Principal Financial Group Inc. settled a legal dispute with the Connecticut attorney general for $5 million.
Attorney General Richard Blumenthal said in a statement that Des Moines-based Principal will pay $4.4 million into a fund to provide restitution to certain pension plan customers across the nation and will pay a $600,000 civil penalty to Connecticut.
Blumenthal said Principal also agreed to adopt business reforms to resolve allegations that it illegally paid millions of dollars in concealed compensation to brokers in order to ensure access to pension plan business.
Blumenthal claimed Principal has paid about $3.2 million in undisclosed compensation to a group of brokers since 1998. The brokers included BCG Terminal Funding Co., Brentwood Asset Advisors, Dietrich and Associates Inc., Sharp Benefits Inc., and USI Consulting Group, which is located in Glastonbury, Conn.
“Principal’s schemes potentially inflated pension plan costs for private and public pension plans nationwide,” Blumenthal said in a statement. “Principal paid hidden commissions to brokers disguised as expense reimbursement agreements, marketing agreements or administrative costs.”
He said the arrangement potentially denied consumers the best deal and competitors a fair chance.
The company promises to reform business practices including offering detailed disclosures to consumers about compensation arrangements and a ban on concealed compensation to brokers.
“Principal has cooperated with my office and has agreed to continue cooperating throughout this ongoing investigation,” Blumenthal said. “This agreement is a recognition of the company taking responsibility for its actions.”
Under the agreement, Principal must identify customers eligible for restitution and calculate the amount each will receive from the fund by early January.
Principal said the policies covered by the settlement represent less than 5 percent of all single premium group annuity policies written by the company between 1998 and 2006.
“Throughout the process, we have denied the assertions of the attorney general and we continue to do so,” spokesman Ron Danilson said in a statement. “These payments were legitimate and legal. We disclosed all costs, including all broker payments, to plan sponsors.”
He said the company believes it won all business fairly and clients selected Principal because it provided the best value.
Principal attorney Karen Shaff said the company agreed to settle the case to avoid the costs and distractions of litigation.
The company said its single premium group annuity line of business accounted for less than 1 percent of all premiums and deposits for the domestic retirement business last year.
Principal has said in filings with the Securities and Exchange Commission that several state attorneys general and insurance regulators have initiated industrywide inquiries or other actions relating to compensation arrangements between insurance brokers and insurance companies.
The New York attorney general issued a subpoena to the company on March 3, 2005, seeking information on compensation agreements associated with the sale of retirement products.
Connecticut issued a subpoena on Jan. 13, 2006.
