The New York State Insurance Department has come out with guidance on how life insurers in the state can decide whether agents and producers have “retired.”

The department looked at the definition because New York insurance laws limit the amount of compensation producers can receive while they are working, then exclude “security benefits,” such as benefits from nonqualified deferred compensation plans, from the compensation limits.

A new regulation implementing Section 409(a)(2)(A) of the Internal Revenue Code will require that nonqualified plans pay distributions only after the occurrence of 6 types of triggering events, such as the retirement of the participant, the death of the participant, or the occurrence of an unforeseeable emergency, Martin Schwartzman, chief of the New York Insurance Department Life Bureau, writes in New York Circular Letter Number 8 (2008).

Determining when life agents and brokers have retired can be difficult, because they may continue to receive trailing commissions as long as contracts remain in force, and they may occasionally originate new policies for long-time customers even after they stop seeking new business, Schwartzman writes.

To reconcile the state and federal requirements, an insurer designing compensation programs can treat producer payments as retirement benefits payments if:

1. The earliest date on which the agent’s age is at least 55 and the sum of the agent’s age and years of service with insurer is at least 70; or

2. The earliest date on which the agent’s age is at least 60 and the sum of the agent’s age and years of service with the insurer is at least 65.

Insurers can use different criteria, but an insurer that does use different criteria “must demonstrate to the department that the proposed standard satisfies the retirement criteria based on expected agent experience,” Schwartzman writes.