Three years after acquiring most of Securian Financial’s retirement recordkeeping business, The Standard Insurance Co. has filed a federal lawsuit against the St. Paul-based financial services firm and its subsidiary, Minnesota Life Insurance Co., over some $50 million in disputed post-sale bonus payments.

In December 2022, The Standard purchased recordkeeping operations from Securian related to its large-scale retirement plans. The transaction included recordkeeping for the majority of Securian’s retirement services, and shifted some 300 employees, as well as sales, clients and distribution networks, to The Standard. Terms of the sale were not publicly disclosed, but at the time, nearly half of Securian’s 5,600 employees were based in downtown St. Paul.Recordkeeping for Securian’s defined contribution and defined benefit products and services were to be branded The Standard. Securian’s plans, customers and data were scheduled to move to the company’s recordkeeping platforms from late 2023 through spring 2024, according to The Standard’s public announcements.

The transfer excluded Securian’s pension risk and institutional retirement businesses.

The Standard, which is based in Portland, Ore., “anticipated the transaction would allow it to leverage the Securian entities’ existing relationships with plan sponsors and distribution partners,” according to the company’s 15-page lawsuit, which was filed Jan. 9 in U.S. District Court for the New York Southern District.

Dispute over bonus payouts

Instead, the two companies have engaged in a dispute over a provision of the transaction agreement related to bonus payouts, otherwise known as earn-out payments. Earn-out provisions are generally sales incentives that guarantee the seller of a business added compensation if the business meets future financial targets, and they’re common negotiating tools when the two sides can’t agree on an initial sale price.

The Standard hoped to maintain favorable relationships with Securian’s former clients, according to the lawsuit, and the agreement included specific terms around earn-out payments that would be paid depending upon how many clients stayed with the retirement business in the 18 months after the sale closed.

Securian, according to the lawsuit, claims to be entitled to $50 million under the earn-out provisions based upon contractual interpretations that The Standard has called inaccurate. The Standard maintains that no payments are due at all.

“Securian Financial sold a valuable line of business to The Standard, and there is now a dispute over whether The Standard has fulfilled its post-closing obligations to us relative to that transaction,” said Jeff Bakken, a Securian Financial spokesperson, on Tuesday. “Securian Financial has attempted to resolve this dispute in good faith. We disagree with The Standard’s characterization of this matter, and now that The Standard has commenced legal action, we will respond through the courts.”

Lapsed clients at issue

Among the issues is how to interpret what constitutes a legitimately discontinued or “lapsed” client, as opposed to a client that left a retirement plan based on a material breach of The Standard’s obligations under the sale agreement. After being issued The Standard’s earn-out statement in June 2024, Securian had 90 days under the agreement to review the statement, including all books and working papers, and issue a written notice of disagreement, according to the lawsuit.

Securian issued its notice of disagreement on Sept. 11, challenging the lapsed status of most of the clients identified in The Standard’s earn-out statement, reads the lawsuit. The notice then triggered a 20-day consultation period for the two companies to negotiate. The period was extended by mutual agreement.

In November, with almost one week to go before the end of the consultation period, Securian indicated it would take the matter to an independent accounting firm, according to the lawsuit. The Standard has called on the courts to weigh in first, given that the transaction agreement “makes clear that the independent accounting firm’s authority is limited to accounting and mathematical disputes, and does not include legal issues such as interpretation of the (sale agreement’s) provisions.”

The Standard’s single claim for declaratory relief asks the court to interpret the term “lapsed client” in the contract, declare that the independent accounting firm act in accordance with the sale agreement, and award the company reasonable attorney’s fees, costs and whatever other relief the court deems proper.

The Standard is being represented by the law firm of Debevoise and Plimpton. Securian has yet to file a legal response. The case was assigned last Friday to U.S. District Court Judge Vernon S. Broderick.