According to the lawsuit filed on behalf of participants in the New York State United Teachers Member Benefits Trust, the teachers’ trust exclusively backed a high-fee annuity investment offered by ING, the New York Times reported.
In exchange for the endorsement, the lawsuit alleged, ING picked up the salaries of some employees whose jobs were to promote the company’s products to plan members – an arrangement that hit participants with high fees. “The excessive costs of the plan compared to lower cost equivalents resulted in tens of millions of dollars of lost retirement savings” the lawsuit alleged.
The New York State United Teachers is a federation of local unions representing 575,000 people who work in or are retired from schools, colleges and health care facilities across the Empire State.
According to the Times, the suit grows out of legal action in 2006 by then state Attorney General Eliot Spitzer (See The Bottom Line: Share Alike ).
After a year-long investigation, Spitzer found that ING and the trust had an endorsement arrangement that was not disclosed to trust members and settled with the trust last June and with ING last October. Without admitting or denying the accusations, ING agreed to pay $30 million. About 55,000 beneficiaries of the trust were to receive approximately $450 each under the settlement.
The Times reported that in 2001, according to the lawsuit, the trust and ING agreed to an annual payment schedule beginning at $1.85 million and increasing to $2.4 million in 2006. Plan participants were not told about the arrangement.
Since the trust’s inception in 1989, participants have been charged expenses as well as an insurance charge on their investments. Currently, the suit said, the insurance fee consists of 1% of a participant’s fund balance, and the average variable fund cost is an additional 0.68%. The fees grow larger when surrender charges for early withdrawals apply. The trust has investments exceeding $2.3 billion.