Last week, MetLife, Inc. agreed to pay the Securities and Exchange Commission $10 million to settle charges for violating bookkeeping and internal accounting controls of federal securities laws. The SEC charges relate to two errors in MetLife’s practices in its accounting for reserves for certain annuity products. MetLife disclosed these errors in its Form 10-K for the fiscal year ending December 31, 2017 filed on March 1, 2018. According to a statement by the SEC, “MetLife’s insufficient internal controls caused longstanding accounting errors.”
Error in Release of Reserves for MetLife Retirement & Income Solutions
The first error relates to release of reserves for benefits owed under the Retirement & Income Solutions annuity products. Since the early 1990’s, MetLife would presume that an annuitant was dead or would not be found if he or she did not respond to two mailing attempts made approximate five and half years apart. MetLife would release reserves associated with the non-responding annuitants assuming it would not be liable for future policy benefits.
MetLife’s review of its practices revealed that they were not sufficient to warrant a presumption that the annuitant was deceased or lost and a corresponding release of reserves. A pilot enhanced outreach program demonstrated inadequacies of MetLife’s practices. As a result of those faulty practices, MetLife did not pay monthly pension benefits tens of thousands of annuitants.
Error in Accounting for Variable Annuity Guarantees
The second error relates to MetLife’s overstatement of reserves and understatement of income relating to variable annuity guarantees assumed by a MetLife subsidiary, MetLife Reinsurance Company of Bermuda. According to MetLife, the error was caused by data mistakes. MetLife reduced reserves by $896 million as of year-end 2017 in an effort to correct the error.
The SEC’s penalty took into account MetLife’s cooperation with the SEC and remedial efforts. According to the SEC order, these efforts include a global review of other businesses and products for similar issues; improving internal controls with respect to annuitant outreach practices, communication of information to management, and the calculation of reserves for certain products; and paying interest on retroactive benefits payed to located annuitants.
If you are concerned about benefits under an annuity or retirement plan, please call the Costello Law Group at 410-832-800 (or Toll Free 877-418-0003) for a free consultation. Tom Costello of the Costello Law Group has 25 years of experience in securities fraud and securities arbitration and represents investors across the nation.