Proceedings, which are admitted, Respondent consents to the entry of this Order Instituting
Administrative and Cease-and-Desist Proceedings Pursuant to Sections 9(b) and 9(f) of the
Investment Company Act of 1940, Making Findings, and Imposing Remedial Sanctions and a
Cease-and-Desist Order ("Order"), as set forth below.
III.
On the basis of this Order and Respondent's Offer, the Commission finds1
that:
Summary
From September 2007 to March 2009, MassMutual offered a Guaranteed Minimum
Income Benefit (GMIB) rider—GMIB 5—as an optional feature to the MassMutual Transitions
Select and MassMutual Evolution variable annuity products. MassMutual also offered GMIB 6
from September 2007 to December 2008. For an additional fee, the GMIB rider benefit sets a
minimum floor for a future amount that can be applied to an annuity option (the "GMIB value").
The GMIB value increases by a compound annual interest rate of 5% for GMIB 5 or 6% for
GMIB 6, and allows contract owners to make withdrawals any time during the accumulation
period. These riders included a maximum GMIB value or "cap" that limited the amount to which
the GMIB value could increase. During the time period that MassMutual offered the GMIB 5
and GMIB 6 riders for sale, its prospectuses and sales literature did not sufficiently explain that
once the GMIB value reached the cap, withdrawals would cause pro-rata reductions in the
GMIB value in many instances. MassMutual's failure, in its disclosures, to sufficiently explain
the effect of the cap on withdrawals confused sales agents and others. For example, some
believed that a customer could allow the GMIB value to accumulate until it reached the cap and
then begin taking withdrawals—a strategy that in fact, under certain circumstances, would have
resulted in a rapid decline in the amount available to be annuitized. By taking post-cap
withdrawals, contract owners could, under certain circumstances, be left with no future income
stream. MassMutual was aware that some sales agents and others did not understand the effect of
post-cap withdrawals, which should have led it to improve its disclosures more quickly than it
did. Beginning May 1, 2009, MassMutual revised its prospectuses to better explain the
consequences of taking withdrawals after the GMIB value reaches the cap.2
Given the operation of these features, the earliest contract owners could have reached the cap is the year 2022.
Recently, MassMutual has undertaken the remedial step of removing the cap entirely from these
riders.
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