Why Eliot Spitzer is Investigating the Relationships between Unions and the Retirement Plans they Endorse.
What method would you use if you owned an investment company that offered a retirement plan and wanted to get some new money invested in your plan? Maybe you’d send a letter to the human resources director of some businesses in your city and ask for a meeting. If you get the meeting, you can explain why your retirement plan is beneficial for the participants and explain why they should go with you over a different company. Maybe your fees are lower, or you have a customer service department. This is not the method major investment companies take.
ING, an insurance and investment company that manages hundreds of billions of dollars has taken a different approach. They decided to contact New York State United Teachers (NYSUT), an extremely powerful teacher’s union in New York that oversees benefits for over 500,000 teachers and ask for their endorsement. There is no beating around the bush here- they wanted the opportunity to have over 500,000 employees of school districts invest with them. Well, they got the endorsement. What was their method? Rather than explaining why their plan was in the best interests of the union members, they decided to offer a little “incentive.” ING makes an annual payment of $3 million, yes $3 million dollars, to “support” the union. Wow! That’s very nice of ING to generously support New York State United Teachers. I wonder if the staff of ING does it because of their recognition that teachers are the backbone of a strong, academic nation. ING should really be rewarded for their generosity and support. So, why is Eliot Spitzer investigating the relationship between ING and the teachers union? Spitzer, smart man that he is, has been alerted to the fact that ING is not in the best interests of the union members. In fact, as an insurance company that offers investments, ING is among the more expensive providers of retirement plans around. Combine that with the fact that teachers are not historically the most knowledgeable investors- understandable considering they work in schools, not on Wall Street- and you have a situation where hundreds of thousands of people are not properly preparing for their retirements.
The noise really started when Eliot Spitzer decided not to attend an endorsement dinner in Rochester which NYSUT was having in honor of his run for governor in 2006. The only reason a potential governor would not accept such an important endorsement is if he truly recognized that a conflict of interest was at hand. Spitzer can’t accept an endorsement from a union that’s accepting bribes- that makes him look bad. He sent David Paterson, the Senate Minority Leader instead.
In all fairness, I should explain that ING has a defense. They published a response to the various criticisms published about them on their website. The reason why they have the nerve to respond (rather than apologize) is their frustration that all this “generosity” has started to blow up in their face. The $3 million payments were not made to executives at NYSUT- that would make both of them potential criminals. The payments were made to NYSUT’s Member Benefits Trust, which is actually a not-for-profit organization. This makes the payments legal, and allows ING to create an argument that they are helping rather than bribing the organization. ING says that the stories published against them are “disparaging” and they are dedicated to helping teachers across the United States prepare for retirement. This is a load of bs when you are out in the field and see what happens in practice.
Well, I’m an independent financial advisor who works with a lot of teachers in New York State. One of those teachers is my mother, who had an account with ING’s Opportunity Plus program until I transferred her account into something with lower fees and no withdrawal penalties. In the transfer process, my mom had to pay $800 in penalties to ING for doing the transfer. Was losing $800 in her best interest? I think not, and I stand tall against ING. Her performance is up over 20% since she left them and started working with a reasonable team of low-cost advisors.
Before any of this discussion about the $3 million dollar annual payments, I was trying to get into various schools on Long Island with my firms preferred 403b product which is very low cost to the employees. All the schools told me they don’t endorse fund companies or financial planning firms because in a 403b plan (unlike a 401k plan), the employer doesn’t make any contributions on behalf of the employee. I still observed that ING was all over New York State. The schools aren’t endorsing them, but NYSUT is making the overall recommendation that the schools use them and allow their representatives to linger around the teacher’s lounge and quietly rip off teachers who don’t know any better by purchasing food for them and acting friendly. I can only imagine the commissions of the ING representatives who cover the Long Island and New York City districts I’ve come across. They have thousands of accounts.
Bottom Line- The 403b system in New York needs serious reform. In California the states have already put many rules into place to protect the teachers from situations like this. The schools should have a fiduciary responsibility to ensure that employees understand the choices available to them when investing in a 403b plan. It’s their money which they worked hard for, why should they share it with investment representatives who are doing nothing to earn it?
