Supporting Statement (Form N-4)

OMB CONTROL NUMBER: 3235-0318
SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
FORM N-4
A.

JUSTIFICATION
1.

Necessity for the Information Collection

Form N-4 is the form used by insurance company separate accounts organized as
unit investment trusts that offer variable annuity contracts to register as investment
companies under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.)
(“Investment Company Act”) and/or to register their securities under the Securities Act of
1933 (15 U.S.C. 77a et seq.) (“Securities Act”). Section 5(b) of the Securities Act makes
it unlawful to carry or cause to be carried a security for purposes of sale or for delivery
after the sale “unless accompanied or preceded” by a prospectus that meets the
requirements of section 10(a) of the Act (which, in turn, generally requires a prospectus
relating to a security to contain the information contained in the registration statement).
For separate accounts organized as unit investment trusts that offer variable annuity
contracts, Form N-4 provides the information required to appear in prospectus meeting
the requirements of section 10(a) of the Securities Act (as well as the information
required to appear in the statement of additional information (“SAI”).
On October 30, 2018, the Commission issued a release proposing rule and form
amendments designed to enhance disclosures for variable annuities and variable life
insurance contracts (together, “variable contracts”). The proposed 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. 1 The Commission also proposed
amendments to the registration forms for variable contracts, including Form N-4, to
update and enhance the disclosures to investors in these contracts, and to implement the
proposed summary prospectus framework. The Commission proposed to amend certain
disclosure requirements that Form N-4 currently includes, as well as to require certain
new disclosures regarding, among other things: an overview of the contract, key
information about the contract, principal risks, optional benefits under the contract, loans,
and the portfolio companies available under the contract.
2.

Purpose and Use of the Information Collection

The purpose of Form N-4 is to meet the filing and disclosure requirements of the
Securities Act and the Investment Company Act and to enable filers to provide investors
with information necessary to evaluate an investment in a security. This information
collection differs significantly from many other federal information collections, which
are primarily for the use and benefit of the collecting agency. The information required
to be filed with the Commission permits verification of compliance with securities law
requirements and assures the public availability and dissemination of the information.
3.

Consideration Given to Information Technology

The Commission’s electronic filing system (Electronic Data Gathering, Analysis
and Retrieval or “EDGAR”) is designed to automate the filing, processing, and
dissemination of full disclosure filings. The system permits publicly held companies to

1

Updated Disclosure Requirements and Summary Prospectus for Variable Annuity and
Variable Life Insurance Contracts, Investment Company Act Release No. 33286 (Oct. 30,
2016), available at https://www.sec.gov/rules/proposed/2018/33-10569.pdf.

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transmit filings to the Commission electronically. This automation has increased the
speed, accuracy, and availability of information, generating benefits to investors and
financial markets. Form N-4 is required to be filed with the Commission electronically
on EDGAR. See (17 CFR 232.101(a)(1)(i) and (iv). The public may access filings on
EDGAR through the Commission’s internet website (http://www.sec.gov) or by using an
EDGAR terminal located in the Commission’s public reference room. Prospectuses and
SAIs may be sent to investors by electronic means so long as certain requirements are
met. 2
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. The requirements of Form N-4 are not generally duplicated elsewhere.
5.

Effect on Small Entities

The Commission reviews all rules periodically, as required by the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.), to identify methods to minimize recordkeeping or
reporting requirements affecting small businesses. The current and proposed disclosure
requirements for registration statements on Form N-4 do not distinguish between small
entities and other registrants. The burden on smaller registrants, however, to prepare and
file registration statements may be greater than for larger registrants. This burden
includes the cost of producing, printing, filing, and disseminating prospectuses and SAIs.
The Commission believes, however, that imposing different requirements on smaller

2

See Use of Electronic Media for Delivery Purposes, Securities Act Release No. 7233,
Exchange Act Release No. 36345, Investment Company Act Release No. 21399 (Oct. 6,
1995) [60 FR 53458 (Oct. 13, 1995)].

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entities would not be consistent with investor protection and the purposes of registration
statements. In any event, no small entities currently file registration statements on Form
N-4.
6.

Consequences of Not Conducting Collection

The purpose of Form N-4 is to meet the filing and disclosure requirements of the
Securities Act and the Investment Company Act and to enable filers to provide investors
with information necessary to evaluate an investment in a security. Less frequent filing
would be inconsistent with the filing and disclosure requirements of the Securities Act
and the Investment Company Act. In addition, if the form were to be filed less
frequently, investors may not be provided with the information necessary to evaluate an
investment in a security.
7.

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

Not applicable.
8.

Consultation Outside the Agency

Before determining whether to adopt the proposed amendments to Form N-4, the
Commission will receive and evaluate public comments on the proposal and its collection
of information requirements. Moreover, the Commission and staff of the Division of
Investment Management participate in an ongoing dialogue with representatives of the
investment company 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 paperwork burdens that may confront the industry.
9.

Payment or Gift

Not Applicable.

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10.

Confidentiality

Not Applicable.
11.

Sensitive Questions

No information of a sensitive nature, including social security numbers, will be
required under this collection of information. The information collection collects basic
Personally Identifiable Information (PII) that may include names, job titles, and work
addresses. However, the agency has determined that the information collection does not
constitute a system of record for purposes of the Privacy Act. Information is not
retrieved by a personal identifier. In accordance with Section 208 of the E-Government
Act of 2002, the agency has conducted a Privacy Impact Assessment (PIA) of the
EDGAR system, in connection with this collection of information. The EDGAR PIA,
published on 1/29/2016, is provided as a supplemental document and is also available at
https://www.sec.gov/privacy.
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 (44 U.S.C. 3501 et seq.) and are not
derived from a comprehensive or even representative survey or study of the cost of
Commission rules and forms.
Form N-4 generally imposes two types of reporting burdens on investment
companies: (1) the burden of preparing and filing the initial registration statement; and
(2) the burden of preparing and filing post-effective amendments to a previously effective
registration statement. Providing the information required by Form N-4 is mandatory,
and responses will not be kept confidential.

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In our most recent Paperwork Reduction Act submission for Form N-4,
Commission staff estimated that the total internal compliance burden to comply with
Form N-4’s collection of information requirement was 271,914 hours annually, with an
estimated external cost of $32,111,916 each year. 3
Based on a review of Form N-4 filings made with the Commission, Commission
staff estimates that 35 initial filings and 1,326 post-effective amendments will be filed on
Form N-4 per year. 4
The proposed amendments would include certain disclosure changes and new
disclosures, but also would simplify certain current disclosure requirements in Form N-4.
Based on this, we estimate that, on a net basis, the proposed amendments to Form N-4
would increase the burden of preparing an initial registration statement on Form N-4 by 5
hours per initial registration statement. Amortizing this burden over a three-year period
results in an estimated average annual burden of 1.7 hours per year, 5 at an estimated

3

These estimates are based on the last time Form N-4’s information collection was
submitted for PRA renewal in 2018.

4

Commission staff reviewed initial filings and post effective amendments for Form N-4
filed with the Commission from January 1, 2015 to December 31, 2017. There were 34,
44, and 26 initial Form N-4 filings filed during 2015, 2016, and 2017, respectively.
Averaging those initial Form N-4 filings over three years results in an average of
approximately 35 initial Form N-4 filings per year. This estimate is based on the
following calculation: (34 + 44 + 26) / 3 years = 34.67, or approximately 35 initial filings
per year.
There were 1,315, 1,415, and 1,247 post-effective amendments filed during 2015, 2016,
and 2017, respectively. Averaging those post-effective amendments over three years
results in an average of approximately 1,326 post-effective amendments per year. This
estimate is based on the following calculation: (1,315 + 1,415 + 1,247) / 3 years =
1,325.67, or approximately 1,326 post-effective amendments per year.

5

The estimate of 1.7 hours is based upon the following calculation: (5 + 0 + 0) / 3 years =
1.67 (rounded up to 1.7 hours per year). We are assuming 0 hours in years 2 and 3
because, after year 1, the registrant would prepare and file post-effective amendments to
the registration statement, and the hour burden of this is captured in the paragraph
accompanying infra note 7.

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internal time cost equivalent of $571. 6
We estimate a one-time burden of an additional 20 hours per registration
statement the first time the registration statement is amended by post-effective
amendment following adoption of the proposed amendments. Subsequently, we estimate
an ongoing burden of an additional 5 hours per registration statement to prepare and file a
post-effective amendment. Amortizing these burdens over a three-year period results in
an estimated average annual burden of an additional 10 hours per registration statement
to prepare and file a post-effective amendment, 7 at an estimated internal time cost
equivalent of $3,360.8
Therefore, we estimate that the proposed amendments to Form N-4 would cause
registrants to incur an additional annual burden of 13,320 hours,9 at an internal time cost
equivalent of $4,475,345. 10

6

The internal time cost equivalent of $571 is calculated by multiplying the hour burden
(1.7 hours) by the estimated hourly wage of $336.
The estimated wage figure is based on published rates for Compliance Attorneys ($352)
and Senior Programmers ($319). These hourly figures are from SIFMA’s Management
& Professional Earnings in the Securities Industry 2013, modified to account for an
1,800-hour work year; multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overheard; and adjusted to account for the effects of inflation. The estimated
wage rate was further based on the estimate that Compliance Attorneys and Senior
Programmers would divide time equally, resulting in a weighted wage rate of $336
(($352 + $319) / 2 = 335.5).

7

The estimate of 10 hours is based upon the following calculation: (20 hours in year 1) +
(5 hours in year 2) + (5 hours in year 3) / 3 years = 10 hours.

8

The internal time cost equivalent of $3,360 is calculated by multiplying the hour burden
(10 hours) by the estimated hourly wage of $336.

9

The estimate of 13,320 hours is based upon the following calculation. For initial
registration statements: 1.7 hours x 35 initial filings on Form N-4 = approximately 60
hours. For post-effective amendments: 10 hours x 1,326 post-effective amendments =
13,260 hours. 60 + 13,260 = 13,320.

10

The estimate of $4,475,345 is based upon the following calculation. For initial
registration statements: $571 x 35 initial filings on Form N-4 = $19,985. For post-

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In the aggregate, we estimate the total annual hour burden as a result of the
proposed amendments would be 285,234 hours, at an internal time cost equivalent of
$95,838,624. 11
The estimates associated with Form N-4’s burden hours are as follows:
Table 1: Summary of Annual Responses, Burden Hours, and Burden Hour Costs
Estimates for the Information Collection in Proposed Form N-4
Form N-4

No. of Responses

Initial Registration
Statements
Post-Effective
Amendments
TOTAL:
13.

35

Burden Hours

Total Burden Hour
Costs
9,823
3,300,528

1,326

275,411

92,538,096

1,361

285,234

$95,838,624

Cost to Respondents

Cost burden is the cost of goods and services purchased to prepare and update
filings on Form N-4, such as for the services of independent auditors and outside counsel.
The external cost burden does not include the cost of the internal hour burden discussed
in Item 12. Estimates are based on the Commission’s experience with the filing of
registration forms. In our most recently approved Paperwork Reduction Act submission
for Form N-4, Commission staff estimated the cost burden for preparing an initial Form

effective amendments: $3,360 x 1,326 post-effective amendments = $4,455,360. $19,985
+ $4,455,360 = $4,475,345.
11

This estimate is based on the following calculation: For initial registration statements:
35 filings x (278.95 hours current burden + 1.7 hour under proposed amendments) =
9,823 hours. For post-effective amendments: 1,326 post-effective amendments x (197.7
current burden + 10 hours under proposed amendments) = 275,411 hours. 9,823 +
275,411 = 285,234 hours. The internal time cost equivalent of $95,838,624 is calculated
by multiplying the hour burden (285,234) by the estimated hourly wage of $336. See
supra note 5.

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N-4 is $24,858 per initial filing, with $23,561 for each post-effective amendment. The
current estimated total annual cost burden allocated to Form N-4 is $32,111,916. 12
We do not estimate any change to the external costs per filing associated with the
proposed amendments to Form N-4. Therefore, we estimate registrants on Form N-4
would continue to incur annual external costs of $32,111,916.
Table 2: Summary of Annual Responses and Total External Cost Estimates for the
Information Collection in Proposed Form N-4
Form N-4
Initial Registration
Statements
Post-Effective
Amendments
TOTAL:
14.

No. of Filings

35

Total External Costs
$870,030

1,326

$31,241,886

1,361

$32,111,916

Cost to the Federal Government

The annual cost of reviewing and processing registration statements,
post-effective amendments, proxy statements, and shareholder reports of investment
companies amounted to approximately $22.2 million in fiscal year 2017, based on the
Commission’s computation of the value of staff time devoted to this activity and related
overhead. A portion of those costs relate to processing and reviewing Form N-4 filings
submitted to the Commission.
15.

Changes in Burden

Currently, the approved total annual hour burden for preparing and filing
registration statements on Form N-4 is 271,914 internal burden hours. We estimate that
the new internal burden would be approximately 285,234 hours annually, reflecting an
increase of 13,320 internal burden hours associated with the proposed amendments to
12

This estimate is based on the following calculation: (35 initial registration statements x $24,858) +
(1,326 post-effective amendments x $23,561) = $32,111,916.

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Form N-4. This increase is due to the increased burden hours per filing as a result of the
proposed amendments.
The current estimate for the external annual cost burdens associated with
preparing and filing initial and post-effective registration statements on Form N-4 is
$32,111,916. We estimate that the new external cost burden would remain the same at
$32,111,916.
16.

Information Collection Planned for Statistical Purposes

Not Applicable.
17.

Approval to Omit OMB Expiration Date

We request authorization to omit the expiration date on the electronic version of
the form for design and IT project scheduling reasons. The OMB control number will be
displayed.
18.

Exceptions to Certification Statement for Paperwork Reduction Act
Submission

Not applicable.
B.

COLLECTION OF INFORMATION EMPLOYING STATISTICAL METHODS

Not applicable.

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