Attorney General Ken Cuccinelli II has agreed to drop claims that a major New York bank defrauded state and local employee pension funds. The deal also extends the bank’s management of the funds for reduced fees for the next five to 10 years.

In addition, the agreement requires that Virginia pay $1.1 million to a group of whistleblowers who first came forward with the accusations, according to Cuccinelli’s office.

Cuccinelli’s office declined to comment on the reported payment. BNY Mellon spokesman Kevin Heine said only that it will not come from the bank. “We made no payment to the whistleblowers’ lawyers,” he said.

Under Virginia’s Fraud Against Taxpayers Act, a whistleblower who helps the state recover funds through the prosecution or resolution of a case is paid a portion of those funds. The money will come from the savings the state will reap from lower management fees, not from the General Fund.

Cuccinelli sued the bank in August 2011, asserting that it had cheated the Virginia Retirement System and local pension funds out of $40 million by falsely reporting the rate at which currency was traded on behalf of the fund. The suit had sought $900 million in damages and penalties, making it one of the largest non-health-care cases ever brought, legal experts said at the time.

A Fairfax County Circuit Court judge dismissed the suit in May, but Cuccinelli filed his intention to submit an amended complaint. The court had not ruled on that filing.

The bank’s announcement of the contract extension made no mention of any past or pending litigation. The deal between the state and Bank of New York Mellon Corp. was first reported by the Wall Street Journal.

“BNY Mellon, the global leader in investment management and investment services, today announced that it has renewed its contract to provide custody banking services to the Virginia Retirement System,” the announcement said. “The contract extends the current relationship between BNY Mellon and VRS for five years with an option to renew for another five-year period.”

In an interview, Heine said the agreement should not be characterized as part of a legal settlement because the original case had been dismissed and there had been no ruling on Cuccinelli’s motion to renew legal action.

“The renewal of the agreement with the Virginia Retirement System is the product of commercial negotiations” as opposed to legal negotiations, Heine said.

Cuccinelli, however, did not shrink from making the link.

“The litigation is over and BNY Mellon and the funds have extended their respective business relationships for 10 years,” Cuccinelli said in a statement. “The case has been resolved by agreement of the parties, which allowed for the reworking and extension of the funds’ contracts with the bank. This resolution has conferred significant financial benefits for Virginia employees and retirees.”

Cuccinelli said he could not comment on the terms of the contracts, to which he was not a party. At the time the suit was filed, Cuccinelli’s office said the bank earned $4.5 million a year to hold and protect $55.1 billion in state and local government retirement funds. The local pension funds include Fairfax County’s.

Cuccinelli’s statement said VRS and the local pension funds had “informed us that the terms of the 10-year renewal are favorable to their members. The board of the VRS, believing it was in the best interest of their beneficiaries, urged this resolution.”

The bank’s announcement quoted Bob Schultze, director of VRS. “BNY Mellon has been a partner with us for many years and we look forward to working with them to continue to provide a variety of custody banking services on terms favorable to our members,” he is quoted saying.

Jeanne Chenault, director of public relations for VRS, declined to comment.