A large insurer says it has settled with regulators in a Northeastern state over retirement plan professional compensation arrangements but still believes it was obeying the law.

Principal Financial Group Inc., Des Moines, Iowa, has agreed to a settlement with the Connecticut attorney general in connection with some sales of single-premium group annuity policies made between 1998 and 2006.

Most buyers used the policies to fund defined benefit plans that were shutting down, Principal says.

Connecticut officials have raised questions about how Principal paid the brokers who handled the annuity sales.

“Throughout the process, we have denied the assertions of the attorney general and we continue to do so,” Ron Danilson, a senior vice president at Principal, says in a statement. “These payments were legitimate and legal. We disclosed all costs, including all broker payments, to plan sponsors. We believe that we won all business fairly and clients selected us because we provided the best value for them.”

Principal has decided to settle the case despite disagreeing with the allegations to avoid the costs and distraction of litigation, according to Karen Shaff, Principal’s general counsel.

The settlement agreement calls for Principal to pay a $600,000 penalty to Connecticut and to put $4.4 million in a fund that will compensate sponsors of plans that bought the annuities involved in the settlement, Principal says.

The annuities involved in the Connecticut case accounted for less than 5% of Principal’s single-premium group annuity sales from 1998 to 2006, and single-premium group annuities accounted for less than 1% of Principal’s 2006 domestic retirement premiums and deposits, the company says.