 may not assert this action as
defense in any proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
/s/ Geoffrey S. Stiff
- -------------------------
Geoffrey S. Stiff
Senior Vice President
Fee Tables
The following tables describe fees and expenses that you
will pay when buying, owning or partially withdrawing
assets or fully surrendering the contract. The first
table describes the fees and expenses that you will pay
when you buy the contract, take a partial withdrawal,
fully surrender your contract, or transfer assets among
the investment options. State premium taxes may also be
deducted.
Contract Owner Transaction Expenses
- ---------------------------------------------------------------------------------------
Surrender Charge (as a percentage of purchase Number of Completed Surrender Charge as a
payments withdrawn or surrendered) Years Since We Percentage of the
Received the Purchase Payment
Purchase Payment Withdrawn or
Surrendered/1/
-----------------------------------------
0 6%
1 5%
2 4%
3 2%
4 or more 0%
- ---------------------------------------------------------------------------------------
Transfer Charge $10.00/2/
- ---------------------------------------------------------------------------------------
/1/ You may withdraw an amount equal to the greater of 10%
of your total purchase payments or any amount withdrawn
to meet minimum distribution requirements under the
Code each contract year without a surrender charge. We
will deduct amounts surrendered first from purchase
payments in the contract and then from any gain earned.
A surrender charge is not assessed on any amounts
representing gain. The free withdrawal amount is not
cumulative from contract year to contract year. The
surrender charge will be taken from the amount
withdrawn unless otherwise requested.
If you purchase the Payment Protection with Commutation
Immediate and Deferred Variable Annuity Rider, after
the Annuity Commencement Date you may request to
terminate your contract and the rider and (assuming the
right to cancel period has ended) receive the commuted
value of your income payments in a lump sum (the
"commutation value"). In calculating the commutation
value, we assess a commutation charge. The amount of
the commutation charge will be the surrender charge
that would otherwise apply under the contract, in
accordance with the surrender charge schedule.
/2/ We currently do not assess a transfer charge. However,
we reserve the right to assess a transfer charge for
each transfer among the Subaccounts after the first
transfer in the calendar month.
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We do not assess the surrender charge:
. on amounts of Contract Value representing gain (as
defined below);
. on free withdrawal amounts (as defined below);
. on surrenders or partial withdrawals taken under
Optional Payment Plan 1, Optional Payment Plan 2
(for a period of 5 or more years), or Optional
Payment Plan 5; or
. if a waiver of surrender charge provision applies.
You may withdraw an amount equal to the greater of 10% of
your total purchase payments or any amount withdrawn to
meet minimum distribution requirements under the Code
each contract year without a surrender charge (the "free
withdrawal amount"). We will deduct amounts surrendered
first from purchase payments in the contract and then
from any gain earned. A surrender charge is not assessed
on any amounts representing gain. The free withdrawal
amount is not cumulative from contract year to contract
year. (For tax purposes, a surrender is usually treated
as a withdrawal of earnings first.) The free withdrawal
amount will not apply to commutation value taken under
the Payment Protection with Commutation Immediate and
Deferred Variable Annuity Rider.
Further, we will waive the surrender charge if you
annuitize the contract under Optional Payment Plan 1
(Life Income with Period Certain), Optional Payment Plan
2 (Income for a Fixed Period) provided that you select a
fixed period of 5 years or more, or Optional Payment Plan
5 (Joint Life and Survivor Income). In addition, we will
waive the surrender charges if you take income payments
from the GIS Subaccount(s) pursuant to the terms of the
Guaranteed Income Rider or if you take income payments
pursuant to the terms of one of the Payment Protection
Rider Options. We may also waive surrender charges for
certain withdrawals made pursuant to one of the
Guaranteed Minimum Withdrawal Benefit Rider Options. See
the "Optional Payment Plans," "Surrenders and Partial
Withdrawals -- Guaranteed Minimum Withdrawal Benefit
Rider Options," "Income Payments -- Guaranteed Income
Rider" and "Income Payments -- Payment Protection Rider
Options" provisions of this prospectus.
We also will waive surrender charges arising from a
surrender occurring before income payments begin if, at
the time we receive the surrender request, we have
received due proof that the Annuitant has a qualifying
terminal illness, or has a qualifying confinement to a
state licensed or legally operated hospital or inpatient
nursing facility for a minimum period as set forth in the
contract (provided the confinement began, or the illness
was diagnosed, at least one year after the Contract
Date). If you surrender
56
Commutation Immediate and Deferred Variable Annuity
Rider, you must do so at the time of application.
PAYMENT PROTECTION We assess a charge for the Payment Protection Rider equal
RIDER to an annualized rate of 0.40% of the daily net assets of
the Separate Account. The deduction for the rider charge
from the Separate Account is reflected in your Contract
Value and the value of your Annuity Units. The charge for
this rider continues even if you do not allocate assets
in accordance with the prescribed Investment Strategy and
the benefits you are eligible to receive are reduced. If
you reset your benefit and allocate assets in accordance
with the prescribed Investment Strategy available at that
time, we will reset the charge for the rider, which may
be higher than your previous charge, but will never
exceed an annual rate of 1.00%.
The Payment Protection Rider may not be available in all
states or in all markets. We reserve the right to
discontinue offering the Payment Protection Rider at any
time and for any reason.
PAYMENT PROTECTION We assess a charge for the Payment Protection with
WITH COMMUTATION Commutation Immediate and Deferred Variable Annuity Rider
IMMEDIATE AND equal to an annualized rate of 0.50% of the daily net
DEFERRED VARIABLE assets of the Separate Account for single Annuitant
ANNUITY RIDER contracts and 0.65% of the daily net assets of the
Separate Account for Joint Annuitant contracts. Once a
contract is a Joint Annuitant contract, and the Joint
Annuitant rider charge is applied, the Joint Annuitant
rider charge will continue while the rider is in effect.
The deduction for the rider charge from the Separate
Account is reflected in your Contract Value and the value
of your Annuity Units. The charge for this rider
continues even if you do not allocate assets in
accordance with the prescribed Investment Strategy and
the benefits you are eligible to receive are reduced. If
you reset your benefit and allocate assets in accordance
with the prescribed Investment Strategy available at that
time, we will reset the charge for the rider, which may
be higher than your previous charge, but will never
exceed an annual rate of 1.25%.
If you purchase the Payment Protection with Commutation
Immediate and Deferred Variable Annuity Rider, after the
Annuity Commencement Date you may request to terminate
your contract and the rider and (assuming the right to
cancel period has ended) receive the commuted value of
your income payments in a lump sum (the "commutation
value"). In calculating the commutation value, we assess
a commutation charge. The amount of the commutation
charge will be the surrender charge that would otherwise
apply under the contract, in accordance with the
surrender charge schedule.
59
A Systematic Withdrawal program will terminate
automatically when a Systematic Withdrawal would cause
the remaining Contract Value to be less than $5,000. If a
Systematic Withdrawal would cause the Contract Value to
be less than $5,000, then we will not process that
Systematic Withdrawal transaction. You may discontinue
Systematic Withdrawals at any time by notifying us in
writing at our Home Office or by telephone. You may
request that we pay any remaining payments in a lump sum.
See the "Requesting Payments" provision of this
prospectus.
Each Systematic Withdrawal is subject to Federal income
taxes on any portion considered gain for tax purposes. In
addition, you may be assessed a 10% IRS penalty tax on
Systematic Withdrawals if you are under age 59 1/2 at the
time of the withdrawal.
Both partial withdrawals at your specific request and
withdrawals under a Systematic Withdrawal program will
count toward the limit of the amount that you may
withdraw free of any surrender charges in any contract
year under the free withdrawal privilege. See the
"Surrender Charge" provision of this prospectus. In
addition, if you elect one of the Guaranteed Minimum
Withdrawal Benefit Rider Options, partial withdrawals and
withdrawals under a Systematic Withdrawal program may
also reduce the amount of the guaranteed minimum
withdrawal benefit you are eligible to receive under the
terms of the rider. See the "Guaranteed Minimum
Withdrawal Benefit Rider Options" provision below.
Partial withdrawals under a Systematic Withdrawal program
may also reduce your death benefit. See "The Death
Benefit" provision of this prospectus. Your Systematic
Withdrawal amount may be affected if you take an
additional partial withdrawal.
There is no charge for participation in the Systematic
Withdrawal program, however, we reserve the right to
prohibit participation in Systematic Withdrawal and
Dollar Cost Averaging programs at the same time. We also
reserve the right to discontinue and/or modify the
Systematic Withdrawal program upon 30 days written notice
to owners.
GUARANTEED
MINIMUM
WITHDRAWAL
BENEFIT RIDER
OPTIONS
We offer two Guaranteed Minimum Withdrawal Benefit Rider
Options under this contract: the Guaranteed Minimum
Withdrawal Benefit Rider and the Guaranteed Minimum
Withdrawal Benefit for Life Rider. The Guaranteed Minimum
Withdrawal Benefit Rider Options provide for a guaranteed
minimum withdrawal benefit that is not affected by the
market performance of the Subaccounts in which your
assets are allocated. Prior to the Annuity Commencement
Date, if you meet the conditions of the respective rider,
as discussed more fully below, you will be eligible to
make withdrawals from your contract over a period of time
at least equal to the amount of the purchase payments you
made to the contract, even if your Contract Value reduces
to zero. These Guaranteed Minimum Withdrawal Benefit
Rider Options are discussed in separate sections below.
84
GUARANTEED MINIMUM The Guaranteed Minimum Withdrawal Benefit Rider may not
WITHDRAWAL BENEFIT be available in all states or markets. The Guaranteed
UNDER THE GUARANTEED Minimum Withdrawal Benefit Rider also may be referred to
MINIMUM WITHDRAWAL as "Guaranteed Withdrawal Advantage" in our marketing
BENEFIT RIDER materials. We reserve the right to discontinue offering
the Guaranteed Minimum Withdrawal Benefit Rider at any
time and for any reason. If you wish to elect the rider,
you must do so at the time of application.
The Guaranteed Minimum Withdrawal Benefit Rider provides
a guaranteed return of purchase payments through a series
of withdrawals, with upside potential, provided you meet
certain conditions. If you:
. allocate all Contract Value to the prescribed
Investment Strategy; and
. limit total Gross Withdrawals in a Benefit Year to
an amount less than or equal to the Withdrawal Limit;
you will be eligible to receive total Gross Withdrawals
at least equal to your protected amount, even if your
Contract Value reduces to zero.
For important information about the Investment Strategy,
please see the "Investment Strategy for the Guaranteed
Minimum Withdrawal Benefit Rider Options" provision below.
The Withdrawal Limit is calculated on each Valuation Day.
The Withdrawal Limit is equal to (a) multiplied by (b),
where:
(a) is the protected amount; and
(b) is the Withdrawal Factor for the wait period.
The wait period is the number of completed months from
the later of the Benefit Date and the Valuation Day of
the most recent purchase payment to the Valuation Day of
the first withdrawal after that date.
Your protected amount is used to calculate the Withdrawal
Limit, which is the total amount you may withdraw in a
Benefit Year without reducing the benefits provided under
this rider. Your initial protected amount equals purchase
payments applied to the contract on the Contract Date.
The protected amount does not change unless:
. an additional purchase payment is applied to your
protected amount; or
. you elect to reset the protected amount.
Your protected amount can never exceed $2,000,000. This
maximum amount applies to all contracts that you own with
us and our affiliated companies.
85
. reset the charge for this rider (the new charge,
which may be higher than your previous charge, will
never exceed an annual rate of 1.00%); and
. reset the Investment Strategy to the current
Investment Strategy.
We reserve the right to limit the next available reset
date to an anniversary on or after five complete years
from the Benefit Date.
Withdrawals. If a Gross Withdrawal plus all prior Gross
Withdrawals in a Benefit Year is less than or equal to
the Withdrawal Limit, the remaining amount is reduced by
the Gross Withdrawal.
If a Gross Withdrawal, plus all prior Gross Withdrawals
in a Benefit Year, is in excess of the Withdrawal Limit,
your remaining amount is reduced, causing a reduction in
your total benefits provided under this rider. The new
remaining amount equals the lesser of (a) and (b), where:
(a) is the Contract Value after the Gross Withdrawal;
and
(b) is the prior remaining amount less the Gross
Withdrawal.
If the total Gross Withdrawals in a Benefit Year is less
than or equal to the Withdrawal Limit, we will waive any
surrender charge on the Gross Withdrawals.
Reduction in Contract
Value. Your Contract Value after
taking a withdrawal may be less than the amount required
to keep your contract in effect. In this event, your
contract and any other riders and endorsements will
terminate and the following will occur:
. If the Withdrawal Limit is less than $100, we will
pay you the greater of the remaining amount or
Contract Value in a lump sum.
. If the Withdrawal Limit is greater than or equal to
$100, we will issue you a supplemental contract. We
will continue to pay you the Withdrawal Limit until
you have received the greater of the remaining
amount or Contract Value as determined on the
Valuation Day the supplemental contract was issued.
We will make payments monthly unless agreed
otherwise. If the monthly amount is less than $100,
we will reduce the frequency so that the payment
received will be at least $100.
Considerations. While the rider is designed to provide
the return of purchase payments, this benefit is only
guaranteed to the extent you comply with the limits,
conditions and restrictions set forth in the contract.
There can be no assurance that you will receive more than
a return of purchase payments.
87
owner. Such reallocations will not be counted as a
transfer for the purpose of the number of transfers
allowed under the contract in a calendar year.
GUARANTEED MINIMUM For contracts issued on or after the later of May 1, 2006
WITHDRAWAL BENEFIT or the date on which state insurance authorities approve
UNDER THE GUARANTEED applicable contract modifications.
MINIMUM WITHDRAWAL
BENEFIT FOR LIFE RIDER
The disclosure for the Guaranteed Minimum Withdrawal
Benefit for Life Rider in this section applies to
contracts issued on or after the later of May 1, 2006 or
the date on which state insurance authorities approve
applicable contract modifications. For contracts issued
prior to that date, please see the disclosure for the
Guaranteed Minimum Withdrawal Benefit for Life Rider in
the following section.
The Guaranteed Minimum Withdrawal Benefit for Life Rider
may not be elected with any of the optional death benefit
riders. The rider may not be available in all states and
markets. The Guaranteed Minimum Withdrawal Benefit for
Life Rider also may be referred to as "Lifetime Income
Plus" in our marketing materials. We reserve the right to
discontinue offering the rider at any time and for any
reason. If you wish to elect the rider, you must do so at
the time of application.
The Guaranteed Minimum Withdrawal Benefit for Life Rider
provides guaranteed withdrawals for the life of the
Annuitant(s), at least equal to purchase payments, with
upside potential, provided you meet certain conditions.
If you:
. allocate all Contract Value to the prescribed
Investment Strategy; and
. limit total Gross Withdrawals in a Benefit Year to
an amount no greater than the Withdrawal Limit;
then you will be eligible to receive total Gross
Withdrawals in each Benefit Year equal to the Withdrawal
Limit until the last death of an Annuitant.
For important information about the Investment Strategy,
please see the "Investment Strategy for the Guaranteed
Minimum Withdrawal Benefit Rider Options" provision below.
The Withdrawal Limit is calculated on each Valuation Day.
The Withdrawal Limit is (a) multiplied by (b) where:
(a) is the greater of the Contract Value on the prior
contract anniversary and the Withdrawal Base; and
(b) is the Withdrawal Factor.
90
frequency so that the payment will be at least $100.
The Rider Death Benefit will continue under the
supplemental contract. The Rider Death Benefit, if
any, will be payable on the last death of an
Annuitant.
Rider Death Benefit. This rider provides for a death
benefit (the "Rider Death Benefit") that, on the Contract
Date, is equal to the initial purchase payment. The Rider
Death Benefit is used to determine the death benefit
payable upon the death of the last Annuitant as described
in the "Death Provisions" section below.
Purchase payments applied to your contract in a Benefit
Year increase the Rider Death Benefit. If you have
allocated all assets to the Investment Strategy since the
Benefit Date, any subsequent purchase payment will be
added to the Rider Death Benefit. Otherwise, the Rider
Death Benefit will be increased by (a) minus (b), where:
(a) is the purchase payment; and
(b) is the purchase payment multiplied by 50%.
Gross Withdrawals in a Benefit Year decrease the Rider
Death Benefit. If a Gross Withdrawal plus all prior Gross
Withdrawals in a Benefit Year is less than or equal to
the Withdrawal Limit, the Rider Death Benefit will be
reduced by the Gross Withdrawal. If a Gross Withdrawal
plus all prior Gross Withdrawals in a Benefit Year is in
excess of the Withdrawal Limit, your Rider Death Benefit
will equal the lesser of (a) and (b), where:
(a) is the Contract Value on the Valuation Day after
the Gross Withdrawal; and
(b) is the prior Rider Death Benefit minus the Gross
Withdrawal.
If you choose not to follow the Investment Strategy, your
Rider Death Benefit will be reduced as described in the
"Impact of Violating the Investment Strategy on the
Withdrawal Factor and Rider Death Benefit" provision
above.
Considerations. While the rider is designed to provide
life-time withdrawal benefits and the return of purchase
payments, these benefits are only guaranteed to the
extent you comply with the limits, conditions and
restrictions set forth in the contract. There can be no
assurance that you will receive more than a return of
purchase payments.
EXAMPLES The following examples show how the Guaranteed Minimum
Withdrawal Benefit for Life Rider works based on
hypothetical values. The examples are for illustrative
purposes only and are not intended to depict investment
performance of the contract and, therefore, should not be
relied upon in making a decision to invest in the rider
or contract.
95
be established based on the attained age of the surviving
spouse on the date of the first Gross Withdrawal for the
surviving spouse. Otherwise, the Withdrawal Factor will
continue as it was under the contract for the deceased
Owner.
If the surviving spouse cannot continue the rider, the
rider and the rider charge will terminate on the next
contract anniversary.
Proceeds that were transferred to the GE Investments
Funds, Inc. -- Money Market Fund upon the death of the
owner will be reallocated to the Investment Strategy, if
applicable, and the asset percentages then in effect at
the time of the death of the owner. Such reallocations
will not be counted as a transfer for the purpose of the
number of transfers allowed under the contract in a
calendar year.
GUARANTEED MINIMUM For contracts issued prior to May 1, 2006 or the date on
WITHDRAWAL BENEFIT which state insurance authorities approve applicable
UNDER THE GUARANTEED contract modifications.
MINIMUM WITHDRAWAL
BENEFIT FOR LIFE RIDER
The disclosure for the Guaranteed Minimum Withdrawal
Benefit for Life Rider in this section applies to
contracts prior to May 1, 2006 or the date on which state
insurance authorities approve applicable contract
modifications. For contracts issued after to that date,
please see the disclosure for the Guaranteed Minimum
Withdrawal Benefit for Life Rider in the previous section.
The Guaranteed Minimum Withdrawal Benefit for Life Rider
may not be elected with either the 5% Rollup Death
Benefit Rider Option or the Earnings Protector and
Greater of Annual Step-Up and 5% Rollup Death Benefit
Rider Option. The rider may not be available in all
states and markets. The Guaranteed Minimum Withdrawal
Benefit for Life Rider also may be referred to as
"Lifetime Income Plus" in our marketing materials. We
reserve the right to discontinue offering the rider at
any time and for any reason. If you wish to elect the
rider, you must do so at the time of application.
The Guaranteed Minimum Withdrawal Benefit for Life Rider
provides guaranteed withdrawals until the first death of
an Annuitant, at least equal to purchase payments, with
upside potential, provided you meet certain conditions.
If you:
. allocate all Contract Value to the prescribed
Investment Strategy; and
. limit total Gross Withdrawals in a Benefit Year to
an amount no greater than the Withdrawal Limit;
then you will be eligible to receive total Gross
Withdrawals in each Benefit Year equal to the Withdrawal
Limit until the first death of an Annuitant.
100
The new Rider Death Benefit equals the lesser of (a) and
(b), where:
(a) is the Contract Value on the Valuation Day after
the Gross Withdrawal; and
(b) is the prior Rider Death Benefit minus the Gross
Withdrawal.
If the total Gross Withdrawals in a Benefit Year are less
than or equal to the Withdrawal Limit, we will waive any
surrender charge on the Gross Withdrawal.
The Withdrawal Limit will be increased for any Benefit
Year to the extent necessary to meet any minimum
distribution requirements under federal tax law. This
increase applies only to the required minimum
distribution based on the Contract Value.
You should carefully consider when to begin taking
withdrawals if you elected the Guaranteed Minimum
Withdrawal Benefit for Life Rider. The longer you wait
before beginning to take withdrawals, the higher the
Withdrawal Factor will be, which is one of the components
used to determine the amount of your Withdrawal Limit. If
you delay taking withdrawals too long, you may limit the
number of years available for you to take withdrawals in
the future (due to life expectancy) and you may be paying
for a benefit you are not using.
Your Contract Value after taking a withdrawal may be less
than the amount required to keep your contract in effect.
In this event your contract, all riders and endorsements,
including this rider, will terminate and the following
will occur:
. If the Withdrawal Limit is less than $100, we will
pay you the greatest of the Rider Death Benefit, the
Contract Value and the present value of the
Withdrawal Limit in a lump sum calculated using the
Annuity 2000 Mortality Table and an interest rate of
3%.
. If the Withdrawal Limit is greater than $100, we
will issue you a supplemental contract. We will
continue to pay you the Withdrawal Limit until the
first death of an Annuitant. We will make payments
monthly or on another periodic basis agreed to by
us. If the monthly amount is less than $100, we will
reduce the frequency so that the payment will be at
least $100.
Considerations. While the rider is designed to provide
life-time withdrawal benefits and the return of purchase
payments, these benefits are only guaranteed to the
extent you comply with the limits, conditions and
restrictions set forth in the contract. There can be no
assurance that you will receive more than a return of
purchase payments.
105
Non-Qualified Contract, this means that you will pay tax
at ordinary income tax rates on the amount you receive to
the extent that your Contract Value before the monthly
income payment exceeds your "investment in the contract,"
i.e., generally, the total of your purchase payments
under the contract reduced by any amounts you previously
received from the contract that you did not include in
your income. (It is important to note that the taxation
of each payment is determined based on the total Contract
Value and total investment in the contract, not the value
in a particular segment or the purchase payments that may
be considered to have been allocated to that segment.)
The Code imposes a higher rate of tax on ordinary income
than it does on capital gains. Monthly income payments
you receive before the Annuity Commencement Date may also
be subject to a penalty tax equal to 10% of the amount of
such payments that are included in you gross income.
Monthly income payments you receive on or after the
Annuity Commencement Date will be subject to tax as
income payments. A portion of each payment will be
treated as nontaxable recovery of your "investment in the
contract" (see above) and the remainder will be taxed at
ordinary income tax rates. We will notify you annually of
the taxable amount of your income payments. If income
payments cease because of the death of the Annuitant(s)
and before the total amount of the "investment in the
contract" has been recovered, the unrecovered amount
generally will be deductible.
Persons intending to purchase the Guaranteed Income Rider
in connection with a qualified retirement plan should
obtain advice from a tax adviser.
For further information on the tax treatment of partial
withdrawals and income payments, see the "Federal Tax
Matters" provision below.
PAYMENT
PROTECTION
RIDER OPTIONS
We offer two Payment Protection Rider Options under this
contract: the Payment Protection Rider and the Payment
Protection with Commutation Immediate and Deferred
Variable Annuity Rider. These Payment Protection Rider
Options are discussed in separate sections below.
PAYMENT PROTECTION The Payment Protection with Commutation Immediate and
WITH COMMUTATION Deferred Variable Annuity Rider provides for a guaranteed
IMMEDIATE AND income benefit that is based on the amount of purchase
DEFERRED VARIABLE payments you make to your contract. Under the rider, you
ANNUITY RIDER will receive a series of monthly income payments
determined on the Annuity Commencement Date. If you meet
the conditions of the rider, as discussed more fully
below, the amount of your monthly income payment will
have a guaranteed payment floor, and the guaranteed
payment floor will not vary based on the market
performance of the Subaccounts in which your assets are
allocated. In addition, you will be eligible to receive
at least the
148
Commutation Value: The commutation value will be the
lesser of (a) and (b) but not less than zero, where:
(a) is (i) minus (ii) minus (iii), where:
(i) is the income base less any premium tax;
(ii) is the commutation charge; and
(iii) is the sum of all monthly income paid;
(b) is (i) minus (ii) minus (iii) plus (iv), where:
(i) is the commutation base, which is described
below, less any premium tax;
(ii) is the commutation charge;
(iii) is the adjustment account value; and
(iv) is the level income amount multiplied by the
number of months remaining in the current
annuity year.
The amount of the commutation charge will be the
surrender charge that would otherwise apply under the
contract, in accordance with the surrender charge
schedule.
Commutation Base: On any day that is a Valuation Day, the
commutation base in a Subaccount is determined by
multiplying the number of commutation units in that
Subaccount by the value of the commutation unit for that
Subaccount. The commutation base is equal to the sum of
the commutation base amounts for each Subaccount.
Commutation Units: On the Valuation Day prior to the
Annuity Commencement Date, the commutation units in a
Subaccount will be equal to the number of Accumulation
Units for that Subaccount.
The number of commutation units is reduced at the
beginning of each annuity year. The reduction for each
Subaccount equals (a) divided by (b), where:
(a) is the annual income amount for the Subaccount; and
(b) is the value of the commutation unit for the
Subaccount on the first Valuation Day of the
annuity year.
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Other events that will reduce the number of commutation
units of a Subaccount are as follows:
(1) transfers out of the Subaccount;
(2) payment of commutation proceeds;
(3) payment of death proceeds; and
(4) deduction of applicable contract charges.
Commutation units are canceled as of the end of the
Valuation Period in which we receive notice in a form
acceptable to us regarding an event that reduces
commutation units.
Transfers: When we perform Subaccount transfers after the
Annuity Commencement Date, we will redeem the commutation
units from the current Subaccount and purchase
commutation units from the new Subaccount. The
commutation base on the date of the transfer will not be
affected by the transfer. The number of commutation units
added to the new Subaccount is (a) multiplied by (b),
divided by (c), where:
(a) is the number of commutation units transferred out
of the current Subaccount;
(b) is the value of a commutation unit of the current
Subaccount; and
(c) is the value of a commutation unit of the new
Subaccount.
Value of Commutation Units: The initial value of a
commutation unit for each Subaccount is the initial value
of the Accumulation Unit for that Subaccount. Thereafter,
the value of a commutation unit at the end of every
Valuation Day is the value of the commutation unit at the
end of the previous Valuation Day multiplied by the net
investment factor, as described in the contract. The
value of a commutation unit may change from one Valuation
Period to the next.
Note on Calculation of Commutation Value. If you elect to
terminate your contract and the rider and receive the
commutation value, the commutation value is based on the
commuted value of your income payments in a lump sum. The
amount of income payments on which the commutation value
is calculated is based on either (a) income base, which
is a measure of purchase payments (and Contract Value, if
there is a reset) applied under the contract and is used
to calculate the guaranteed payment floor; and (b)
commutation base, which is a measure of Contract Value
had the contract not been "annuitized" and reflects the
effect of market performance. In addition, the
commutation value reflects the deduction of any
applicable commutation charge.
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If you elect to terminate your contract after income
payments have begun and receive the commutation value,
you will receive the lesser of the adjusted income base
and the adjusted commutation base (but not less than
zero), as described in the calculation provided above.
You should be aware that income base will not reflect any
positive investment performance unless, on or before the
Annuity Commencement Date, there was a reset of benefit
base capturing such performance. As a result, the
commutation value you receive will always be less than
the income base (adjusted for any premium tax,
commutation charge and monthly income paid) and will
never reflect any of the positive investment performance
experienced after a reset or after the Annuity
Commencement Date. This rider is primarily designed to
provide a guaranteed income payment with upside potential
and, therefore, this rider may not make sense for you if
you believe you may elect to terminate the contract and
receive the commutation value after your contract has
experienced positive investment performance. In addition,
the total amount of commuted income payments you receive
if you terminate the contract may be less than the total
amount of income payments and additional death proceeds
you would be guaranteed to receive if you did not
terminate the contract.
DEATH PROVISIONS The following provisions apply to the rider.
Special Distribution Rules When Death Occurs Before
Monthly Income Starts
If the designated beneficiary is a surviving spouse who
elects to continue the contract as the new owner, this
rider will continue.
Special Distribution Rules When the Last Annuitant Dies
On or After Monthly Income Starts
If the last Annuitant dies after an Annuity Commencement
Date, there may be additional death proceeds paid under
this rider to the designated beneficiary in a lump sum.
The amount of any additional death proceeds will be the
greater of (a) and (b), where:
(a) is (i) minus (ii), where:
(i) is the income base;
(ii) is the sum of all monthly income paid; and
(b) is zero.
WHEN THIS RIDER IS The effective date of the rider is the Contract Date.
EFFECTIVE This rider may be terminated only when the contract is
terminated.
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CHANGE OF OWNERSHIP We must approve any assignment or sale of this contract
unless the assignment is made pursuant to a court order.
GENERAL PROVISIONS For purposes of this rider:
. a non-natural owner must name an Annuitant and may
name the Annuitant's spouse as a Joint Annuitant;
. an individual owner must also be an Annuitant;
. if there is only one owner, that owner may name only
his or her spouse as a Joint Annuitant -- at issue;
and
. If you marry after issue, but prior to the Annuity
Commencement Date, you may add your spouse as a
joint owner and Joint Annuitant or as a Joint
Annuitant only, subject to Home Office approval.
EXAMPLES The following examples show how the rider works based on
hypothetical values. The examples are for illustrative
purposes only and are not intended to depict investment
performance of the contract and, therefore, should not be
relied upon in making a decision to invest in the rider
or contract. The examples assume that an owner purchases
the contract with a male Annuitant, age 65, at the time
of issue.
The first example assumes that:
(1) the owner purchases the contract for $100,000;
(2) the owner makes no additional purchase payments or
partial withdrawals;
(3) all Contract Value is allocated to the prescribed
Investment Strategy at all times;
(4) the contract earns a net return of 0%;
(5) the Annuity Commencement Date is the third contract
anniversary;
(6) the guaranteed payment floor percentage is 5%;
(7) the 12 month, period certain, single payment
immediate annuity rate is 0%; and
(8) there is no premium tax.
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On the Annuity Commencement Date, the income base is set
equal to the benefit base.
Additional
Death
Annual Level Guaranteed Proceeds
Annuity Income Income Payment Monthly Adjustment (Beginning
Year Amount Amount Floor Income Account of Year)
--------------------------------------------------------------
1 $6,239 $520 $417 $520 $ 0 $100,000
2 5,999 500 417 500 0 93,761
3 5,768 481 417 481 0 87,762
4 5,546 462 417 462 0 81,994
5 5,333 444 417 444 0 76,447
--------------------------------------------------------------
The annual income amount for annuity year 1 is determined
by multiplying the Contract Value by a payment rate (in
this example, $100,000 x .06239 = $6,239). The level
income amount is determined by dividing the annual income
amount by 12. In this example, for annuity year 1, the
level income amount is $520 ($6,239 / 12). The guaranteed
payment floor is determined by multiplying the income
base by the guaranteed payment floor percentage and
dividing that product by 12 (in this example, ($100,000 x
.05) / 12 = $417). Monthly income is the greater of the
guaranteed payment floor and the level income amount,
which, for annuity year 1, is the greater of $417 and
$520. The additional death proceeds equal to the income
base minus the sum of all monthly income paid.
This next example assumes that:
(1) the owner purchases the contract for $100,000;
(2) the owner makes no additional purchase payments or
withdrawals;
(3) all Contract Value is allocated to the prescribed
Investment Strategy at all times;
(4) the contract earns a net return of 8%;
(5) the Contract Value at the end of the first contract
year is $108,000;
(6) the Annuity Commencement Date is the first contract
anniversary;
(7) the guaranteed payment floor percentage is 5%; and
(8) there is no premium tax.
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Income
Base, Less
Commutation
Charge, Less
Annual Commutation Adjustment Monthly Commutation
Annuity Income Base - Account - Income Paid Value -
Year Amount End of Year End of Year - End of Year End of Year
----------------------------------------------------------------
1 $6,738 $109,363 $ 0 $88,262 $88,262
2 6,997 110,555 0 82,265 82,265
3 7,266 111,552 0 76,999 76,999
4 7,546 112,327 0 71,453 71,453
----------------------------------------------------------------
The commutation base at the end of annuity year 1 is
determined by multiplying the Contract Value at the end
of the first contract year less the annual income amount
for annuity year 1 by 1.08 (($108,000 - $6,738) x 1.08 =
$109,363). The commutation value at the end of annuity
year 1 is equal to the lesser of (i) the income base,
less the commutation charge, less monthly income paid
($100,000 - 5% x $100,000 - $6,738 = $88,262) and (ii)
the commutation base, less the commutation charge, less
the value of the adjustment account ($109,363 - 5% x
$100,000 - 0 = $104,363). The commutation base at the end
of annuity year 2 is determined by multiplying the
commutation base at the end of annuity year 1 less the
annual income amount for annuity year 2 by 1.08
(($109,363 - $6,997) x 1.08 = $110,555). Beginning in
annuity year 4, the contract has no surrender charge and,
therefore, the commutation value is not reduced by a
commutation charge. The commutation value at the end of
annuity year 4 is $71,453, which is equal to the lesser
of (i) the income base less monthly income paid ($100,000
- $28,547 = $71,453) and (ii) the commutation base less
the value of the adjustment account ($112,327 - $0 =
$112,327).
PAYMENT PROTECTION The Payment Protection Rider provides for a guaranteed
RIDER income benefit that is based on the amount of purchase
payments you make to your contract. Under the rider, you
will receive a series of monthly income payments (a
"Payment Protection Plan") determined on the date you
elect to take such payments (the "Income Start Date"). If
you meet the conditions of the rider, as discussed more
fully below, the amount of your monthly income payment,
for each Payment Protection Plan, will have a guaranteed
payment floor, and the guaranteed payment floor will not
vary based on the market performance of the Subaccounts
in which your assets are allocated. In addition, you will
be eligible to receive at least the value of your
purchase payments in monthly income or additional death
proceeds, even if your Contract Value reduces to zero.
The Payment Protection Rider may not be available in all
states or in all markets. This rider may be referred to
as the "Principal Protection Advantage" in our marketing
materials. We reserve the right to discontinue offering
the Payment Protection Rider at any time and for any
reason. If you wish to elect this rider, you must do so
at the time of application.
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