Mutual Of Omaha To Pay $1.7 Million And Adopt Reforms

May 15--Mutual of Omaha has agreed to pay $1.7 million and adopt reforms to resolve allegations it paid $1 million in hidden compensation to brokers to lure pension plan business, Connecticut Attorney General Richard Blumenthal said Wednesday.

The company will pay $1.5 million into a restitution fund for certain pension customers across the nation, including several in Connecticut. It will also pay a $195,000 civil penalty to the state.

Since at least 1999, the company has provided secret compensation to a group of brokers, including USI Consulting Group in Glastonbury, in the sale of single-premium group annuities, Blumenthal said. The annuities are investment products used to fund some pension plans.

In return for the concealed payments to brokers, Mutual of Omaha received competitive information and the last look in bidding opportunities, Blumenthal said. Companies that didn't pay brokers the additional money were not given the same advantages, he said.

Pension customers weren't told about the extra payments, which were often disguised under "expense reimbursement" agreements, "an attempt to legitimize an otherwise illegal agreement," the settlement document says. The hidden payments were priced into the premium, it said.

Mutual of Omaha said it agreed to the settlement to avoid the cost of litigation but denies the allegations. The company said it disclosed the overall cost of the annuity contracts, which included the cost of broker payments.

The company also said it competed for business on overall cost and service, and isn't aware of any contract it received where it wasn't the lowest bidder.

Blumenthal alleges that Mutual of Omaha paid hidden bonuses to brokers in at least 78 single-premium group annuity cases.

Brokers are supposed to find the safest annuities on the best possible terms for a client. But the secret payments provided them a "strong financial motivation" to place business with Mutual of Omaha, the settlement says.

In addition to USI Consulting, Mutual of Omaha paid undisclosed compensation to such brokers as BCG Terminal Funding Co., Brentwood Asset Advisors LLC, Dietrich & Associates Inc., and Sharp Benefits Inc., Blumenthal said.

He previously settled allegations involving single-premium group annuities and broker compensation with The Hartford Financial Services Group Inc. and The Principal Financial Group.

As he turns the investigation's focus to the brokers, more settlements or litigation are possible.

The pension sponsors affected by Mutual of Omaha's actions included private, public and nonprofit customers, according to the settlement. Stafford Savings Bank in Connecticut was one of them.

When the bank bought a single-premium group annuity in September 2003, Mutual of Omaha disclosed that the premium included a 2.5 percent commission for the broker, and then listed it -- $45,648 -- on a federal form. But in November 2003, Mutual of Omaha paid an additional 1 percent of net premium -- $20,836 -- to the broker. Stafford Savings didn't know that amount was priced into its premium, the settlement says.

Other pension plan sponsors in Connecticut that were affected are Bank of Austria in Greenwich, New London County Mutual Insurance Co., and AAA Hartford in West Hartford, according to the attorney general's office.

Under the settlement, Mutual of Omaha faces an eight-year ban on paying any broker compensation on single-premium group annuities other than disclosed commissions. The company also must disclose in writing to brokers and customers, in initial bids for the annuities, all compensation to be paid to the broker. The company must also receive written consent from each customer to those terms.

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