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Ala. Attorney General Takes Over 457 Plan Fee Probe

September 2, 2009 (PLANSPONSOR.com) - Alabama Attorney General Troy King has taken over a probe into at least $10 million in fees paid by to the Alabama State Employees Association from the 457 Plan accounts of current and retired state workers.

Forbes reported that King has already asked Alabama Securities Commission (ASC) Executive Director Joe Borg to delay any further work on the commission's ongoing investigation of Nationwide's involvement with the state's 457 program, but Borg then opted to pull the ASC out of the picture in favor of King's broader investigative authority.   

Forbes said Borg's agency had worked out a tentative deal calling for Nationwide and the   Alabama State Employees Association to pay just over $6 million into the 457 accounts of the 21,000 participants using the Nationwide-administered plan.

King told Forbes the matter needed to be reviewed under more than securities law including tax and insurance mandates, and that he wanted to bump up the settlement amount.

According to an ASC report of its probe into the   "endorsement fee"payments by Nationwide to theAlabama State Employees Association (ASEA), which oversees the $382-million retirement savings program, and Public Employees Benefits Corporation (PEBCO), it's for-profit subsidiary,the "endorsement fee" began in 2001 and was funded by Nationwide, reducing the amount of interest it paid on the fixed option of the plan by 20 basis points. The 2001 contract was for three years and would increase the fee paid to ASEA to $1.05 million in 2002, and $1.1 million in 2003.

"Although the current plan is better for the state employees than the previous plan, the involvement of the ASEA has cost approximately $10 million since 2000 from participant's retirement accounts," the ASC report declared. "The funds paid to ASEA/PEBCO do not appear to be justified, and are in fact mostly profits to the association. It is also certain that it is not disclosed to state employees who participate in the plan that funds they believe are going into a retirement account are being used to subsidize the ASEA."

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