IUL tax strategy at center of new lawsuit filed in South Carolina

A newly filed lawsuit in South Carolina alleges that Pacific Life continued accepting more than $1 million in premium payments tied to indexed universal life policies after terminating the agents who sold the policies, without informing the policyholders of those terminations.

The complaint places Pacific Life at the center of renewed scrutiny over IUL sales practices connected to the Dixon family and Black Harbor network. Agents associated with that network were previously linked to the widely publicized Future Income Payments scandal.

“This case exposes a structural conflict at the heart of certain indexed universal life sales," said Robert Rikard of RP Legal Group, who represents the plaintiffs. "The higher the base premium, the higher the commission. The more optimistic the illustration, the easier the sale. But when the assumptions fail, it is the retiree, not the carrier and not the producer, who absorbs the damage.”

A spokesperson for PacLife declined to comment.

According to the lawsuit, PacLife investigated sales activity involving the agents and terminated them in early 2019. The plaintiffs, Richard and Cherie Geib, allege they were not informed of the terminations and were directed to continue communicating with or relying on the same agents whose authority had allegedly been revoked.

The carrier allegedly continued accepting more than $1 million in premium payments after the terminations without disclosing the change in agent status. The lawsuit characterizes that as a material omission that deprived policyholders of critical information about the integrity of the sales process and the servicing of their policies.

"You cannot cut off the architects of the strategy and keep collecting the money without telling the people whose retirement is on the line," Rikard maintained.

Christopher Dixon, Samuel Dixon, Resolute Capital, Black Harbor Wealth Management and Oxford Advisory Group are named as defendants along with PacLife. Chris Dixon and Black Harbor were caught up in the Future Income Payments scandal.

Investigators say FIP was a massive nationwide Ponzi scheme that defrauded more than 2,600 retirees and exploited more than 13,000 veterans. The scheme operated by offering lump-sum cash advances to pensioners in exchange for their future monthly pension or disability payments.

401(k) liquidation strategy at issue

At the center of the case is a strategy marketed as “Retirement Approach No Tax,” or RANT, which allegedly encouraged the plaintiffs to liquidate about $1.7 million from qualified 401(k) retirement accounts and move the funds into IUL policies.

The complaint alleges that the liquidation triggered substantial and irreversible tax liabilities, along with collateral effects on Social Security and Medicare calculations. The plaintiffs claim they were told the IUL policies would generate projected “tax-free” retirement income through policy loans, enhanced market participation and downside protection.

Instead, the lawsuit alleges the strategy exposed them to immediate tax acceleration, internal policy charges, carrier-controlled cap reductions and reliance on non-guaranteed illustrated assumptions that materially affected long-term performance.

The complaint further alleges that the tax liability created by the liquidation was financed through borrowing, compounding the plaintiffs’ financial exposure.

Broader structural allegations

IUL policies credit interest based on the performance of market indices, subject to caps, participation rates, spreads and other carrier-controlled features. While often marketed as a source of tax-advantaged retirement income through policy loans, projections depend on non-guaranteed assumptions and internal cost structures.

The lawsuit contends the policies were presented as retirement planning solutions rather than as insurance contracts whose performance was contingent on carrier-controlled variables.

The plaintiffs also allege the policies were structured as 100% base premium designs to maximize target premium under PacLife’s internal compensation grid. That design allegedly increased commissionable premiums and upfront compensation to the selling agents while increasing long-term policy expenses and reducing performance sustainability.

According to the complaint, that compensation-driven structure was not disclosed to the plaintiffs as such but was presented as an appropriate retirement configuration.

PacLife recently released the following statement, in part, in response to a separate lawsuit brought by RP Legal on behalf of NASCAR racing legend Kyle Busch:

"We stand by all our life insurance products, including Indexed Universal Life (IUL). An IUL policy provides valuable life insurance protection, helping ensure that families and other beneficiaries receive financial protection in the event of an unexpected or premature death of a loved one. IUL also offers the opportunity to build cash value over time, which may be accessed for a variety of purposes, including supplementing retirement income."

RP Legal and Chris Vernon of Vernon Litigation Group represent the plaintiffs. Both firms focus on complex financial product litigation, including insurance-based retirement strategies.

The complaint seeks damages based on alleged misrepresentation, omission of material facts and the unsuitable repositioning of qualified retirement assets into an illustration-dependent insurance structure.

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This report compiled by InsuranceNewsNet staff.