Hartford Financial Services Group Inc. said Wednesday it will pay $20 million to settle state investigations into payments the company made to annuity brokers over six years.
The settlement includes $16.1 million for investment plans that purchased terminal or maturity funding annuities from 1998-2004, and $3.9 million in fines to be divided evenly between Connecticut and New York.
The company will also provide more disclosure about broker compensation practices and support legislation that would eliminate contingent commissions for group annuity brokerage.
The attorneys general of Connecticut and New York opened investigations into "expense reimbursement agreements," or ERAs, after learning the company was paying brokers to sell annuities to pension plans that were unaware of the payments.
"The ERAs actually had nothing to do with expense reimbursements; they were simply volume-based bonuses," said a statement from New York Attorney General Eliot Spitzer's office. "Instead of acting as fiduciaries for the pension plans, the brokers had become, in effect, paid sales representatives for Hartford."
Spitzer's office said Hartford was legally obliged to report the payments.
The company sold more than $800 million in group annuity pension plans from 1998 to 2004, Spitzer said. Hartford's group annuities were too expensive to compete using open bidding, Spitzer's office said.
Spitzer's office said Hartford made hundreds of thousands of dollars in undisclosed payments to four brokers: Dietrich & Associates, Brentwood Asset Advisors, BCG Terminal Funding and USI Consulting Group.
Hartford has already set aside the costs of the settlement under reserves. The company also accepted a three-year prohibition on the use of contingent compensation in its terminal/maturity funding group annuity lines.
Terminal funding annuities are used when a company terminates a pension plan. A maturity funding annuity is used by a viable business to satisfy future pension obligations.