Eliot Spitzer Decides Union Violated the Law

[joel]

Department of Law

120 Broadway

New York, NY 10271

Department of Law

The State Capitol

Albany, NY 12224

For More Information:

518-473-5525

For Immediate Release

June 13, 2006

NYSUT’S MEMBERS BENEFITS UNIT SETTLES PROBE

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 NYSUT members. 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.

Attachments:

NYSUT AOD

Exhibits

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[joel]

On June 13, 2006, after many months of investigating the New York State United Teachers (NYSUT) and its Member Benefits unit, the Attorney General of the State of New York found that since 1989 the Member Benefits unit has continuously violated the law by not disclosing that the unit was selling/marketing to NYSUT members an ING variable annuity called “Opportunity Plus”. (http://www.oag.state.ny.us/press/2006/jun/jun13b_06.html

NYSUT President Richard Iannuzzi, on June 13, 2006 wrote to NYSUT members: “It is clear now the Trust, despite its best intentions, could have - and should have - historically provided greater disclosure of the fees paid to the Trust by ING and more regularly reviewed investment options. Mistakes were made. They will not be made again.”

403(b) investing was first made available to public school employees in 1961 and from that date forward New York’s public school personnel have been infested with high cost investment products. Since 1989 the NYSUT has been the primary player in the marketing/selling of these high cost 403(b) investments to public school personnel. Thanks to NYSUT there is currently more than $2.3 billion dollars invested in the “Opportunity Plus” Variable Annuity. Prior to 1989, when the illicit business agreement was first entered into with ING’s predecessor Aetna, the NYSUT knew full well that teachers outside the City were being flooded with commissioned based variable annuities for their 403b investing. They also knew that the State and City Universities were using the no-load firm, Teachers’ Insurance and Annuity Association-College Retirement Equities Fund (TIAA-CREF) for their 403(b) investing and that City public school employees, about 40 percent of the NYSUT membership, were never infested with high cost products but used the no-load Teachers’ Retirement System for their 403(b) investing. Moreover, NYSUT was sponsoring for THEIR OWN EMPLOYEES a no-load 401(k) Plan. THEY ALSO KNEW THAT IN ALL THE AFOREMENTIONED CASES THE UNION COULD NOT POSSIBLY SHARE IN THE COMMISSIONS BEING PAID BY THEIR MEMBERS BECAUSE THEIR MEMBERS WERE NOT PAYING COMMISSIONS. In this backdrop they embarked on their illegal “silent partnership” with Aetna/ING. The Member Benefits unit couldn’t wait to receive their first commission/fee check.

In my view no mistakes were made by Richard Iannuzzi and his cohorts. They knew exactly what they were doing. They were simply caught. They understood extremely well that the success of collecting these commission/fees on a regular basis was fully dependent on its CONCEALMENT. If their competitors got wind of it, it would be used against them and rightfully so. Moreover, what teacher in his/her right mind would buy a variable annuity after being told that some of the commissions/fees he/she was paying was being shared with their Union? It was only after knowing that Mr. Spitzer’s office was investigating insurance and retirement products did Mr. Iannuzzi and his crowd decide to disclose the commission/fee arrangement. Of note: Prior to signing the marketing/endorsement agreement in 1989, all the major 403b vendors recommended to NYSUT that no vendor be endorsed. NYSUT would not hear of it. Its mouth was watering for some of those lucrative commissions being paid by its members. It’s that simple. So to anyone who is buying Mr. Iannuzzi’s statement, I have a bridge I would like to sell to you.

A NYSUT member wrote the following: “THERE NEEDS TO BE A LESSON TAUGHT TO NYSUT/ING FOR ALLOWING 55,OOO MEMBERS TO BE FLEECED. THERE WERE NO GOOD INTENTIONS HERE AS EVIDENCED BY THE LOW COST PLAN NYSUT MAKES AVAILABLE TO ITS OWN EMPLOYEES. SOME SIMPLE MATH SUGGESTS OUR MEMBERS PAID FEES GREATER THAN $100 MILLION. NYSUT’S DECISION TO SELL US TO ING IS AT BEST A BETRAYAL AND AT WORST CRIMINAL. THIS WILL NOT BE OVER UNTIL THERE IS A FULL ACCOUNTING EITHER BY A CLASS ACTION OR A REFUNDING OF FEES TO ALL BY UNION BROTHERS AND SISTERS.” B.N.

[david rigby]

Often it is overkill to post long items such as these, since the original can easily be found with a link. In case readers are not aware, one of the many benefits (pun intended) of this website is the organization by topic. For example, 403(b) here: http://benefitslink.com/buzz/subjects/head.../403bplans.html

[joel]

Often it is overkill to post long items such as these, since the original can easily be found with a link. In case readers are not aware, one of the many benefits (pun intended) of this website is the organization by topic. For example, 403(b) here: http://benefitslink.com/buzz/subjects/head.../403bplans.html

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Pax: My second post in this thread was pure commentary...do you have any?

Joel