Northwestern Mutual Life Insurance Co agreed to pay $84 million to settle a lawsuit claiming that it illegally reduced potential payouts on annuities it sold at least 30 years ago, cheating investors who used them as retirement investments.

The settlement disclosed on Friday in the federal court in Milwaukee, where Northwestern Mutual is based, covers about 4,000 current and 29,000 former owners of the annuities pursuing a class action.

They claimed Northwestern Mutual breached its contractual obligations when in 1985 it quietly changed how it calculated dividends on deferred, fixed annuities it had sold, costing them millions of dollars annually. Experts for the plaintiffs had estimated compensatory damages could reach $278 million.

The preliminary settlement requires approval by U.S. District Judge Lynn Adelman in Milwaukee. Northwestern Mutual denied wrongdoing in agreeing to settle.

"This lawsuit was a case of a small group of customers seeking more than their fair share of dividends, which would have come at the expense of all our other policy owners," Northwestern Mutual spokeswoman Betsy Hoylman said. "At this point, it is best for our policy owners to close this matter."

Annuities are financial products into which individuals make regular payments which are then invested, with an expectation they will later receive regular payments.

According to the investors, Northwestern Mutual still paid what it called "dividends" on the annuities in question, but that these payouts merely reflected interest on short-term bonds into which it had moved assets.

Investors said this deprived them of their "contracted-for investment in the growth and profitability of Northwestern."

Northwestern Mutual expects to pay more than $5.5 billion of dividends to policy holders in 2015, according to its website. It has $230 billion of assets, and oversees $24 billion of annuity assets in 351,000 client contracts, the website shows.

Five law firms for the plaintiffs, including Boies, Schiller & Flexner in Armonk, New York and Kersten & McKinnon in Mequon, Wisconsin, plan to seek fees of up to 35 percent of the settlement fund. Neither of those two firms was immediately available to comment.

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