Supporting Statement_Rule 6c-7

OMB CONTROL NUMBER: 3235-0276
SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 6c-7
A.

JUSTIFICATION
1.

Necessity for the Information Collection

Applicable Texas law restricts the redeemability of variable annuity contracts sold by
registered insurance company separate accounts. These restrictions are not permitted by various
provisions of the Investment Company Act of 1940 (“1940 Act”). Therefore, registered insurance
company separate accounts proposing to offer or sell variable annuity contracts to certain employees
of Texas institutions of higher education were required to file applications to obtain exemptive relief
under the 1940 Act. In an effort to reduce the number of routine applications filed under the 1940
Act, the Commission exercised its rulemaking authority under Section 6(c) by adopting Rule 6c-7
(17 CFR 270.6c-7), an exemptive rule. Rule 6c-7 codified the conditions under which the
Commission previously had issued exemptive orders to companies offering or selling in Texas,
thereby reducing significantly the number of routine applications.
Rule 6c-7 imposes three reporting requirements for separate accounts relying on the rule.
First, paragraphs (a) and (b) of Rule 6c-7 require that a separate account disclose in its prospectus
and sales literature the restrictions on redeemability imposed by Texas law. Second, paragraph (d)
requires that the separate account obtain from a purchaser, prior to or at the time of purchase, a
signed document acknowledging these restrictions on redeemability. Finally, subparagraph (e)
requires that a separate account disclose in Part II of its registration statement under the Securities
Act of 1933 (“1933 Act”) that it is relying on Rule 6c-7. The burden imposed by these three
reporting requirements is substantially outweighed by the elimination of a substantial number of
applications.

2.

Purpose and Use of the Information Collection

Without this rule, separate accounts and their sponsoring life insurers would bear the
expense of filing individual exemptive applications in order to obtain the relief needed to sell their
contracts in the Texas higher education market. Additionally, the Commission staff would be
required to process such applications, which would be a lengthy and burdensome process for both
the life insurers and the SEC’s staff. Without disclosure of the restrictions on redeemability under
Texas law, however, purchasers of the variable annuity contracts would be unable to evaluate the
effect of the restrictions on redeemability on their investments.
3.

Consideration Given to Information Technology

The Commission's electronic filing project (Electronic Data Gathering, Analysis and
Retrieval System or “EDGAR”) is designed to automate the filing, processing and dissemination of
full disclosure filings. The system permits publicly held companies to transmit their filings to the
Commission electronically. Such automation has increased the speed, accuracy and availability of
information, generating benefits to investors and financial markets.
4.

Duplication

The information is not duplicated elsewhere, and similar information is not available from
other sources.
5.

Effect on Small Entities

The Commission staff takes the position that because separate accounts are part of the
sponsoring insurance company, there are no insurance company separate accounts that are “small
entities” for purposes of Rule 0-10 under the 1940 Act (17 CFR 270.0-10).
6.

Consequences of Not Conducting Collection

Disclosure of the restrictions on redemption is required in the offering account’s registration
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statement under the 1933 Act relating to the prospectus. Because Section 10 of the 1933 Act
requires that the information in a prospectus be as of a date no more than sixteen months prior to its
use, a registrant making an offer under the 1933 Act must update its prospectus and file it with the
Commission as part of a post-effective amendment to the registration statement approximately
annually. Less frequent collection would inhibit dissemination of the timely information that
enables investors to make informed investment decisions.
7.

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

Not applicable.
8.

Consultations Outside the Agency

The Commission requested public comment on the collection of information requirements
in Rule 6c-7 before it submitted this request for revision and approval to the Office of Management
and Budget. The Commission received no comments in response to its request.
9.

Payment or Gift

Not applicable.
10.

Confidentiality

Not applicable.
11.

Sensitive Questions

Not applicable.
12.

Burden of Information Collection

The burden of compliance with Rule 6c-7, in connection with registrants obtaining from a
purchaser, prior to or at the time of purchase, a signed document acknowledging the restriction on
redeemability, is estimated to be approximately 3 minutes of professional time per response for each

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of approximately 5,900 purchasers annually, for a total annual burden of 295 hours.1 Based upon
an estimated cost of $84 per hour,2 the aggregate cost to comply with the rule’s requirements is
estimated to be $24,780 annually, which is borne by approximately 129 companies that are
governed by Rule 6c-7. These estimates are based on a review of registration statements and
informal contacts with investment companies and state employees.
The Commission includes the estimated burden of complying with other information
collection required by Rule 6c-7 in the total number of burden hours estimated for completing the
relevant registration statements and reported on the separate PRA submissions for those statements
(see the separate PRA submissions for Form N-3 [17 CFR 274.11b] and Form N-4
[17 CFR 274.11c]).
IC Title
Rule 6c-7

Annual No. of Responses
Previously
Requested Change
approved
6,500
5,900
-600

13.

Annual Time Burden (Hrs.)
Previously
Requested Change
approved
325
295
-30

Burden Cost Burden ($)
Previously
Requested
Change
approved
$23,400
$24,780
+$1,380

Cost to Respondents

It is estimated that there is no cost of the paperwork burdens of Rule 6c-7 beyond the cost of
the hour burden identified in Item 12 of this Supporting Statement.
1

5,900 purchaser estimate extrapolated from previous PRA submission. 6,500 purchasers/142
companies that are governed by Rule 6c-7 (last estimated number) = approximately 5,900
purchasers/129 companies that are governed by Rule 6c-7. 5,900 purchasers x 3 minutes = 17,700
minutes. 17,700 minutes / 60 minutes = 295 hours.

2

$84/hour figure for a Compliance Clerk is based on the Commission’s estimates concerning the
allocation of burden hours and the relevant wage rates from the Commission’s consultations with
industry representatives and on salary information for the securities industry compiled by the
Securities Industry and Financial Markets Association’s Office Salaries in the Securities Industry
2013. The estimated wage figures are modified by Commission staff to account for an 1800-hour
work-year and multiplied by 2.93 to account for bonuses, firm size, employee benefits, overhead,
and adjusted to account for the effects of inflation. See Securities Industry and Financial Markets
Association, Report on Management & Professional Earnings in the Securities Industry 2013.

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14.

Estimate of Cost to the Federal Government

Rule 6c-7 reduced the Commission’s staff's operational cost attributable to the reviewing
and processing of exemptive applications. Because separate accounts rely on the rule without the
need for prior Commission approval, cost to the government is minimal. Moreover, operational
costs are far less than those incurred in processing individual applications.
15.

Explanation of Changes in Burden

The Commission estimates the burden hours for compliance with Rule 6c-7, regarding
obtaining from a purchaser, prior to or at the time or purchase, a signed document acknowledging
the restrictions on redeemability as follows:
Calculation of Hours Burden:
Number of purchasers
Minutes per response
Total Annual Hour Burden
To Obtain Statements [3 x 5,900/ 60 minutes] =

5,900
3
295 hrs.

The estimated number of purchasers is based on extrapolating information previously
obtained from the Texas Higher Education Coordinating Board, and the annual hourly burden is
based on consulting a sample of insurance companies. The estimated annual burden hours are made
solely for the purposes of the Paperwork Reduction Act and are not derived from a comprehensive
or even representative survey or study of the cost of Commission rules. The estimated total annual
hour burden has decreased from 325 hours to 295 hours, and the estimated total annual burden cost
has increased from $23,400 to $24,780. This decrease in hour burden is the result of a decrease in
the number of companies that are governed by Rule 6c-7, while the increase in burden cost is the
result of an increase in the estimated hourly wages of compliance clerks.
16.

Information Collection Planned for Statistical Purposes

Not applicable.

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17.

Approval to Omit OMB Expiration Date

Not applicable.
18.
Exceptions to Certification Statement for Paperwork Reduction Act
Submission
Not applicable.
B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS
Not applicable.

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