New York Is Probing 401(k) Plans

Times Staff Writers

Investigators for New York Atty. Gen. Eliot Spitzer are conducting a wide-ranging probe of public and private retirement plans, a spokesman said Tuesday, and are expected to reach a legal settlement soon with the state’s teachers union over its endorsement deal with a major insurer.

The two-year investigation includes an examination of how investments are selected for 401(k) plans and other retirement accounts, and whether undisclosed financial arrangements are helping to shape those decisions, said Spitzer spokesman Darren Dopp.

The probe also seeks to determine whether participants in retirement plans are paying higher investment fees as a result of the hidden dealings, he said.


As part of the probe, the attorney general’s office has spent months scrutinizing a deal in which New York State United Teachers receives $3 million a year from Dutch insurance giant ING Group. In return, the union encourages its 525,000 members to buy ING annuities for their individual retirement accounts.

The ING payments were detailed in a Los Angeles Times story April 25 that disclosed how some of the nation’s largest teachers unions endorse high-cost retirement investments from companies that give them financial support.

Dopp said the New York union might have violated civil fraud laws by not disclosing the ING payments to its members.

“It’s been an extensive review,” he said. “We’re in the final stages. We hope to have an agreement with NYSUT soon.”

Union officials did not return calls for comment late Tuesday.

An ING spokesman said the insurer was cooperating with investigations by Spitzer and others.

“ING, like many other financial services companies, has received several different requests for information from different regulators, including the New York attorney general,” said spokesman Dana Ripley. “It is ING’s policy not to talk about any specific request. We have cooperated fully with the New York attorney general’s request for information about our relationship with NYSUT.”


The New York teachers union has previously defended its endorsement of annuities and its arrangement with ING, saying the revenue from the company helped support the union’s benefits department.

Annuities are investment contracts that can provide regular payments in retirement, much like a pension. A union spokesman said that although annuities cost more than other retirement investments, such as mutual funds, the added expense allows teachers to get investment and financial planning advice.

In its story, however, The Times detailed how these higher-cost investments eat into teachers’ returns, leaving many shortchanged for retirement. Many teachers complain that they are not told about lower-cost options, and that they get little in the way of financial advice.

In response to the story, Spitzer was urged by the Foundation for Education Reform & Accountability, a conservative think tank based in Clifton Park, N.Y., to conduct an investigation. The endorsement deal “has caused significant financial loss for many individual teachers who reasonably used the union’s endorsement as a recommendation to invest,” foundation President Thomas W. Carroll said in the April 28 letter.

“It’s awful what the union’s doing,” B. Jason Brooks, a foundation senior research associate, said in an interview Tuesday. “To be making money off the backs of hardworking teachers in the state is appalling.”

Dopp said the investigation was underway long before Carroll wrote the letter.

Spitzer, a Democrat who is running for New York governor, canceled plans last week to accept an endorsement from the teachers union, citing the conflict posed by his investigation.


As part of its broader investigation into retirement plans, Spitzer’s office is expected to bring a separate lawsuit today against a major insurance company over its marketing of retirement products.

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