N.Y. Attorney General Announces Settlement With State Teachers’ Union
The New York state attorney general’s office announced a settlement with New York State United Teachers this week after a long-running investigation into an arrangement between the union and the Netherlands-based financial-services company ING.
Under that arrangement, ING gave the union’s Member Benefits division $3 million a year. In exchange, the division promoted the company’s retirement products—mostly high-cost annuities.
According to Attorney General Eliot Spitzer’s office, the union—a 535,000-member affiliate of the American Federation of Teachers—did not disclose the deal, and even took steps to “conceal it.”
“An office set up to counsel union members on retirement alternatives should always provide objective advice and full disclosure of relevant facts,” Mr. Spitzer, a Democrat running for governor of New York, said in a June 13 press release. “That did not happen in this instance.”
In a statement, NYSUT President Richard C. Iannuzzi said that the Member Benefits division should have “provided greater disclosure of the fees paid to the trust by ING. Mistakes were made.”
Under the settlement, the Member Benefits division will pay the state $100,000 to cover the costs of the investigation. Union leaders have also agreed to several policy changes, including conducting open bidding for future retirement-plan endorsements, providing full disclosure of all payments made by insurance companies to the union, and allowing members to roll savings from their 403(b) plans into a new endorsed plan at no cost.
The union will hire an independent consultant to oversee changes in the trust’s 403(b) program, which encompasses retirement plans for individuals working in education and for other nonprofit organizations. Moreover, trust employees will be trained on issues of product endorsement and potential conflicts of interest. All of the changes are to be implemented immediately, according to the settlement.
The union said it also plans to make changes that go beyond the agreement, including the formation of an independent panel that will monitor how well the trust complies with the terms of the agreement.
Mr. Spitzer’s investigation shed light on a practice common in the education field in which investment brokers market products such as variable annuities to teachers who may have little knowledge about the supplemental retirement plans that best fit their needs. ("Unions’ Deals With Brokers Raise Issues," June 7, 2006.)
A variable annuity is a contract in which an investment or insurance company makes periodic payments to a purchaser, beginning immediately or at some future date. Annuities provide a death benefit to a beneficiary if the customer dies before the payments begin. Annuities are also tax-deferred, a benefit that often draws people in.
But the U.S. Securities and Exchange Commission and other investment experts advise that Individual Retirement Accounts, mutual funds, and other investment products also offer tax advantages, and usually with lower fees that make a significant difference to purchasers’ portfolios over the long haul. Some school districts across the country are working to narrow the often-bewildering number of options available to teachers and better educate them on the investment process.