ING to Give Teachers Refunds
Insurance giant ING Group has agreed to refund $30 million to educators who were steered by their union into retirement funds that carried high fees and little-disclosed payments to union coffers.
Under an agreement announced Tuesday by New York Atty. Gen. Eliot Spitzer, about 66,000 current and former New York schoolteachers will get $30 million from ING Life Insurance & Annuity Co., a unit of Amsterdam-based ING.
Spitzer said the agreement was expected to result in a greater disclosure of fees and revenue-sharing agreements by companies selling retirement investments throughout the country.
“This agreement raises the bar for the entire retirement products industry,” Spitzer said in a statement. “It will help ensure that workers receive accurate and complete information needed to make good investment decisions.”
The New York State United Teachers union had recommended ING annuities to its members without adequately disclosing that the union received millions in payments from ING for the endorsement, according to Spitzer’s complaint.
The arrangement was highlighted in an April 25 story in the Los Angeles Times that showed how some of the nation’s largest teacher unions, including United Teachers Los Angeles, endorsed high-cost retirement investments from companies that gave them financial support.
ING neither admitted nor denied wrongdoing. The company issued a statement saying it “fully supports improved transparency and disclosure.”
After The Times published its story, the New York teachers union acknowledged that it had acted inappropriately and agreed in a separate settlement with Spitzer to disclose the money it had received from endorsements.
“I’ve said before that the [union] acted inappropriately and won’t act that way in the future,” union President Richard Iannuzzi said Tuesday.
According to Spitzer’s complaint, ING violated New York’s securities law by going along with the union’s scheme to hide the financial arrangements between it and ING. Under their partnership, which dates to 1988, the New York teachers union recommended that its members buy ING annuities.
Annuities are contracts designed to provide regular payments in retirement. The money is generally invested in mutual funds, and an insurance “wrapper” guarantees against losses.
Between mutual fund fees and insurance charges, a minimum of 1.68% of their assets were sucked out of teachers’ accounts each year, the complaint said, roughly three times more than for a lower-cost options.
During the first year of its endorsement, New York State United Teachers collected $40,000 from ING. But as money poured into the accounts, the union’s cut grew to $400,000 in 1994 and $1.8 million by 2001.
At that point, ING proposed new disclosures that would include a note in bold-faced type saying that fees and expenses associated with the annuity “including those received by the NYSUT Benefit Trust,” the union division that dealt with endorsed products, were detailed in the prospectus. Union officials, however, objected and asked the company to tone down the disclosure.
The insurance company ultimately took out the words “NYSUT Benefit,” leaving only the disclosure about fees paid to “the Trust.” In an e-mail released by Spitzer’s office, the trust’s director praised the new language, saying: “It makes you think that the expenses they are talking about are the expense [sic] of the ING National Trust.”
In 2004, the union renegotiated its payment arrangement with ING. The company had proposed paying the union $5 per member -- about $2.5 million -- regardless of whether they bought an annuity. Previously, ING had paid a set fee, plus a percentage based on the assets invested in the plan that worked out to roughly $3 million.
ING, under the new reimbursement schedule, promised to pay the union roughly $3 million in 2005 and as much as $4.2 million by 2009, according to the complaint.
Under the settlement, ING will create a form describing its fees and the effect they could have on the value of an investment over time. The statement will disclose that ING sometimes recovers some of its costs by receiving payments from the mutual funds it offers.
Whether ING must also disclose financial arrangements it has with other unions was not clear from the settlement, and Spitzer’s office did not return calls from The Times.
United Teachers of Los Angeles, which had endorsed half a dozen retirement providers, suspended its “approved provider” program after The Times’ series. Union officials say they are working to offer lower-cost retirement options next year.
To read the “Retirement at Risk” series that detailed problems with investments sold to teachers, visit latimes.com/retire.