OppenheimerFunds Inc. and the state of Illinois announced they have agreed to settle the state’s investigation of the way Oppenheimer and 3 subsidiaries managed part of Illinois’ 529 college savings program.

Under the agreement, OppenheimerFunds does not admit any wrongdoing. In a statement, the company maintains that it acted lawfully and in good faith in managing the investments in the 529 plan, known as Bright Start.

OppenheimerFunds, a subsidiary of Massachusetts Mutual Life Insurance Company, Springfield, Mass., agreed to pay the state more than $77 million, which state officials have earmarked for distribution to eligible Bright Start participants.

Families invested in Bright Start’s Core Plus Fixed Income Strategy accounts suffered “extraordinarily high losses” after the severe market downturn last year, Illinois state Attorney General Lisa Madigan said in announcing the settlement. Core Plus, one of 21 underlying funds in Bright Start, incurred losses that were well above those shown by a bond index used by her office as a performance benchmark, according to Madigan.

“Oppenheimer had marketed Core Plus as a conservative investment vehicle appropriate for beneficiaries who were at or near college age,” Madigan said in a statement. “Core Plus, however, contained risky investments and was highly leveraged by its Oppenheimer management team, which, in turn, resulted in excessive losses. The management team is no longer with Oppenheimer.”

The settlement covers Bright Start participants invested in Core Plus from Jan. 1, 2008 through Jan. 25, 2009 and who had losses of at least $20 as of Sept. 30, 2009

Oppenheimer will pay all costs of administering the settlement.

State Treasurer Alexi Giannoulias reported that Bright Start’s investment performance has rebounded with the market recovery, showing year-to-date returns as of Nov. 30 ranging from 5% to 25%, depending on the portfolio design

“The Bright Start program remains strong, and the number of accounts continues to grow,” said Giannoulias

In a statement, Oppenheimer said the settlement avoids “a potentially lengthy and expensive legal process and instead permits OppenheimerFunds to apply resources to more constructive ends.” It notes that its OFI Private Investments Inc. unit remains the program manager for Bright Start.

It was the third time this year that state authorities had clashed with Oppenheimer over its administration of their 529 college savings plans.

On. Dec. 15, Oppenheimer announced an agreement with New Mexico over its management of the state’s two 529 college savings programs. In that settlement, the company agreed to pay more than $67 million for distribution to plan participants.

And in November, it reached an accord with Oregon for $20 million to settle that state’s lawsuit over 529 plan losses.