New York State United Teachers settled with the attorney general's office Tuesday, in a probe into how it accepted $3 million in shelf-space payments each year from ING Group to endorse its annuities without disclosing the arrangement to its members. The investigation found that the union even, in fact, took steps to conceal the pact, according New York State Attorney General Eliot Spitzer's lawsuit.
The union would urge its 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 union, in conjunction with ING, used the seminars to promote ING retirement products, including annuities with annual fees of as much as 2.85% a year -- three times as much as some equity mutual funds.
Further, according to Spitzer's lawsuit, retirement benefits personnel at the union would redirect telephone inquiries from members to ING marketing personnel, who did not reveal their identities, only their first names, to give the impression that they also were members of the union.
Under the agreement that the union reached with attorney general, it will adopt a series of reforms and reimburse the state $100,000 for the cost of its probe. The union will now disclose any and all payments it receives from retirement plan providers, conduct open bidding to include other choices in its plan and provide free and objective advice. Once new options for its retirement plan are selected, the union will allow members to roll their money over to another investment choice at no cost.
Finally, the union has agreed to hire an independent consultant to oversee these reforms and report back to the attorney general's office.
"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."