SEC Sanctions MassMutual for Variable Annuity Abuses


MassMutual failed to disclose risks associated with certain Guaranteed Minimum Income Benefit riders (specifically its GMIB 5 and GMIB 6 riders) and must now pay $1.65 million to settle SEC charges that it misled variable annuity investors.

MassMutual failed to disclose the fact that the GMIB would stop earning interest if it hit a certain value, and that, if that happened, subsequent withdrawals by the investor would lower the value of the contract as well as the GMIB. In a worst case result, the value of the contract and the GMIB could fall to zero and there would be nothing left to annuitize (“MassMutual settles with SEC for $1.6 million for insufficient variable annuity disclosures,” by Darla Mercado, InvestmentNews).

The omissions related to variable annuities that were sold in 2007, 2008 and 2009. In its marketing pieces, MassMutual had represented that: “Even if your contract value drops to zero, you can apply your GMIB value to a fixed or variable annuity.” This was misleading in light of its failure to disclose the potential of the GMIB to fall to zero.

The SEC also found that MassMutual’s selling agents did not understand how the contracts worked ? therefore, they could not properly explain them to investors.

MassMutual removed the products from the market in 2008 and 2009. According to the article, none of the investors who purchased these products was harmed.

Page Perry is an Atlanta-based law firm with over 150 years of collective experience maintaining integrity in the investment markets and protecting investor rights.