498A Supporting Statement (adopted rule)

OMB CONTROL NUMBER: 3235-0765

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 498A

A.

JUSTIFICATION
1.

Necessity for the Information Collection

Section 5(b)(2) of the Securities Act of 1933 (the “Securities Act”) 1 makes it
unlawful for any person, directly or indirectly, to carry or cause to be carried through the
mails or in interstate commerce securities for the purpose of sale or for delivery after sale,
unless accompanied or preceded by a prospectus meeting the requirements of section 10
of the Securities Act. 2 Section 10(a) of the Securities Act describes the type of
information required to be included in a statutory prospectus. 3 Sections 10(b) of the
Securities Act and 24(g) of the Investment Company Act of 1940 (the “Investment
Company Act”) 4 permit the Securities and Exchange Commission (the “Commission”) to
allow the use of a prospectus that omits or summarizes information required by section
10(a).5
On March 11, 2020, the Commission adopted rule and form amendments
designed to help investors make informed investment decisions regarding variable

1

15 U.S.C. 77a et seq.

2

15 U.S.C. 77e(b)(2). A “prospectus,” as defined by the Securities Act, is any prospectus,
notice, circular, advertisement, letter, or communication, written or by radio or television,
which offers any security for sale or confirms the sale of any security, with certain
exceptions. 15 U.S.C. 77b(a)(10).

3

15 U.S.C. 77j. For purposes of this supporting statement, a prospectus meeting the
requirements of a section 10(a) prospectus is referred to as a “statutory prospectus.”

4

15 U.S.C. 80a-1 et seq.

5

15 U.S.C. 77j(b); 15 U.S.C. 80a-24(g).

annuity and variable life insurance contracts (together, “variable contracts”). The rules
use a layered disclosure approach that would permit a person to satisfy its prospectus
delivery obligations under the Securities Act for a variable contract by sending or giving
a summary prospectus that presents key information about a variable contract’s terms,
benefits, and risks, with access to more detailed information available online and
electronically or in paper format on request. 6
Specifically, rule 498A under the Securities Act permits a person to satisfy its
prospectus delivery obligations under Section 5(b)(2) of the Securities Act for a contract
by: (1) sending or giving to new investors key information contained in a variable
contract statutory prospectus in the form of an initial summary prospectus; (2) sending or
giving to existing investors each year a brief description of certain changes to the
contract, and a subset of the information in the initial summary prospectus, in the form of
an updating summary prospectus, in the form of an updating summary prospectus; and
(3) providing the statutory prospectus and other materials online. 7 Rule 498A considers a
person to have met its prospectus delivery obligations for any portfolio companies
associated with a variable contract if the portfolio company prospectuses are posted
online. 8 Under the new rule, a registrant (or the financial intermediary distributing the
variable contract) relying on the rule must send the variable contract statutory prospectus
(that statutory prospectus must be filed as part of registration statement on Form N-3, N4, or N-6, as applicable) and other materials to an investor in paper or electronic format
6

Updated Disclosure Requirements and Summary Prospectus for Variable Annuity and
Variable Life Insurance Contracts, Investment Company Act Release No. 33814 (Mar. 11,
2020), available at https://www.sec.gov/rules/final/2020/33-10765.pdf (“Adopting Release”).

7

Rule 498A(b) and (c).

8

Rule 498A(j).

2

upon request. 9 A summary prospectus that complies with rule 498A would be deemed to
be a prospectus that is authorized under section 10(b) of the Securities Act and section
24(g) of the Investment Company Act.10
2.

Purpose and Use of the Information Collection

The purpose of rule 498A is to provide investors with a summary prospectus to
help them make informed investment decisions regarding variable contracts. Unlike
many other federal information collections, which are primarily for the use and benefit of
the collecting agency, this information collection is primarily for the use and benefit of
investors.
3.

Consideration Given to Information Technology

The Commission has provided guidance noting that electronic delivery may be
used to satisfy prospectus delivery requirements under certain circumstances. 11 Rule
498A requires additional information (i.e., the variable contract’s statutory prospectus,
summary prospectuses, statement of additional information, and in the case of a registrant
on Form N-3, the registrant’s most recent annual and semi-annual reports to shareholders
under rule 30e-1) to be publicly accessible, free of charge, at a website address specified
on or hyperlinked in the cover of the summary prospectus. The new rule also provides an
optional method for satisfying portfolio company prospectus delivery obligations by

9

Rule 498A(i)(1) and (j)(1)(iii).

10

Rule 498A(b) and (c).

11

See, e.g., Securities Act Release No. 7233 (Oct. 6, 1995) [60 FR 53458 (Oct. 13, 1995)];
Securities Act Release No. 7856 (Apr. 28, 2000) [65 FR 25843 (May 4, 2000)].

3

making additional information (i.e., the portfolio company’s statutory prospectus,
summary prospectus, statement of additional information, and the most recent annual and
semi-annual reports to shareholders under rule 30e-1) available online at the website
address specified on or hyperlinked in the variable contract summary prospectus.
4.

Duplication

The Commission periodically evaluates rule-based reporting and recordkeeping
requirements for duplication, and reevaluates them whenever it proposes a rule or a
change in a rule. Certain reporting requirements of rule 498A are duplicated by the
requirements of Forms N-3, N-4, and N-6. In particular, under the new rule, certain
disclosures may appear in both the summary prospectus and the statutory prospectus, but
this is necessary in light of the policy goals of the proposal and parallels the approach to
summary prospectus disclosure in the context of mutual funds and ETFs.
5.

Effect on Small Entities

The information collection requirements of rule 498A do not distinguish between
funds that are small entities and other funds. To the extent that smaller entities would rely
on rule 498A, their burden to comply with its requirements may be greater than for larger
entities due to economies of scale.
The Commission staff considered special requirements for small entities. The
Commission staff believes, however, that rule 498A will not have a significant economic
impact on a substantial number of small entities. 12 Generally, an investment company is

12

See Adopting Release, supra footnote 1, at section V.

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a small entity if, together with other investment companies in the same group of related
investment companies, it has net assets of $50 million or less as of the end of its most
recent fiscal year. The analysis is slightly different for insurance company separate
accounts. Because state law generally treats separate account assets as the property of the
sponsoring insurance company, rule 0-10 aggregates each separate account’s assets with
the assets of the sponsoring insurance company, together with assets held in other
sponsored separate accounts. 13 As a result, the Commission staff expects few, if any,
separate accounts to be treated as small entities, 14 and no small entities currently file
registration statements on Forms N-3, N-4, or N-6.
The Commission staff reviews all rules periodically, as required by the Regulatory
Flexibility Act, to identify methods to minimize reporting or recordkeeping requirements
affecting small businesses.
6.

Consequences of Not Conducting Collection

Section 5(b)(2) of the Securities Act makes it unlawful for any person, directly or
indirectly, to carry or cause to be carried through the mails or in interstate commerce
securities for the purpose of sale or for delivery after sale, unless accompanied or
preceded by a prospectus meeting the requirements of section 10 of the Securities Act.
Section 10(a)(3) of the Securities Act generally requires that when a prospectus is used
more than nine months after the effective date of the registration statement, the
information in the prospectus must be as of a date not more than sixteen months prior to

13

17 CFR 270.0-10(b).

14

See Adopting Release, supra footnote 1, at section V.

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such use. 15 The effect of these provisions is that persons are required to update their
variable contract statutory prospectuses at least annually to reflect current cost,
performance, and other financial information. This legal requirement prevents the
Commission from specifying less frequent distribution of a prospectus—including any
summary prospectus that issuers relying on rule 498A will use—to investors when
offering securities for sale.
The requirement that funds using a summary prospectus must respond to an
investor’s request for additional information within three business days ensures that
investors who wish to review additional information before making an investment
decision will be able to do so.
7.

Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)

The collection is not inconsistent with 5 CFR 1320.5(d)(2).
8.

Consultation Outside the Agency

Before adopting rule 498A, the Commission solicited and evaluated public
comments on the proposed rule and its collection of information requirements.
Specifically, the public was given the opportunity to comment on the Commission’s
estimates for the burdens of rule 498A as proposed and as compared to the burden set
forth in the proposing release. Generally, comments were received from filers, investors
and other market participants, and were considered by the Commission as discussed in

15

See 15 U.S.C. 77j(a)(3).

6

the Adopting Release. 16 The Commission did not provide an estimate for any external
costs associated with printing and mailing the initial and updating summary prospectuses
in the proposing release. However, in response to the Commission’s solicitation for
public comment, one commenter provided such an estimate and, as a result, the
Commission is now estimating a burden regarding the external costs for registrants to
print and mail the summary prospectuses. 17
In addition, the Commission and the staff of the Division of Investment
Management participate in an ongoing dialogue with representatives of the variable
contract industry through public conferences, meetings, and informal exchanges. These
various forums provide the Commission and the staff with a means of ascertaining and
acting upon the paperwork burdens confronting the industry.
9.

Payment or Gift

No payment or gift to respondents was provided.
10.

Assurance of Confidentiality

No assurance of confidentiality was provided.
11.

Sensitive Questions

No information of a sensitive nature, including social security numbers, will be
required under this collection of information. The information collection does not collect
personally identifiable information (PII). The agency has determined that a system of
16

See, e.g., Adopting Release, supra footnote 1, at 432.

17

Id.

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records notice (SORN) and privacy impact assessment (PIA) are not required in
connection with the collection of information.
12.

Burden of Information Collection

The following estimates of average burden hours and costs are made solely for
purposes of the Paperwork Reduction Act of 1995 18 and are not derived from a
comprehensive or even representative survey or study of the cost of Commission rules
and forms. Rule 498A contains collection of information requirements. The likely
respondents to this information collection are variable contract separate accounts
registered or registering with the Commission. Under rule 498A, use of the summary
prospectus is voluntary, but the rule’s requirements are mandatory for variable contract
separate accounts that elect to send or give a summary prospectus in reliance upon rule
498A. The information provided under rule 498A will not be kept confidential.
The summary prospectus is voluntary, so the percentage of variable contract
separate accounts that will choose to utilize it is uncertain. Given this uncertainty, the
Commission staff has assumed that 90% of all separate accounts will choose to use a
summary prospectus under rule 498A. 19

18

44 U.S.C. 3501 et seq.

19

The Commission staff believes this assumption is appropriate due to a variety of factors,
including: (1) expressed industry support for layered disclosure with summary prospectuses
(see, e.g., the Adopting Release at n.1219); (2) our estimate that approximately 93% of openend registered investment companies rely on Securities Act rule 498 to use summary
prospectuses (see, e.g., the Adopting Release at n.21 and accompanying text); and (3) our
expectation that the new rule will provide costs savings to insurers (see, e.g., the Adopting
Release at section IV).

8

The table below summarizes the final PRA estimates for internal and external
burdens associated with rule 498A for Forms N-3, N-4, and N-6:

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RULE 498A PRA ESTIMATES
Internal
Hour Burden

Wage Rate

Internal Time
Costs

Annual External
Cost Burden

FINAL ESTIMATES FOR FORM N-3

$269
Preparation of ISP/USP

38 hours

Online Posting of Contract
Documents

2 hours

Online Posting of Portfolio
Company Documents

--

Total Burden per Registrant

(blended rate for
compliance attorney
and intermediate
accountant)
$248

$10,222

$496

(webmaster)
--

$9,500

$500

--

--

40 hours

$10,718

$10,000

Number of registrants

×6

×6

×6

Total annual burden

240 hours

$64,308

$60,000

10

FINAL ESTIMATES FOR FORM N-4
$269
Preparation of ISP and USP

Online Posting of Contract
Documents

(blended rate for
compliance attorney
and intermediate
accountant

20 hours

$248

2 hours

(webmaster)
$248

$5,380

$5,000

$496

$500

$496

$500

Online Posting of Portfolio
Company Documents

2 hours

Total Burden per Registrant

24 hours

$ 6,372

$6,000

Number of registrants

× 426

× 426

× 426

Total annual burden

10,224
hours

$ 2,714,472

$2,556,0
00

$5,380

$5,000

$496

$500

(webmaster)

FINAL ESTIMATES FOR FORM N-6

$269
Preparation of ISP and USP

20 hours

Online Posting of Contract
Documents

2 hours

(blended rate for
compliance attorney
and intermediate
accountant
$248
(webmaster)

11

Online Posting of Portfolio
Company Documents

2 hours

Total Burden per Registrant

$248

$496

$500

24 hours

$ 6,372

$6,000

Number of registrants

× 244

× 244

× 244

Total annual burden

5,856
hours

$ 1,554,768

$1,464,00
0

(webmaster)

ESTIMATES FOR PRINTING AND MAILING

Initial Summary Prospectus

--

--

--

$898,800

Updating Summary Prospectus

--

--

--

$7,865,0
00

Total annual burden

--

--

--

$8,763,8
00

TOTAL ESTIMATED BURDENS (INCLUDING PRINTING AND MAILING)

Total Annual burden

16,320
hours

$4,333,548

Use of summary prospectus

x 90%

x 90%

12

$12,843,
800

x 90%

Total Annual Burden
for New Collection of
Information

14,688
hours

$3,900,193

$11,559,4
20

The table above summarizes the Commission staff’s PRA initial and ongoing
annual burden estimates associated with Rule 498A. In the aggregate, the Commission
staff estimates the total annual hour burden to comply with Rule 498A to be 14,688
hours, at an internal time cost equivalent of $3,900,193.
13.

Costs to Respondents

Cost burden is the cost of goods and services purchased to prepare, submit, and
disseminate documents using Rule 498A. The cost burden does not include the hour
burden discussed in Item 12 above. The Commission staff estimates for Rule 498A a
total annual external cost burden of $11,559,420 which includes the costs associated with
the printing and mailing of summary prospectuses.
14.

Costs to Federal Government

The annual cost of reviewing and processing registration statements,
post-effective amendments, proxy statements, shareholder reports, and other filings of
funds amounted to approximately $21.2 million in fiscal year 2019 based on the
Commission staff’s computation of the value of staff time devoted to this activity and
related overhead.

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15.

Changes in Burden

The Commission asks that a collection of information for rule 498A be created.
As a result of rule 498A, the aggregate total hour burden for preparing and filing
summary prospectuses will be 14,688 hours, and the cost burden will be $3,900,193.
16.

Information Collection Planned for Statistical Purposes

The results of any information collection will not be published.
17.

Approval to Omit OMB Expiration Date

Not applicable.
18.

Exceptions to Certification for Paperwork Reduction Act Submissions

The Commission is not seeking an exception to the certification statement.
B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL
METHODS
The collection of information will not employ statistical methods.

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