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Union Settles Annuity Probe

Times Staff Writer

New York’s largest teachers union agreed Tuesday to change the way it markets individual retirement plans to its members, ending what authorities called a “silent partnership” with insurer ING Group that saddled teachers with high-cost investments that provided scant benefits.

New York State United Teachers received $3 million a year for endorsing ING annuities but tried to conceal the arrangement from its members, according to the New York attorney general’s office. The annuities carried fees and expenses of as much as 2.85% a year, or about three times the cost of many popular mutual fund investments.

“Under the guise of giving objective advice, the union not only endorsed this product, they steered people to it,” said David D. Brown, chief of the attorney general’s investment protection division. “They ultimately became a sales arm of the insurance company.”

As part of a settlement with the state, the union agreed to disclose its endorsement payments. It also promised to work with state authorities to hire an independent consultant to suggest alternative investments to union members and to pay $100,000 to cover costs of the state investigation.

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In addition, the union agreed to provide members with annual access to free and objective investment advice and allow the 53,000 people who purchased retirement products it endorsed in the past to roll their balances into a newly endorsed product at no cost.

The union’s deal with ING was spotlighted in an April 25 Los Angeles Times story that detailed how some of the nation’s largest teachers unions, including United Teachers Los Angeles, endorse high-cost retirement investments from companies that give them financial support. These investments, which supplement teacher pensions, often wind up providing paltry returns because of high fees that are charged as a percentage of the assets.

Richard C. Iannuzzi, president of New York State United Teachers, credited The Times story for helping make union leaders aware of the need to better disclose endorsement deals.

“Your exposure, and others who started to raise questions about the insurance and financial industries, led me to ask questions about how we handled the issue of disclosure here,” he said. “Your article in particular played an important role in our understanding of the issue.”

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Like many other unions, the New York group endorsed high-cost funds including annuities, which are investment contracts that can provide regular payments in retirement, much like a pension. Annuities have higher fees than other retirement investments, such as mutual funds, in part because they are usually sold by sales agents working on commission.

In the past, the union had defended its backing of investments sold on commission, saying its members are unfamiliar with investments and need the guidance of sales agents to make smart decisions. Now, Iannuzzi said, union leaders no longer believe this is always the case.

“As we do our requests for proposals for the new products, there will be products that will offer a great deal of advice and other products that will be trimmed down without the advice and the cost,” he said.

The Los Angeles teachers union has also begun to reexamine its endorsement deals. UTLA does not receive direct payments but has relied on “approved” vendors to exhibit at its conferences and buy advertisements in its publications.

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Since The Times article ran, the union has revived a dormant member benefit committee and started to review its endorsements. No companies have been eliminated or added.

UTLA Treasurer David Goldberg, who oversees the union’s financial endorsements, was not immediately available for comment Tuesday. But Steve Schullo, a Los Angeles teacher who has long been critical of union-endorsed investments, said UTLA recently played a key role in getting Los Angeles Unified School District officials to make low fees a required component for a new supplemental retirement savings plan that may be offered to teachers next year.

The National Education Assn. said it had begun working on adding a low-cost investment option for its members in the wake of The Times story.

Currently, the union endorses an annuity, which charges a minimum of 1.73% a year in fees and expenses. Like the ING product, these fees eat into investors’ returns, leaving teachers comparatively poorer in retirement.

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The deal between ING and the New York union “was very profitable for the insurance company and some of those profits flowed back to the union’s member benefits department,” said Brown of the attorney general’s office. “But, members would have been much better off if they had bought something that was low-cost.”

ING spokesman Dana Ripley said the company disclosed the payments it made to the union in material it mailed to teachers when they invested.


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