Investment Firm to Pay $30 Million to Settle New York Suit

Teachers’ unions and sponsors of teachers’ union retirement plans have enjoyed a close relationship over the years – too close, in fact, for New York State Attorney General Eliot Spitzer. And the recent consent decree engineered by Spitzer will force that relationship into the open. It’s a mixed blessing. On October 9, Spitzer announced that his office and the Dutch-based investment company, ING Groep NV, had come to a $30 million settlement over allegations that ING’s payments to teachers’ unions to steer retirement funds its way overstepped the bounds of legality. ING paid as much as $3 million annually in fees to the New York State United Teachers, with more than a half-million members. The restitution plan covers as many as 66,000 teachers in New York State (outside New York City) and another 5,000 state workers in New Hampshire. While neither admitting nor denying guilt, ING will pay at least $100 to every teacher and an average of $450 per employee.  


The lead article in the May 22, 2006 issue of Union Corruption Update, summarizing an investigative piece in the Los Angeles Times, detailed how union bosses endorse certain 403(b) teacher retirement plans in return for generous promotional fees from fund managers. The National Education Association alone collected $49.6 million in royalties in 2004 on the sale of annuities, life insurance and other financial products it endorsed. Investment decisions based on this cozy arrangement too often deliver below-par returns, dragged down by excessive annual management fees; the most costly NEA-endorsed plan charged a whopping 4.85 percent. ING defends the practice as part of the financial education process, but appears to pretend no other investment alternatives exist.    

The leadership of the New York State United Teachers, based in Latham, N.Y. (north of Albany), welcomes the agreement. “We’re fully supportive of it,” said NYSUT President Dick Iannuzzi. “Basically, the concept is we’ve moved into a period now where complete transparency is the standard.” The union, affiliated with NEA, the American Federation of Teachers and the AFL-CIO, has hired David Pratt, a benefits expert from Albany Law School, to serve as a consultant to teachers’ union investment portfolios. The problem with the agreement, it would seem, is not its promotion of transparency, but its use of force. Trophy-hungry Attorney General Eliot Spitzer might have restrained his legendary populist zeal by simply letting ING off with a warning. No such luck. Spitzer, a Democrat, is almost certain on November 7 to be elected New York’s next governor – he’s way ahead in the polls over Republican opponent John Faso. In that light, the settlement seems more geared toward good press, and the votes that go along with it, than high returns. Young school teachers one day seeking to retire comfortably are less in need of lawsuits than sound financial education. They’ve got plenty of places to look for advice beyond their unions. (Albany Times Union, 10/11/06).