New Hampshire securities regulators have charged ING with improperly running its state-employee retirement plan, saying the company accepted undisclosed fees from mutual funds offered in the plan and failed to reimburse employees whose accounts were depleted by market timing. Further, the suit charges that 13 of the 18 funds in the plan that paid fees to ING underperformed their benchmarks in a five-year period.

ING runs the 5,000-member, $180 million New Hampshire State Employees Deferred Compensation Plan and is a leading administrator of 457 plans in the nation.

ING now has a disclosure on its website saying, " compensation to ING Financial Partners by our strategic partners [i.e. the funds in the plan] may pose a financial incentive for us to promote these products over other products."

ING spokesman Dana Ripley responded by saying the company is "surprised and disappointed" by the regulatory action and that it had cooperated fully and in good faith with regulators.

To date, regulators have clamped down on the practice of brokers accepting revenue-sharing payments from mutual funds without disclosing the arrangement to investors. This is the first time regulators have clamped down on the practice in public sector retirement plans.

New Hampshire Securities Director Mark Connolly told The Wall Street Journal, "We believe this is a problem of national scope for ING and does not just involve the New Hampshire plan." A person familiar with the investigation said that at least two other states are investigating how ING runs defined contribution plans.

In a related matter, New York Attorney General Eliot Spitzer is looking into an agreement ING set up with the New York State United Teachers union whereby ING paid the union $3 million a year for the right to market its products to the union, without disclosing the arrangement to the union's 500,000 members.

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.