Blumenthal, Principal settle

by John O'Brien |
Nov. 14, 2007, 3:15pm


HARTFORD, Conn. - The Principal Financial Group is giving the State of Connecticut $5 million to settle allegations that it hid compensation paid to brokers for access to pension plan business.

State Attorney General Richard Blumenthal says $4.4 million of it will go to a restitution fund, while $600,000 is considered a civil penalty to be paid to the State.

Blumenthal says the settlement will have ramifications outside his borders.

"This national settlement provides both significant restitution and sweeping reforms," he said. "Principal's schemes potentially inflated pension plan costs for private and public pension plans nationwide. Principal paid hidden commissions to brokers disguised as expense reimbursement agreements, marketing agreements or administrative costs."

Principal, meanwhile, said it is happy to have Blumenthal off its back. A report by The Associated Press claimed company attorney Karen Shaff said the company agreed to the settlement to avoid costs and distractions.

"Throughout the process, we have denied the assertions of the attorney general and we continue to do so," spokesman Ron Danilson added. "These payments were legitimate and legal. We disclosed all costs, including all broker payments, to plan sponsors."

Blumenthal alleges Principal has paid $3.2 million in undisclosed compensation to a group of brokers since at least 1998. Those brokers include including BCG Terminal Funding Company, Brentwood Asset Advisors, LLC, Dietrich and Associates, Inc., Sharp Benefits, Inc., and USI Consulting Group.

By early January, Principal must identify which consumers are due restitution. It must also:

-Impose a four-year ban on any broker compensation apart from the disclosed commissions for Single Premium Guaranteed Immediate Annuity products and lines of business;

-Provide written disclosures to brokers and customers in its initial SPGA proposals - prior to binding - of all compensation and commissions paid to the broker, and receive written consent of each of its customers to such terms;

-Provide, by the end of the calendar year, written disclosure to pension plan customers of all compensation and commissions paid to or to be paid to the broker in relation to that customer's SPGA;

-Post a disclosure on its website - in a format to be approved by Blumenthal's office - of its compensation practices and policies; and

-Implement written standards of conduct regarding compensation and commissions paid to brokers, and appropriate employee training.

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