LAWFUEL – Press Release Service – Settlement is Part of Ongoing Investigation of Retirement Products
Attorney General Eliot Spitzer today announced an agreement to resolve an investigation of the marketing of retirement products to members of the state’s largest teachers’ union.
Under the agreement, an arm of the New York State United Teachers (NYSUT) will adopt a series of reforms and pay $100,000 to the state to cover costs of the investigation.
The agreement follows a lengthy probe revealing that NYSUT’s Member Benefits unit accepted payments from an insurance company to promote the company’s retirement products to NYSUTmembers. The unit did not disclose this arrangement and, instead, took steps to conceal it.
“A simple rule that my office has enforced time and time again is that fiduciaries must place the interests of their clients first,” Spitzer said.
“Accordingly, an office set up to counsel union
members on retirement alternatives should always provide objective advice and full disclosure of relevant facts. That did not happen in this instance. But as result of this agreement, reforms have
been adopted to ensure that this standard will be met in the future.”
The investigation revealed that a retirement product endorsed by the unit – a so-called 403(b) plan offered by the Dutch insurance giant ING and its predecessor, Aetna Life Insurance and Annuity Company– charged investors fees and expenses as high as 2.85 percent per year while
delivering only limited benefits. The unit endorsed the plan (even though cheaper alternatives were available) in return for undisclosed payments of as much as $3 million per year.
The unit took pains to hide this “silent partnership” with ING/Aetna. The unit would urge union members to attend financial planning seminars, claiming that: “There’s no sales pitch – they [the
seminars] do not promote specific products or services.” But contrary to this claim, the seminars were used as a “foot in the door” to promote ING/Aetna retirement products.
In addition, the unit redirected calls it received arising from the retirement seminars to ING/Aetna employees, who answered the phones with their first names only. Callers thought
they were talking to NYSUT benefits unit personnel when in fact they were talking to the
insurance company’s marketing representatives.
In late 2004, after it became aware of the Attorney General’s investigation of insurance and retirement products, the unit drafted a new disclosure policy, which was described by officials in
an internal e-mail as moving from a “try to hid[e] it” approach to a more open approach that included disclosing all payments from ING.
Under today’s agreement, the unit agrees to the following:
* Conduct open bidding for future retirement plan endorsements;
* Provide full disclosure of any and all payments from insurance companies;
* Allow members an opportunity to roll over savings to a new endorsed plan at no cost;
* Provide free and objective investment advice to members; and
* Hire an independent consultant to oversee reforms and report to the Attorney General’s office.
More than 50,000 New York teachers and other school district employees bought into the retirement plan without having been told by the unit of the payments it received from ING/Aetna.
The investigation underlying today’s settlement was conducted by Assistant Attorneys General
Peter Dean and Harriet Rosen, under the direction of David D. Brown IV, Chief of the Attorney
General’s Investment Protection Bureau.
A broad investigation of the marketing of retirement products continues.