Attorney General Announces $1.7 Million Settlement Involving Illegal Payments To Pension Plan Brokers
Attorney General Richard Blumenthal today announced that Mutual of Omaha Insurance Company has agreed to pay $1.7 million and adopt sweeping business reforms to resolve allegations that it illegally paid more than $1 million in concealed compensation to brokers in exchange for access to lucrative pension plan business.
(Media-Newswire.com) - Attorney General Richard Blumenthal today announced that Mutual of Omaha Insurance Company has agreed to pay $1.7 million and adopt sweeping business reforms to resolve allegations that it illegally paid more than $1 million in concealed compensation to brokers in exchange for access to lucrative pension plan business.
Mutual will pay $1.5 million into a restitution fund for certain pension plan customers across the nation that may have been harmed by the alleged scheme. The company will also pay a $195,000 civil penalty to Connecticut.
Since at least 1999, in connection with certain Single Premium Group Annuity ( SPGA ) contracts, Mutual has provided secret compensation to a group of SPGA brokers, including USI Consulting Group of Glastonbury.
As Mutual outlined in one of its own internal communications, these hidden payments enabled them "to provide additional compensation to valued producers and compete with the additional commission programs offered by other insurers." In return for the payments, Mutual received competitive information and "last look" bidding opportunities not provided to carriers that declined to pay secret compensation to brokers.
These agreements provided select brokers - who collectively controlled a significant share of the defined benefit plan market - with compensation apart from disclosed "commissions" in connection with the sale, marketing or placement of SPGAs.
"More than the money, today's settlement provides sweeping business reforms to prevent artificially inflated pension plan costs," Blumenthal said. "Mutual paid illegal secret payments - lucrative incentives for brokers to funnel customers to Mutual. These hidden payments were disguised as 'expense reimbursements' and 'administrative costs.' In reality, these hidden payments to brokers were loaded into premium costs for private and public pension plans nationwide, and skewed the market to favor only the select carriers who provided these illegal payments.
"Mutual has responsibly cooperated with my investigation, and remedied the wrong by their agreement to pay restitution and adopt business reforms. Having settled with three major insurance carriers in the SPGA market - The Hartford, The Principal Financial Group and Mutual - we are turning our focus now to the brokers."
Mutual has agreed to continue its cooperation in Blumenthal's ongoing investigation.
Due to the complexities associated with a pension plan's administrative requirements and legal obligations, many plan sponsors rely on an experienced annuity broker to guide and navigate the plan to make the right annuity choice. The law requires the broker to act for the benefit of the plan sponsor.
Brokers are generally compensated in one of two ways - a fee negotiated between the plan sponsor and the broker, which is paid directly by the plan to the broker, or a commission agreed to by the plan sponsor and paid by the selected insurance company, which builds the commission into the final annuity premium.
While certain brokers claimed to act for the benefit of the plan and to obtain the best product at the best price, their recommendations were often motivated by additional, undisclosed compensation from certain carriers. The powerful incentive effect of the secret payment is evident in an email from a senior executive of USI Consulting Group's Connecticut office told Mutual: "the extra 1% soft dollar arrangement has to be firm in order to compete" with another carrier. "Omaha and USI both need to be on the same page on that issue."
Mutual paid brokers additional compensation apart from disclosed "commissions" in at least 78 SPGA cases. The pension plans included a diverse set of private, public and non-profit establishments, including Connecticut's Stafford Savings Bank.
Mutual also paid hidden compensation to brokers BCG Terminal Funding Company, Brentwood Asset Advisors, LLC, Dietrich & Associates, Inc., and Sharp Benefits, Inc.
In the sale and placement of SPGAs to pension plans, Mutual has also agreed to:
impose an eight-year ban on any broker compensation apart from the disclosed commissions for SPGA business.
provide written disclosures to brokers and customers in its initial SPGA proposals - prior to binding - of all compensation paid to the broker, and receive written consent from each customer to such terms.
post a disclosure on its website - in a format to be approved by Blumenthal's office - of its compensation practices and policies.
implement written standards of conduct regarding compensation and commissions paid to brokers, and appropriate employee training.
Blumenthal thanked those in his office who worked on the investigation - Assistant Attorney General Rachel Davis, and Paralegal Lori Measer, under the direction of Assistant Attorney General Michael Cole, Chief of the Attorney General's Antitrust Department.
Published by:
ct.gov
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