B-129457, OCTOBER 30, 1956, 36 COMP. GEN. 345

B-129457, OCTOBER 30, 1956, 36 COMP. GEN. 345

TEACHERS AT NAVAL ACADEMY - INSURANCE - CONTRIBUTIONS BY GOVERNMENT - SALE AFTER TERMINATION OF EMPLOYMENT A DEFERRED ANNUITY INSURANCE POLICY, WITH NO CASH SURRENDER VALUE, WHICH WAS PURCHASED BY A CIVILIAN FACULTY MEMBER OF THE NAVAL POSTGRADUATE SCHOOL BY MONTHLY SALARY ALLOTMENTS AND AN ADDITIONAL AMOUNT CONTRIBUTED BY THE GOVERNMENT PURSUANT TO 10 U.S.C. 7082, BECAME THE PROPERTY OF THE INSURED, AND AFTER TERMINATION OF GOVERNMENT EMPLOYMENT, THE POLICY MAY BE SOLD BACK TO THE INSURANCE COMPANY AND THE ENTIRE PROCEEDS PAID TO THE FORMER POLICYHOLDER.

TO THE SECRETARY OF THE NAVY, OCTOBER 30, 1956:

REFERENCE IS MADE TO A LETTER DATED OCTOBER 5, 1956, SIGNED BY MR. W. B. FRANKE, ASSISTANT SECRETARY OF THE NAVY ( FINANCIAL MANAGEMENT, REQUESTING OUR DECISION ON TWO QUESTIONS RELATIVE TO THE SUGGESTED REPURCHASE BY THE INSURANCE COMPANY OF AN ANNUITY POLICY PURCHASED BY MR. NEAL S. ANDERSON, A FORMER CIVILIAN FACULTY MEMBER OF THE UNITED STATES NAVAL POSTGRADUATE SCHOOLS AT ANNAPOLIS, MARYLAND AND MONTEREY, CALIFORNIA.

THE LETTER CITED INDICATES THAT MR. ANDERSON WAS EMPLOYED AS A CIVILIAN FACULTY MEMBER AT THE ABOVE INSTITUTIONS FROM JULY 30, 1951, TO JANUARY 38, 1955. IT FURTHER STATES THAT, PURSUANT TO THE PROVISIONS OF THE ACT OF JUNE 16, 1936, 49 STAT. 1092, AS AMENDED, 10 PURCHASED FROM THE TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA A DEFERRED ANNUITY POLICY, CONTRACT NO. A78,312, HAVING NEITHER CASH SURRENDER NOR LOAN PROVISIONS. ALSO, IN ACCORDANCE WITH SAID ACT, MR. ANDERSON MADE FOR THAT PURPOSE A MONTHLY ALLOTMENT EQUIVALENT TO TEN PERCENTUM OF HIS MONTHLY BASIC SALARY, AND DURING EACH MONTH SUCH ALLOTMENT WAS IN FORCE THE GOVERNMENT CREDITED HIS PAY ACCOUNT WITH AN ADDITIONAL SUM EQUIVALENT TO FIVE PER CENTUM OF HIS MONTHLY BASIC SALARY. SUBSEQUENT TO TERMINATION OF HIS EMPLOYMENT AS A CIVILIAN FACULTY MEMBER, MR. ANDERSON REQUESTED THE TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA TO REPURCHASE THE ANNUITY POLICY. THE ASSOCIATION REQUESTED YOUR DEPARTMENT'S ADVICE IN THE MATTER AND, ACCORDINGLY, THE FOLLOWING QUESTIONS ARE PRESENTED FOR OUR DECISION:

1. SHOULD THE GOVERNMENT INTERPOSE AN OBJECTION TO A REPURCHASE OF THE ANNUITY CONTRACT IN THE INSTANT CASE?

2. IF THERE IS A REPURCHASE BY TEACHERS INSURANCE AND ANNUITY ASSOCIATION, IS THE ENTIRE REPURCHASE PRICE OF THE CONTRACT PROPERLY PAYABLE TO THE ANNUITANT; OR IS THE GOVERNMENT, BY VIRTUE OF ITS FIVE PERCENTUM MONTHLY CREDIT TO HIS PAY ACCOUNT FOR THE PERIOD DURING WHICH A TEN PERCENTUM ALLOTMENT WAS REGISTERED, ENTITLED TO SHARE EQUALLY OR OTHERWISE IN THE PROCEEDS?

THE PERTINENT PROVISIONS OF THE ACT OF JUNE 16, 1936, AS AMENDED, 10 U.S.C. 7082, ID. 7083, ARE AS FOLLOWS: 7082. EACH CIVILIAN MEMBER, AS A PART OF HIS CONTRACT OF EMPLOYMENT, SHALL CARRY, DURING HIS EMPLOYMENT, A DEFERRED ANNUITY POLICY, HAVING NO CASH SURRENDER OR LOAN PROVISION, IN A JOINT-STOCK LIFE INSURANCE CORPORATION THAT IS INCORPORATED UNDER THE LAWS OF A STATE AND HAS A CHARTER RESTRICTION THAT ITS BUSINESS MUST BE CONDUCTED WITHOUT PROFIT TO ITS STOCKHOLDERS. 7083. EACH CIVILIAN MEMBER SHALL MAKE A MONTHLY ALLOTMENT IN AN AMOUNT EQUAL TO 10 PERCENT OF HIS MONTHLY BASIC SALARY THROUGH THE CHIEF, FIELD BRANCH, BUREAU OF SUPPLIES AND ACCOUNTS, TOWARD THE PURCHASE OF HIS DEFERRED ANNUITY POLICY. FOR EACH MONTH THE ALLOTMENT IS IN FORCE, THE PAY ACCOUNT OF THE CIVILIAN MEMBER SHALL BE CREDITED MONTHLY FROM APPROPRIATIONS MADE FOR THIS PURPOSE WITH AN ADDITIONAL AMOUNT EQUAL TO 5 PERCENT OF HIS MONTHLY BASIC SALARY.

IT WILL BE SEEN FROM THE ABOVE AND FROM THE LEGISLATIVE HISTORY OF THE 1936 ACT AS QUOTED IN THE LETTER OF OCTOBER 5, 1956, THAT WHILE THE GOVERNMENT PAYS HALF OF THE COST OF THE ANNUITY POLICY SO LONG AS THE INSURED IS STILL EMPLOYED AS AN INSTRUCTOR, THE POLICY IS WHOLLY THE PROPERTY OF THE INSURED, AND, UPON HIS SEPARATION FROM GOVERNMENT SERVICE, HE RETAINS THE POLICY AND MAY CONTINUE MAKING THE ENTIRE PAYMENT HIMSELF OR MAY SIMPLY RETAIN SUCH ANNUITY AS MAY HAVE BEEN PURCHASED, AS HE DESIRES, WITH THE GOVERNMENT RETAINING NO INTEREST THEREIN THEN OR LATER. IN THIS CONNECTION, THE FOLLOWING STATEMENT APPEARS AT PAGE 2 OF SENATE REPORT NO. 1507, 79TH CONGRESS, ON S. 2253, WHICH BECAME PUBLIC LAW 596 OF THE 79TH CONGRESS, 60 STAT. 804, 10 U.S.C. 7087, THE LAST AMENDMENT OF THE 1936 ACT:

THE RETIREMENT ANNUITY SYSTEM ESTABLISHED BY THE ACT OF JANUARY 16, 1936, PROVIDES FOR A DEFERRED ANNUITY POLICY, WHICH THE TEACHERS AT THE ACADEMY ARE REQUIRED TO CARRY BY THEIR CONTRACTS OF EMPLOYMENT. THEY BUY THE POLICY FROM THE TEACHERS' INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, AN ENDOWED, NONPROFIT SHARING, JOINT-STOCK, LIFE-INSURANCE CORPORATION. THIS POLICY HAS NO VALUE UNTIL THE INSURED REACHES RETIREMENT AGE, IS NONTRANSFERABLE AND NONASSIGNABLE, AND HAS NO CASH SURRENDER OR LOAN PROVISIONS. THE PREMIUM IS PAID FROM A MONTHLY ALLOTMENT BY THE TEACHER OF 10 PERCENTUM OF HIS SALARY, WHICH HE IS REQUIRED TO REGISTER THROUGH THE NAVY ALLOTMENT OFFICE. FOR EACH MONTH SUCH ALLOTMENT IS REGISTERED, THE PAY ACCOUNT OF THE TEACHER IS CREDITED WITH AN ADDITIONAL SUM EQUIVALENT TO 5 PERCENT OF HIS MONTHLY BASIC SALARY. THE GOVERNMENT HAS NO INTEREST IN THE POLICY ALTHOUGH IT CONTRIBUTES 5 PERCENT OF THE TEACHER'S MONTHLY BASIC SALARY TO ITS PURCHASE. IF THE TEACHER IS SEPARATED FROM THE NAVAL ACADEMY HE MAY RETAIN THE POLICY. HE CAN CONTINUE HIS PREMIUM PAYMENTS AND, IF HE IS EMPLOYED BY A PRIVATE COLLEGE WHERE THE TEACHING STAFF IS INSURED IN THE SAME ASSOCIATION, THE COLLEGE WOULD PROBABLY CONTRIBUTE 5 PERCENT OF THE PROFESSOR'S SALARY TO THE PAYMENT OF THE PREMIUM, AS IT IS THE GENERAL PRACTICE AMONG COLLEGES TO MAKE SUCH A CONTRIBUTION. IF THE TEACHER DOES NOT SECURE EMPLOYMENT AND IS UNABLE TO CONTINUE PAYING PREMIUMS, HE RETAINS THE RIGHT TO SO MUCH OF THE ANNUITY AS MAY HAVE BEEN PURCHASED. SEE, ALSO, PAGE 2 OF HOUSE OF REPRESENTATIVE REPORT NO. 2555, 79TH CONGRESS, ON H.R. 6993.

ALTHOUGH IT APPEARS THAT IT WAS EXPECTED THE POLICY WOULD HAVE NO VALUE PRIOR TO THE INSURED'S REACHING RETIREMENT AGE, THE SOLE PORTION OF THE ACT AFFECTING THE POLICY'S VALUE BEFORE MATURITY IS THE PROHIBITION AGAINST THE INCLUSION THEREIN OF A CASH SURRENDER OR A LOAN PROVISION. THE POLICY HERE INVOLVED APPARENTLY CONFORMS WITH THIS STATUTORY REQUIREMENT. HOWEVER, IT WOULD NOT APPEAR THAT THE REQUIRED OMISSION OF A CASH SURRENDER PROVISION WOULD PREVENT A NEW AGREEMENT BETWEEN THE INSURED AND THE ASSOCIATION SUBSEQUENT TO THE TERMINATION OF THE INSURED'S EMPLOYMENT. IT CLEARLY WAS INTENDED THAT THE POLICY WAS TO BE THE PROPERTY OF THE INSURED WITH NO INTEREST THEREIN BEING RETAINED BY THE GOVERNMENT AND THAT HE WOULD RETAIN IT AFTER TERMINATION OF EMPLOYMENT, THUS RETAINING FULL OWNERSHIP OF SUCH ANNUITY AS HAD BEEN PURCHASED AT THAT TIME. SINCE THE INSURED HAS A VESTED RIGHT TO A CERTAIN ANNUITY AT THE TIME OF TERMINATION OF EMPLOYMENT, THERE IS NO APPARENT REASON WHY SUCH RIGHT CANNOT NOW BE SOLD BACK TO THE COMPANY WHICH ISSUED THE POLICY IF THE INSURED SO DESIRES AND THE COMPANY AGREES TO IT. WHILE THE 1936 ACT REQUIRES RETENTION OF THE POLICY DURING THE PERIOD OF EMPLOYMENT, THE INSURANCE CONTRACT IS BETWEEN THE INSURED AND THE ASSOCIATION AND THE QUESTION OF ITS DISPOSITION SUBSEQUENT TO TERMINATION OF EMPLOYMENT IS A MATTER FOR DETERMINATION BY THE PARTIES TO THE CONTRACT. IN THIS CONNECTION ATTENTION IS INVITED TO THE HEARINGS BEFORE A SUBCOMMITTEE OF THE COMMITTEE ON POST OFFICE AND CIVIL SERVICE UNITED STATES SENATE ON S. 2875, WHICH CONTAINED PROVISIONS SIMILAR TO THOSE ENACTED UNDER SECTION 402 OF PUBLIC LAW 854, 84TH CONGRESS, 70 STAT. 760, 5 U.S.C. 2252 NOTE. SAID SECTION INCLUDES MEMBERS OF THE CIVILIAN FACULTIES OF THE POSTGRADUATE SCHOOLS WITHIN THE TERMS OF THE CIVIL SERVICE RETIREMENT ACT AND PROVIDES, FOR RETIREMENT CREDIT PURPOSES, FOR THE DEPOSIT OF A SUM EQUAL TO AS MUCH OF THE REPURCHASE PRICE OF THE MEMBER'S ANNUITY POLICY CARRIED AS REQUIRED UNDER THE ACT OF JUNE 16, 1936. THE LAST PARAGRAPH BEGINNING ON PAGE 58 OF THE HEARINGS READS AS OLLOWS:

THE TEACHERS INSURANCE AND ANNUITY ASSOCIATION CONTRACTS DO NOT PROVIDE ANY CASH SURRENDER PROVISIONS AND HENCE CANNOT BE REPURCHASED EXCEPT AT THE AGREEMENT OF THE INDIVIDUALS AND THE TEACHERS INSURANCE AND ANNUITY ASSOCIATION. THE TEACHERS INSURANCE AND ANNUITY ASSOCIATION HAS AGREED TO REPURCHASE THE CONTRACTS PROVIDED THAT THE SUBJECT PROPOSED LEGISLATION IS ENACTED DURING THIS SESSION OF THE CONGRESS.

ACCORDINGLY, THE FIRST QUESTION IS ANSWERED IN THE NEGATIVE AND, WITH RESPECT TO THE SECOND QUESTION, THE ENTIRE REPURCHASE PRICE IS PROPERLY PAYABLE TO THE ANNUITANT.