Pact Means Refunds on Some BofA Annuities

Bank of America Corp. agreed Wednesday to offer penalty-free refunds to thousands of seniors who may have been sold inappropriate investments in annuities in 2003 and 2004.

The deal, which resolves an investigation by Massachusetts Secretary of the Commonwealth William Galvin, applies to customers in any state who were 78 or older when they bought variable annuities from brokers at units of the nation’s second-largest bank.

Variable annuities are investment contracts that provide a regular stream of payments in the future. The money put up by the annuity buyer is typically invested in stock or bond portfolios, and the annuity can include insurance to guarantee a minimum payout, or a death benefit to survivors.

Critics say variable annuities can be unsuitable for seniors because the contracts typically impose penalties for early withdrawal that can last several years. The penalties can be as high as 7% of the amount redeemed.

“These are long-term investments, but these people may not have a long-term horizon,� Galvin said. “They may need the money for medical care or another emergency.�

Galvin said the refund offer applied to 800 people in Massachusetts, including customers of Fleet Bank before its merger with BofA, and “several thousand� clients nationwide. Bank of America declined to discuss the number of customers involved or the amount of potential refunds, including those in California.

Starting in August, affected customers will have six months to apply for a full or partial withdrawal of their accounts’ accumulated value; any so-called surrender fees for early redemption will be waived.

Eligible customers who already have paid surrender fees after making withdrawals or annuity exchanges through BofA can apply for refunds of the penalties. For clients who were 75 to 77 years old at the time of purchase, the bank agreed to offer an “expedited review� of suitability concerns they may have regarding their annuities. Bank of America wasn’t named in an official complaint, and it neither admitted nor denied wrongdoing.

After reviewing grievances by customers in Massachusetts, BofA decided that the refund offer was “the right thing to do for our clients,� said Tim Maloney, president of Banc of America Investment Services.

Galvin said banks had taken advantage of some older customers who were unhappy with low interest rates on their certificates of deposit or other accounts, selling them annuities that they might have mistakenly believed were federally insured.

Galvin’s office filed a complaint over annuity sales practices at Citizens Bank that remains unresolved. It also is investigating annuity sales at half a dozen other banks, most of them headquartered in the Northeast. Galvin said he hoped the BofA offer “serves as an example to the banking and investment industry.�

BofA’s Maloney said the bank already had taken steps to “greatly enhance� disclosures and suitability standards in its variable annuity sales to the elderly. BofA also agreed to take other steps, such as encouraging elderly customers to confer with a relative, advisor or friend before buying any variable annuity.

Shares of Charlotte, N.C.-based BofA rose 44 cents Wednesday to $45.75.

Industrywide, annuity sales hit a record $224.4 billion last year, according to Limra International. Variable annuities accounted for $133.5 billion, a 3% increase from 2003.