The insurance company agreed last week to disclose its
revenue-sharing agreements as part of a new 457
retirement plan offering to Los Angeles Unified School
District (LAUSD) employees, according to CBS.
According to the LA Times, in meetings this summer,
teachers serving on an advisory committee learned that the
funds in the district's 457 plan would assess an average
annual fee of 0.27% on account balances for revenue
sharing.
According to the report, AIG VALIC initially opposed
explicitly disclosing this fee separately to teachers,
preferring instead to leave it as an imbedded component of
the 0.72% investment management fee charged by each fund.
Similar to 401(k) plans in the private sector, 457
accounts allow public-sector workers to set aside a portion
of their salary and not pay taxes on it until they begin
withdrawing it in retirement. Starting this month, the Los
Angeles school district is for the first time making a 457
plan available to its teachers.
Disclosure Concerns
Steven Schullo, who served on the LAUSD advisory
committee, said that AIG VALIC had no intention of
disclosing the fee separately to teachers, according to the
Times.
However, Schullo and others objected, contending that
revenue-sharing fees are often inflated. Full disclosure,
they said, would allow teachers to choose funds in the 457
plan with lower revenue-sharing fees or opt out.
The Times said that, in response to the criticism from
Schullo and others, school district benefits manager David
Holmquist pressed AIG VALIC to fully disclose the
revenue-sharing fees.
"The committee wants full disclosure," Holmquist told AIG
VALIC Vice President Ron Gatti at a meeting in the
district's offices last week, according to the report.
However, Gatti resisted, saying that disclosing general
administrative fees of 0.15% and fund management fees,
which will average 0.72%, would be sufficient.
"I'm afraid the revenue sharing would just confuse people,"
Gatti said, according to the report.
Teacher Alan Warhaftig countered that the district might
find itself liable for failing to disclose the fees, citing
lawsuits recently filed against sponsors of several large
401(k) plans in the private sector over failure to disclose
similar revenue-sharing payments (see
Lawyer: Excessive Fee Suits Not an Organized Anti-Plan
Campaign
). The district's teachers union, United
Teachers Los Angeles, also threatened to withhold its
support for the 457 plan unless full disclosure was
made.
Objections Withdrawn
In response, Gatti said the company would create a
separate page in marketing presentations that would spell
out the portion of the fund management fee that was paid to
AIG VALIC through revenue sharing.
As the result of the compromise to boost disclosure, the
teachers withdrew their objections, although they remained
critical of the revenue-sharing provisions in the
funds.
The call for companies to become more forthright with
their fee structures is only expected to amplify. New York
Attorney General Elliot Spitzer reached a $30 million
settlement with ING over allegations that it took fees
in exchange for promoting certain funds in retirement plans
for New York state teachers (See
ING Agrees to Settlement in Spitzer Fee
Suits
).