This has led to variation among the states in the precise regulations applied to annuities and other insurance products. Some annuity products, however, are also considered securities products and are regulated by the SEC. This rule was finalized on January 8, 2009. The primary impact of this rule change is that many, if not most, of the practices related to the sale of indexed annuities of those companies and individuals selling indexed annuities will be regulated by both the SEC and the states. Final SEC Rule

On December 17, 2008, the SEC approved the previously proposed rule, with one commissioner dissenting. The reasoning for this, according to the SEC in its final rule, is that, though the indexed annuities will be considered securities under the new rule, they will not be traded in a secondary market, and activities of the insurance companies issuing them, including the seller's assets and income, are already monitored and regulated at the state level. Legal Challenge24

On the day the SEC published its final Rule 151A, a coalition of insurance companies and insurance trade groups filed a Petition for Review in the U.S. Court of Appeals for the District of Columbia Circuit challenging the rule. The court therefore remanded the rule for reconsideration and a more complete analysis of the impact of the rule upon competition, efficiency, and capital formation. Analysis of Argument

Petitioners first argued that the SEC improperly excluded FIAs from the Section 3(a)(8) exemption of the 1933 Act and that this argument could be supported by the text of the exemption; by two Supreme Court decisions, Securities and Exchange Commission v. Variable Annuity Life Insurance Company of America (VALIC) and Securities and Exchange Commission v. United Benefit Life Insurance Company (United Benefit) ; and by the language of the SEC's earlier rule, Rule 151. On July 12, 2010, the United States Court of Appeals for the District of Columbia Circuit ordered that Rule 151A be vacated and that its 2009 decision be amended accordingly. Legislation

		The Fixed Indexed Annuities & Insurance Products Classification Act of 2009 (H.R. 2733 was introduced in the House on June 4, 2009, by Representative Gregory Meeks along with 21 cosponsors. Senator Benjamin Nelson introduced an identical bill, S. 1389 , in the Senate on June 25, 2009. This bill would have the effect of returning the regulation of indexed annuities to the status quo before the SEC's promulgation of Rule 151A; namely, indexed annuities would be exempted from SEC regulation and solely subject to regulation by the state insurance regulators. The Dodd-Frank Wall Street Reform and Consumer Protection Act (H.R. As introduced, neither directly addressed SEC Rule 151A or the issue of SEC oversight of annuities. 4173 , Senator Harkin offered another annuities amendment, which was ultimately adopted as Section 989J of the conference report. Although not specifically addressing SEC Rule 151A, the section requires the SEC to treat certain annuities and insurance contracts as exempt securities. The House agreed to the H.R. 4173 conference report on June 30, 2010 by a vote of 237-192. The Senate agreed to the conference report on July 15, 2010 by a vote of 60-39. President Obama signed the bill into law as P.L. 111-203 on July 21, 2010.
In January 2011, a new rule from the Securities and Exchange Commission (SEC), Rule 151A, entitled "Indexed Annuities and Certain Other Insurance Contracts," is slated to go into effect. This rule would effectively reclassify indexed annuities as both security products and insurance products. Since insurance products generally are regulated solely by the states, this rule will expand federal authority over indexed annuities, putting them in a similar classification as variable annuities, which are already regulated by both the SEC and the individual states.
The SEC has cited as a primary reason for increased federal oversight numerous problems with improper marketing and sales of these annuity products. This proposal has been controversial, with nearly 5,000 comments received by the SEC. The SEC's final rule was adopted on December 17, 2008, and was published in the Federal Register on January 16, 2009. Although some changes were made from the initial proposed rule, the final rule retained the majority of the original language. The U.S. Court of Appeals considered a legal challenge to the SEC's rule, in American Equity Investment Life Insurance Co. vs. SEC. In July 2009, the court found that the SEC was not unreasonable in classifying indexed annuities as securities, but remanded the rule to the SEC for the SEC to provide a more thorough analysis of the effects of the rule upon competition, efficiency, and capital formation. More recently, on July 12, 2010, the United States Court of Appeals for the District of Columbia Circuit ordered that Rule 151A be vacated and that its 2009 decision be amended accordingly.
On June 4, 2009, Representative Gregory Meeks introduced the Fixed Indexed Annuities and Insurance Products Classification Act of 2009 (H.R. 2733). Senator Benjamin Nelson introduced an identical bill, S. 1389, in the Senate on June 25, 2009. The bills would specifically nullify SEC Rule 151A and return to the states sole regulatory authority over indexed annuities. Neither individual bill has been brought up for consideration by relevant committees.
During the conference committee on the Wall Street Reform and Consumer Protection Act (H.R. 4173), Senator Harkin offered an amendment, ultimately adopted as Section 989J, that directs the SEC to treat as exempt securities annuities that meet a number of conditions. This language has been generally interpreted as preventing SEC oversight of indexed annuities, although its precise impact may be clarified by future court or regulatory decisions. The House agreed to the H.R. 4173 conference report on June 30, 2010, by a vote of 237-192 and the Senate agreed to the conference report on July 15, 2010, by a vote of 60-39. President Obama signed the bill into law as P.L. 111-203 on July 21, 2010.
This report explains the different types of annuities, the taxation of annuities, and disentangles the federal and state roles in the regulation of annuities. It outlines the SEC rule, including practical considerations for implementation. It also discusses legal and congressional action in response to the SEC rule. The report will be updated as legislative or regulatory events warrant.