Fee Probe Leads Alabama to Change 457 Providers

December 7, 2009 (PLANSPONSOR.com) – Alabama is switching to a new 457 deferred compensation plan provider amid concerns about the previous provider and its relationship with the Alabama State Employees Association (ASEA).

The Montgomery Advertiser reports that as of December 14, the state personnel board will switch the plan from Nationwide Financial Services Corp. to Great-West Retirement Services. Nationwide has been the provider for the $380-million plan for 30 years.

Last year, the Alabama Securities Commission reported that its probe into “endorsement fee” payments by Nationwide to the ASEA and Public Employees Benefits Corporation (PEBCO), the union’s for-profit subsidiary, found the payments began in 2001 and reduced the amount of interest paid on the fixed option of the plan by 20 basis points (see Ala. Attorney General Takes Over 457 Plan Fee Probe).

“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,” the report said.

The fees totaled more than $11 million, according to the Montgomery Advertiser. State Personnel Director Jackie Graham said the switch will be advantageous to employees, providing increased transparency, more stability, and a better fixed rate of return option.

Several state employees have sued Nationwide and ASEA, claiming the plan hurt state workers and money should be returned to the plan’s participants. However, ASEA, which requested but never received information on fees, analysis and comparisons of the proposed plans to Nationwide, is contending in court that the personnel board interfered with its relationship with Nationwide.