The Massachusetts Mutual Life Insurance Co. agreed to settle SEC charges that the firm violated securities rules by failing to sufficiently disclose the potential negative impact of a “cap” it placed on complex variable annuity products.
MassMutual, which the Securities and Exchange Commission says removed the cap after the SEC’s investigation to ensure that no investors will be harmed, has agreed to pay a $1.625 million penalty.
MassMutual consented to the penalty without admitting or denying the charges and agreed to cease and desist from committing or causing any violations and any future violations of Section 34(b) of the Investment Company Act.
According to the SEC, its investigation found that MassMutual included a cap feature in certain optional riders offered to investors, and the cap potentially affected $2.5 billion worth of MassMutual variable annuities. Neither the prospectuses nor the sales literature sufficiently explained that if the cap were reached, the guaranteed minimum income benefit (GMIB) value would no longer earn interest, the SEC says.
Mark Cybulski, a spokesman for MassMutual, says that MassMutual “is pleased to have resolved this matter with the SEC.” In resolving this matter, he said, “MassMutual neither admits nor denies the SEC’s findings. Importantly, the settlement makes clear MassMutual improved the challenged disclosures beginning May 1, 2009, and that the SEC considered our change to these riders to eliminate the maximum GMIB value or “cap” – a change that benefits all contract holders with GMIB 5 and GMIB 6 riders. As the SEC notes in its announcement, no investors were harmed in this matter.”
Says the SEC: “MassMutual’s disclosures instead implied that interest would continue to accrue after the GMIB value reached the cap, and dollar-for-dollar withdrawals would remain available to investors. A number of MassMutual’s own sales agents were confused by the language in the disclosures, and investors were not sufficiently informed of the potential negative effect of taking withdrawals if they reached the cap approximately a decade from now.”
Robert Khuzami, director of the SEC’s Division of Enforcement, said in announcing the charges, “Investors shouldn’t have their retirement nest eggs at risk because of undisclosed investment complexities.” Khuzami said that the SEC’s “proactive investigative efforts,… exposed a problem with a complex variable annuity investment at least a decade before it could have harmed investors.”