MetLife Inc. has agreed to pay a $10 million penalty to the U.S. Securities and Exchange Commission (SEC) to resolve concerns about problems the company discovered with some of its financial filings, SEC officials announced Wednesday.
The SEC concluded in an order that MetLife improperly freed up reserves for annuity benefits owed to pension plan participants who were somewhat hard to find.
MetLife also overstated the reserves and understated the income associated with the company’s variable annuity obligations in Japan, the SEC reported in the order.
The SEC is letting MetLife settle the matter without admitting or denying the SEC’s findings.
In addition to paying the $10 million, MetLife has agreed to stop violating the books and records rules and the internal accounting controls rules in federal securities laws.
MetLife said in a statement about the settlement that it told the SEC about the accounting problems.
“Our focus since we self-identified these issues has been to improve our processes to deliver better service to our customers,” MetLife said. “We successfully remediated both material weaknesses associated with this settlement as of December 2018.”
The Missing Pension Plan Participant Problem
MetLife began investigating how it was handling reserves for hard-to-find pension plan participants around 2012, according to the SEC order.
In 2014, the U.S. Department of Labor asked pension services providers to look at procedures for locating missing plan participants. Members of a MetLife team discovered that the companies were classifying participants who failed to respond to two mailings as “presumed dead.”
In 2016, the company came up with a different approach to looking for missing participants. It checked addresses using more databases, then sent each annuitant two letters through regular mail and one through certified mail. The company also tried to reach the annuitants who failed to respond by telephone, when a telephone number was available.
As of August 2017, about 81% of the previously unresponsive annuitants responded with efforts to collect benefits, and only 5.25% were confirmed to be dead, according to the SEC order.
MetLife investigated further to confirm the the results of the 2017 participant location effort. The company ended up including a $510 million pension participant location reserve error in its Form 10-K annual report for 2017, according to the SEC order.
The Japanese Variable Annuity Recordkeeping Problem
MetLife entered into a joint venture to sell variable annuities in Japan in 2005, then sold its stake in the joint venture to the Japanese joint venture partner in 2010. MetLife kept annuity reinsurance obligations in Japan through a subsidiary, MrB, according to the SEC order.
At the end of 2017, the guarantees were protecting about 128,000 variable annuity contracts and $9.5 billion in account value.
MetLife was using data from the Japanese company in charge of the annuities to determine how much it had to reserve to support the annuities.
MetLife discovered in February 2018 that there were problems with the numbers in some of the data fields in the Japanese insurer’s reports, according to the SEC order.
MetLife disclosed the MrB recordkeeping problems in the 2017 Form 10-K, according to the SEC order.
SEC officials say in the order that MetLife has already changed its administration systems to ease the pension plan participant location problems and started conducting a review of all of its businesses and products to identify similar problems.
The company also has worked to improve how it reaches out to annuitants, changed procedures for sending reports about problems go up to management more quickly, and updated the controls over how it handles matters such as locating pension plan participants and valuing Japanese variable annuity guarantees, according to the SEC order.
“MetLife is also voluntarily paying interest on retroactive payments for those annuitants who have been located,” officials say.
A link the SEC order is available here.
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