The Hartford Settles With NY, CT for $20 Million

The Hartford settled with the attorneys general of New York and Connecticut last week for providing kickbacks to group annuity sales brokers in the form of undisclosed expense reimbursements between 1998 and 2004.

Hartford agreed to a $20 million fine and to a three-year ban on the use of contingent compensation for its terminal/maturity group annuities. Of this fine, $16.1 million will be paid to plan sponsors and $3.9 million will be divided equally between New York and Connecticut.

Terminal and maturity group annuities are single-premium group annuities that plan sponsors purchase to assume a pension plan's liabilities, the first when a pension plan is being terminated, the second to ensure the company can satisfy future obligations to pension plan participants.

During the six-year period, Hartford paid four producers $4 million worth of expense reimbursements without disclosing it to the plan sponsors, and sold $800 million worth of terminal and maturity group annuities. Those four brokers were: Dietrich & Associates, Brentwood Asset Advisors, USI Consulting Group and BCG Terminal Funding.

The regulators uncovered internal e-mails in which Hartford executives acknowledged that the prices on their terminal/maturity annuity line were not competitive and that without these incentives, they probably would not have landed the business.

"This investigation shows how payoffs and deception influenced major deals for retirement products," said New York Attorney General Eliot Spitzer. He called the expense reimbursements "shams" that were simply volume-based bonuses designed to reward brokers for pushing Hartford products.