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Retirement Benefits Protected from Creditors in Connecticut

Connecticut Gov. Dannell P. Malloy (D) on July 2 signed into law a measure that protects retirement plan benefits from creditors’ claims. The measure goes into effect on Oct. 1, 2015.

Public Act 15-167 exempts from creditors’ claims interests in, or amounts payable to, participants and beneficiaries of certain allocated or unallocated group annuity contracts. Employers may enter into group annuity contracts to fund employee retirement benefits or otherwise decrease the risk associated with managing a retirement plan.

To qualify for the exemption the following conditions must be met:

  • a group annuity contract must be issued to an employer or pension plan to provide employees or retirees with defined retirement benefits;
  • the original retirement benefits must be protected under ERISA or by the Pension Benefit Guaranty Corporation (PBGC); and
  • the group annuity contract must not be protected by ERISA or the PBGC.
Under the new law, creditors cannot claim interests in and payments from certain accounts, including:

  • certain retirement accounts;
  • simplified employee pension plans; and
  • medical savings accounts.
On and after Oct. 1, each insurance company that issues an allocated or unallocated group annuity contract to an employer or a pension plan to provide retirement benefits to employees or retirees of the employer under a defined benefit plan shall provide the following disclosures in writing to each employee and retiree who is an intended participant or beneficiary under the annuity contract not later than 15 after the effective date of such annuity contract:

  • a statement that amounts payable to a participant of or beneficiary under the group annuity contract are exempt from the claims of all creditors of such participant or beneficiary;
  • a statement that the employee or retiree will no longer have the protection of ERISA or the PBGC;
  • a statement regarding the existence of the Connecticut Life and Health Insurance Guaranty Association or any subsequent corresponding guaranty association that provides coverage of annuity contracts to annuitants and beneficiaries residing in Connecticut, and the coverage the association provides if the insurance company is insolvent or financially unable to do so as set forth on the association's website or in other materials published by the association; and
  • the contact information for the association.
Each insurance company required to provide these disclosures also will be required to provide an annual statement to each employee or retiree that discloses the following:

  • the funding levels of the insurance company’s assets as compared to its expected liabilities under the assumed pension benefit schedules;
  • a summary of investment performance by asset class;
  • a detailed description of investment performance by asset class;
  • any expenses associated with the group annuity contract; and
  • any changes in the actuarial assumptions used by the insurance company with respect to the group annuity contract.
The new law also says that no insurance company may assume from another insurance company, or transfer, a group annuity contract without the prior approval of the Connecticut Insurance Commissioner that the insurance company assuming the obligations of that contract has sufficient funds to fulfill them.