Supporting Statement 498A (2023)

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
The Commission has adopted rule and form amendments designed to help
investors make informed investment decisions regarding variable annuity and 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).

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; 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 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, N-4, or N-6, as applicable) and other materials to an

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

investor in paper or electronic format upon request. 9 A summary prospectus that
complies with rule 498A is 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 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 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 rule 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.

4

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.

5

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
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. The Commission requested public comment
on the information collection requirements of rule 498A before it submitted this request

15

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

6

for revision and approval to OMB. The Commission received no comments in response
to its request.
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
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 16 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

16

44 U.S.C. 3501 et seq.

7

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.
Based on an analysis of fund filings, we estimate that 82% of variable contracts
that filed annual updates to their registration statements use at least one summary
prospectus under rule 498A. We also have updated the wage rates for relevant personnel
and the estimated number of respondents based upon updated data. 17
The table below summarizes the current PRA estimates for internal and external
burdens associated with rule 498A for Forms N-3, N-4, and N-6:

17

The Commission staff calculated inflation adjustments for 2023 in the hourly wage rates for
relevant personnel. Commission staff also updated the number of registrants as of December
2022, incorporating Form N-CEN filings received through April 15, 2023.

8

RULE 498A PRA ESTIMATES
Internal
Hour Burden

Wage Rate

Internal Time
Costs

Annual External
Cost Burden

ESTIMATES FOR FORM N-3
$3132
Preparation of ISP/USP

19 hours1

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)

$5,947

$4,7503

$289 (webmaster)

$578

$500

--

--

--

21 hours

$6,525

$5,250

Number of registrants

×4

×4

×4

Total annual burden

84 hours

$26,100

$21,000

ESTIMATES FOR FORM N-4

Preparation of ISP and USP

10 hours

$3132 (blended rate for
compliance attorney
and intermediate
accountant

Online Posting of Contract
Documents

2 hours

$289 (webmaster)

9

$3,130

$2,500

$578

$500

Online Posting of Portfolio
Company Documents

2 hours

Total Burden per Registrant

$289 (webmaster)

$578

$500

14 hours

$4,286

$3,500

Number of registrants

× 419

× 419

× 419

Total annual burden

5,866
hours

$1,795,834

$1,466,500

ESTIMATES FOR FORM N-6

Preparation of ISP and USP

10 hours

$3132 (blended rate for
compliance attorney
and intermediate
accountant

Online Posting of Contract
Documents

2 hours

$289 (webmaster)

$578

$500

Online Posting of Portfolio
Company Documents

2 hours

$289 (webmaster)

$578

$500

Total Burden per Registrant

14 hours

$4,286

$3,500

Number of registrants

× 240

× 240

× 240

Total annual burden

3,360
hours

$1,028,640

$840,000

$3,130

$2,500

ESTIMATES FOR PRINTING AND MAILING
Initial Summary Prospectus

--

--

--

$898,800

Updating Summary Prospectus

--

--

--

$7,865,000

10

Total annual burden

--

--

--

$8,763,800

TOTAL ESTIMATED BURDENS (INCLUDING PRINTING AND MAILING)
Total Annual burden

9,310
hours

$2,850,574

Use of summary prospectus

x 82%

x 82%

Total Annual Burden for
Collection of Information

7,634
hours

$2,337,471

$11,091,300
x 82%

$9,094,866

Notes:
1. 10 hours + (3 hours per investment option x 3 investment options) = 19 hours.
2. The blended hourly rate for a compliance attorney ($425) and an intermediate accountant ($200) is $313.
3. $2,500 + ($750 per investment option x 3 investment options) = $4,750.

The table above summarizes the Commission staff’s PRA 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 7,634 hours, at an internal time cost
equivalent of $2,337,471.
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 $9,094,866 which includes the costs associated with the
printing and mailing of summary prospectuses.

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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 $29 million in fiscal year 2022 based on the
Commission staff’s computation of the value of staff time devoted to this activity and
related overhead.
15.

Changes in Burden
The estimated aggregate total hour burden for preparing and filing summary

prospectuses decreased 7,054 hours, from 14,688 hours to 7,634 hours, and external costs
decreased from $11,559,420 to $9,094,866. This decrease in burden hours and external
costs is attributable primarily to the removal of one-time initial burden estimates for
beginning to comply with rule 498A, a decrease in the number of respondents, and a
smaller percentage than initially estimated of variable contracts that filed a summary
prospectus under rule 498A.
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.
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B.

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

13