Illinois Supreme Court Reaffirms Fixed Indexed Annuities Are Not Securities

As the state's supreme court ruling states, Section 989J of the Dodd-Frank Act — often referred to as the Harkin Amendment — sponsored by former Sen. Tom Harkin of Iowa, exempts from Securities and Exchange Commission regulation and registration requirements certain state-regulated annuities as long as they meet the following requirements:

• The value of the contract does not vary according to the performance of a separate account (this eliminates variable annuities from getting this exemption);
• The annuity contract satisfies applicable standard non-forfeiture laws; and
• Sales of the annuity must meet or exceed the suitability standards established by the National Association of Insurance Commissioners (NAIC).

"As long as they meet those requirements, indexed annuities are treated as insurance products and are regulated at the state level by state departments of insurance," Heinrich said.

As NAFA explains, in July 2016, a three-judge panel of the Appellate Court unanimously reversed the decisions of the Secretary and the circuit court, and, in a published opinion, held that fixed indexed annuities "are not securities under Illinois law."

"The Illinois Supreme Court then granted the Attorney General's request to review the Appellate Court decision. On Mar. 21, 2019, the Supreme Court issued its own unanimous decision upholding the Appellate Court's ruling that, under Illinois law, fixed indexed annuities are not securities," according to Heinrich.

The Supreme Court's decision, Heinrich said, was based on two basic points: (1) the language of the Securities Act itself did not allow for the regulation of fixed indexed annuities as securities, and (2) because such annuities were already regulated as insurance, it would be "incongruous" to also regulate them as securities.

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