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NYSUT Settlement
NYSUT’S MEMBERS BENEFITS UNIT SETTLES PROBE
Settlement is Part of Ongoing Investigation of Retirement Products
Exerpts...
Attorney General Eliot Spitzer today announced an agreement to resolve an investigation of the marketing of retirement products to members of the state’s largest teachers’ union.
Under the agreement, an arm of the New York State United Teachers (NYSUT) will adopt a series of reforms and pay $100,000 to the state to cover costs of the investigation.
The agreement follows a lengthy probe revealing that NYSUT’s Member Benefits unit accepted payments from an insurance company to promote the company’s retirement products to NYSUT members. The unit did not disclose this arrangement and, instead, took steps to conceal it.
"A simple rule that my office has enforced time and time again is that fiduciaries must place the interests of their clients first," Spitzer said. "Accordingly, an office set up to counsel union members on retirement alternatives should always provide objective advice and full disclosure of relevant facts. That did not happen in this instance. But as result of this agreement, reforms have been adopted to ensure that this standard will be met in the future."
Dan Otter
Spitzer Settlement With Nysut
#2
Posted 14 June 2006 - 07:32 AM
Dan,
Its in today's LA Times: Click here.
The unions are changing!
Kathy wrote about a recent UTLA activity:
"UTLA Treasurer David Goldberg, who oversees the union's financial endorsements, was not immediately available for comment Tuesday. But Steve Schullo, a Los Angeles teacher who has long been critical of union-endorsed investments, said UTLA recently played a key role in getting Los Angeles Unified School District officials to make low fees a required component for a new supplemental retirement savings plan that may be offered to teachers next year."
Correction: the new 457 will be rolled out next month and the oversight committee will be formed in the next few weeks. I am very proud to be a member of this committee.
But I am more proud of Goldberg and UTLA leadership for the simple fact that he was at the meeting with LAUSD officials about the new 457 plan that was proposed and approved by the Board of education. David Goldberg, the UTLA treasurer was there and was instrumental in getting a deal that looks out for the best interests of its members and all employees of the district. (VALIC is restricted to the 457 and cannot sell 403bs.) But its more than that, Mr. Goldberg listened and learned, something that the NEA has not.
Steve
Its in today's LA Times: Click here.
The unions are changing!
Kathy wrote about a recent UTLA activity:
"UTLA Treasurer David Goldberg, who oversees the union's financial endorsements, was not immediately available for comment Tuesday. But Steve Schullo, a Los Angeles teacher who has long been critical of union-endorsed investments, said UTLA recently played a key role in getting Los Angeles Unified School District officials to make low fees a required component for a new supplemental retirement savings plan that may be offered to teachers next year."
Correction: the new 457 will be rolled out next month and the oversight committee will be formed in the next few weeks. I am very proud to be a member of this committee.
But I am more proud of Goldberg and UTLA leadership for the simple fact that he was at the meeting with LAUSD officials about the new 457 plan that was proposed and approved by the Board of education. David Goldberg, the UTLA treasurer was there and was instrumental in getting a deal that looks out for the best interests of its members and all employees of the district. (VALIC is restricted to the 457 and cannot sell 403bs.) But its more than that, Mr. Goldberg listened and learned, something that the NEA has not.
Steve
#3 Guest_Sierra_*
Posted 14 June 2006 - 05:39 PM
Congrats to you Steve on the left side of this great nation and on the right side Eliot Spitzer, the Attorney General of the State of New York, has determined that the New York State United Teachers Benefits Trust has violated the law as follows:
"The foregoing acts and practices of the NYSUT Benefits Trust violated the Martin Act, Article 23-A of the General Business Law, which makes it illegal to employ any deception or concealment in the purchase, sale or promotion of securities. The foregoing acts and practices of the NYSUT Benefits Trust violated section 63(12) of the Executive Law, because they demonstrate a persistent fraud or illegality in the conduct of a business."
Peace and Hope,
Joel
"The foregoing acts and practices of the NYSUT Benefits Trust violated the Martin Act, Article 23-A of the General Business Law, which makes it illegal to employ any deception or concealment in the purchase, sale or promotion of securities. The foregoing acts and practices of the NYSUT Benefits Trust violated section 63(12) of the Executive Law, because they demonstrate a persistent fraud or illegality in the conduct of a business."
Peace and Hope,
Joel
#5
Posted 14 June 2006 - 10:41 PM
Dan,
Not to discredit the good things Joel has been doing and saying, Kristoff quoted Richard C. Iannuzzi in this recent article, the NYSUT union's president: "Richard C. Iannuzzi, president of New York State United Teachers, credited The Times story for helping make union leaders aware of the need to better disclose endorsement deals. "Your exposure, and others who started to raise questions about the insurance and financial industries, led me to ask questions about how we handled the issue of disclosure here," he said. "Your article in particular played an important role in our understanding of the issue."
A. J. Duffy, United Teachers, Los Angeles (UTLA) president, admitted in an official statement about the same Times article, that UTLA cooperated with the Times investigative report. Obviously, his cooperation means that he did not like these arrangements either.
I still have fully appreciated the impact of a few teachers who talked with Kathy Kristoff about our suggestion to her to go after the unions two years ago and for the lone NY hero, Joel, for his persistence and courage over the years.
Its time to celebrate! We should have a reunion like the Vanguard Diehards have every year. We have a lot to celebrate.
Steve
Not to discredit the good things Joel has been doing and saying, Kristoff quoted Richard C. Iannuzzi in this recent article, the NYSUT union's president: "Richard C. Iannuzzi, president of New York State United Teachers, credited The Times story for helping make union leaders aware of the need to better disclose endorsement deals. "Your exposure, and others who started to raise questions about the insurance and financial industries, led me to ask questions about how we handled the issue of disclosure here," he said. "Your article in particular played an important role in our understanding of the issue."
A. J. Duffy, United Teachers, Los Angeles (UTLA) president, admitted in an official statement about the same Times article, that UTLA cooperated with the Times investigative report. Obviously, his cooperation means that he did not like these arrangements either.
I still have fully appreciated the impact of a few teachers who talked with Kathy Kristoff about our suggestion to her to go after the unions two years ago and for the lone NY hero, Joel, for his persistence and courage over the years.
Its time to celebrate! We should have a reunion like the Vanguard Diehards have every year. We have a lot to celebrate.
Steve
#6 Guest_Sierra_*
Posted 15 June 2006 - 12:03 AM
QUOTE(Admin @ Jun 14 2006, 10:11 PM) 
Joel,
I wonder if in any way your 2003 story raising questions about the NYSUT/ING arrangement had anything to do with getting the ball rolling on this investigation.
Dan Otter
=================================================================
Dan,
The important thing is not to loose sight of the fact that currently 53,000 active and retired participants are still paying the high fees associated with the ING/NYSUT/Opportunity Plus variable annuity. In the aggregate this amounts to $2.35 billion under management of ING. If anything Eliot Spitzer has fully disclosed the fees paid by the participant. NYSUT and ING referred to their alliance as a "silent partnership"
Now the ball is in the participants/teachers court...do they want to "endorse" this "silent partnership" by remaining with ING or do they want to show their disgust by effectuating a Revenue Ruling 90-24 tax free capital transfer of their balances to a no-load mutual fund family of their own choosing.
In the aggregate the Union's Benefit Trust collected more than $18 million dollars in fees from ING since the "silent partnership" began in 1989. The Union's objective of having a single 403b plan for all of the State's teachers outside of NYC was doomed to fail because of the Union's greed. Now the New York State School Boards Association (NYSSBA) should take stock of the situation and recommend to its member school boards that they not allow Opportunity Plus to be sold to their employees. Remember it is the local school district that is a signatory to the salary reduction agreement not the Union. Solely for its high cost the NYC school district has never allowed Opportunity Plus to be sold to its employees. To that now add Mr. Spitzer's finding of "fraud and concealment". This should be enough of a reason to ban ING from each and every school district in the State.
More importantly the NYSSBA should adopt a policy of having a single 403b plan for all school district employees outside of the City. Just like their is a single Defined Benefit Teachers Retirement System their needs to be a single 403b plan. It is a no-brainer to ban securities salespeople from the teacher lounges. The bedrock principle of a single plan is that it be of the no-load variety akin to the Deferred Compensation 403b/457b/401k Plans of the City of New York. The NYSUT had the opportunity in 1989 to become a 403b hero to its membership...but chose instead to place its own financial interests ahead of those of its members. Now the employees have no-one else to turn to but their employers. I implore the NYSSBA to step up to the plate and establish "The 403(b) Trust of the NYSSBA"
Peace and Hope,
Joel
#7 Guest_Sierra_*
Posted 15 June 2006 - 12:21 AM
QUOTE(sschullo @ Jun 14 2006, 11:41 PM)
Dan,
Not to discredit the good things Joel has been doing and saying, Kristoff quoted Richard C. Iannuzzi in this recent article, the NYSUT union's president: "Richard C. Iannuzzi, president of New York State United Teachers, credited The Times story for helping make union leaders aware of the need to better disclose endorsement deals. "Your exposure, and others who started to raise questions about the insurance and financial industries, led me to ask questions about how we handled the issue of disclosure here," he said. "Your article in particular played an important role in our understanding of the issue."
A. J. Duffy, United Teachers, Los Angeles (UTLA) president, admitted in an official statement about the same Times article, that UTLA cooperated with the Times investigative report. Obviously, his cooperation means that he did not like these arrangements either.
I still have fully appreciated the impact of a few teachers who talked with Kathy Kristoff about our suggestion to her to go after the unions two years ago and for the lone NY hero, Joel, for his persistence and courage over the years.
Its time to celebrate! We should have a reunion like the Vanguard Diehards have every year. We have a lot to celebrate.
Steve
Steve,
Please don't be taken in by Mr. Iannuzzi's spin. The entire scam was predicated on concealment of the fees. Concealment was the necessary component for the scam lasting 17 years. As the NYSUT CEO he was intricately involved in the negotiations and renegotiations of the endorsement deal. He only became an advocate of full disclosure of the fees a couple of years ago during the fee scandal of the mutual funds industry.
Peace and Hope,
Joel
#8 Guest_Sierra_*
Posted 15 June 2006 - 12:44 AM
NYSUT Benefits Trust was renamed “NYSUT Member Benefits” after this Investigation was 1
commenced.
1
ATTORNEY GENERAL OF THE STATE OF NEW YORK
BUREAU OF INVESTMENT PROTECTION
-------------------------------------------------------------------------------X
In the Matter of
NEW YORK STATE UNITED TEACHERS
MEMBER BENEFITS,
Respondent.
-------------------------------------------------------------------------------X
ASSURANCE OF DISCONTINUANCE
PURSUANT TO EXECUTIVE LAW § 63(15)
WHEREAS, in April 2005, as part of a larger investigation into retirement products,
Eliot Spitzer, Attorney General of the State of New York (the “OAG”), commenced an
investigation (“Investigation”) pursuant to Executive Law § 63(12) and Article 23-A of the
General Business Law (the “Martin Act”), into a retirement benefits plan endorsed by the New
York State United Teachers Benefits Trust (the “Trust”); 1
WHEREAS, New York State United Teachers ("NYSUT" or "Union") is a federation of
more than 900 local unions representing more than 525,000 people who work in, or are retired
from, New York State's primary schools, colleges and healthcare facilities;
WHEREAS, the Trust is a not-for-profit trust established in 1983 to endorse and monitor
the quality of insurance plans, investment products and benefit programs provided to NYSUT
members;
WHEREAS, the Trust exclusively endorsed and marketed the tax-deferred annuity
Aetna remained NYSUT’s endorsed 403(b) plan provider until late 2000, when it sold its 2
retirement product line of business to ING Groep NV. The Trust endorsed 403(b) provider was eventually renamed
ING Life Insurance and Annuity Company (“ING”), but was called “ING/Aetna” during a transition period after the
sale.
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retirement products of one insurance company, Aetna Life Insurance and Annuity Company
("Aetna"), to eligible Union members; 2
WHEREAS, in the course of the Investigation extensive documentary evidence was
reviewed by the OAG;
WHEREAS, the Trust has cooperated in the Investigation by producing documentary
evidence and identifying evidence relevant to the Investigation;
WHEREAS, as set forth in the findings of fact (“Findings”) below, the Investigation
revealed that certain practices engaged in by the Trust violated the Martin Act and Executive
Law § 63(12);
WHEREAS, the Trust has advised the OAG of its desire to resolve the Investigation;
WHEREAS, the Trust, without admitting or denying the OAG's Findings made below,
has agreed to implement certain reforms and to reimburse certain costs (see Agreement below);
and
NOW THEREFORE, the OAG, based upon the Investigation, makes the following
Findings:
FINDINGS
1. NYSUT is a large federation of local unions, spread throughout New York, that
represents more than 525,000 people employed in or retired from New York’s schools, colleges
and healthcare facilities. NYSUT, in turn, is a part of the American Federation of Teachers, the
Citations refer to documents in the accompanying exhibit binder. 3
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AFL-CIO and Education International -- larger union federations with national and international
representation. Certain unions that are affiliated with NYSUT, including the United Federation
of Teachers, the United University Professions and the Professional Staff Congress, have opted
out of the ING plans that are the subject of the Investigation.
2. In 1983, NYSUT established the Trust to provide benefits to members of NYSUT
and affiliated unions. The Trust offered some benefits directly. These included a broad array of
life, medical and property insurance and car rental, travel and shopping discounts. In addition to
these benefits offered directly by the Trust, the Trust also negotiated with various vendors for
other voluntary benefit programs, including retirement products such as 403(b) plans. A
successful vendor would receive a Trust endorsement for its product. One Union official stated
that by engaging in the endorsement process, NYSUT members would gain “an advocate for
their concerns or problems.” Exhibit 1. While the Trust has the power to endorse products, it 3
cannot dictate what the various New York school districts offer their teachers and other
employees. Each school district makes its own decision as to which retirement products it will
sponsor. Nevertheless, the NYSUT name and collective buying power gives a significant
advantage to vendors approaching school districts and individuals, allowing those vendors to
capitalize on the sense of security and trust embodied in the Trust's endorsement of the products
being sold. NYSUT members often invested in endorsed products because they believed that the
Union was vouching for the quality of those products. The Trust -- which urged members in
flyers to "take advantage of your union-endorsed benefits" (Exhibit 2) -- has a fiduciary duty to
act in the best interest of members as it considers and endorses products.
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A. 403(b) Retirement Plans and NYSUT’s Endorsed Product
3. A 403(b) retirement plan, named for section 403(b) of the Internal Revenue Code,
is a tax deferred retirement savings plan established for the benefit of employees of educational
institutions and certain other not-for-profit organizations. It allows teachers and other qualifying
employees to invest for retirement, on a tax-deferred basis, in various mutual fund and fixed
income investment options offered by an insurance company. Until 1974, 403(b) plans were
solely a form of annuity contract -- investment vehicles with insurance features for which fees are
charged. In 1974, section (7) was added to the Code, eliminating the need for an insurance
"wrapper" for 403(b) plans and permitting investments to be made in mutual funds without any
insurance charges. Both types of 403(b) plans -- the 403(b) annuity and the 403(b)(7) low-cost
alternative -- allow teachers and other not-for-profit employees an opportunity to save for
retirement much as private sector employees can through 401(k) tax-deferred retirement plans.
4. In 1988, with the assistance of an outside consultant, the Trust issued a formal
Request for Proposal ("RFP") to identify a retirement plan for endorsement. At the conclusion of
the RFP process, the Trust selected Aetna and endorsed a new 403(b) annuity product called
Opportunity Plus which allowed for investments in both mutual funds and a fixed income
account. The Trust did not consider offering members a low-cost 403(b)(7) plan. In return for
the Trust’s endorsement of Opportunity Plus, Aetna agreed to pay an expense reimbursement that
initially approximated $40,000 a year.
5. The Opportunity Plus product was first endorsed by the Trust and offered for sale
in June 1989. In the first year alone, 7,500 participants invested $100,000,000. By 1994,
participation in Opportunity Plus increased to 26,000 people with a total investment of
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$735,000,000; by 1999, 40,400 people had invested over $2,000,000,000 in the plan. At the end
of 2003, there were approximately 50,000 current and retired school district employees invested
in Opportunity Plus, though the total value of their investments had diminished slightly from the
plan’s 1999 peak due to the 2000 stock market decline. Today, more than 53,000 current and
retired school district employees participate in Opportunity Plus, which holds approximately
$2,350,000,000.
6. Since its inception in 1989, investors in Opportunity Plus have been charged every
year both for the expenses of the mutual funds they select plus an insurance charge, a so-called
Mortality and Expense fee (“M&E”), on their mutual fund investments. A fixed-income option
offered by the plan carries no M&E fees. In 1989, the annual M&E was 1.25% of each
retirement account’s mutual fund balance, and the average mutual fund cost was .54% (although
costs varied by fund), giving average combined annual charges of 1.79%. The combined charges
for mutual fund investments have changed little as the plan has grown in the years since then:
they grew to 2.04% in 1994 (an amount that could be as high as 2.85% for a teacher investing in
the most expensive mutual fund) and declined slightly thereafter, reaching 1.86% in 2004. The
M&E component of the combined costs was reduced to 1.10% in 2000, 1.05% in 2001 and
finally to 1.00% in 2002.
7. The only insurance benefits plan participants have ever received in exchange for
the Opportunity Plus annual M&E fee is the right to annuitize their investment upon retirement,
meaning that instead of taking their savings as a lump sum, they can opt for a guaranteed stream
of payments. Opportunity Plus offers no death benefit -- in the event of death, a participant’s
heirs simply receive the money in the participant’s account.
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8. As more NYSUT members invested in the endorsed product, Aetna, and later
ING, paid ever increasing amounts to the Trust to keep the endorsement. In 1994, the
endorsement agreement increased the annual payments to the Trust from $40,000 to $400,000 a
year. The figure increased further to $592,000 a year in 1998. In 2001, after Aetna sold its
retirement business line to ING, the Trust negotiated a payment scale starting at $1,852,000 in
2001 and gradually increasing to $2,402,000 in 2006. Also in 2001, the Trust negotiated for
additional payments based on the amount of NYSUT member assets invested in ING products,
later changed to a flat “per head” endorsement fee based on the overall number of NYSUT
members. In 2004, the Trust projected that these additional amounts would increase the total
endorsement payment to the Trust to over $3,000,000 in 2005 and 2006, rising to $4,200,000 in
2009. Exhibit 3.
9. The Trust used a portion, but not all, of these funds to pay for additional account
“enhancements” that were offered to Opportunity Plus investors but not to other NYSUT
members. In 1992, for example, the Trust began to allow investors to automate their monthly
withdrawals. In 1994, the Trust started offering Opportunity Plus investors insurance that would
cover $500 of a member’s Opportunity Plus contributions in the event of disability, as well as
sliding scale life insurance with an option to purchase further protection. In 1996, Trust also
began to offer free financial counseling for the families of deceased Opportunity Plus investors.
10. Another “enhancement” involved the Trust hiring financial advisors for its
members. In 2001, the Trust began to receive payments of $600,000 per year from ING to pay
the salaries of six “Coordinators of Financial Services” (“Coordinators”) who traveled around
New York State and gave presentations on retirement issues to school districts and Union
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members. In September 2004, Opportunity Plus offered a number of new "enhancements"
including: a free $10,000 term life insurance policy; a financial counseling service for terminally
ill participants and families of deceased participants; a legal service plan that included a free
simple will every three years and two free one-hour office sessions with an attorney per year;
three hours of access a year to a financial planning hotline; and an in-person financial planning
session (for a fee).
11. These features proved of little use to the vast majority of Opportunity Plus
investors. During the year spanning from September 1, 2004 through August 31, 2005, only 297
investors (out of more than 50,000) called the financial hotline. A mere eleven members (or their
spouses) received the counseling for ill or deceased investors. Just 32 members received the
$10,000 life insurance payout. And the legal services plan produced only 587 simple wills, 213
healthcare proxies and 155 letters. The total direct cost to the Trust of all these benefits (not
including Trust overhead) was $1,067,000, less than one-half of what the Trust received from
ING during the same period. On the other hand, NYSUT members paid ING over $12,000,000
in M&E fees and approximately the same amount in mutual fund costs during these twelve
months. Thus in the course of one year, teachers paid about $24 million, ING paid the Trust
about $2.66 million, and the Trust gave teachers “enhancements” costing about $1 million. The
difference between the monies the Trust received from ING and the cost of the "enhancements"
went into the Trust's overhead, certain other costs associated with the Opportunity Plus plan, and
a pool of excess cash, controlled by the Trust, that grew to $5.5 million in August 2005.
B. The Trust’s “Silent Partnership” with Aetna/ING
12. By 1998, the Trust referred to its relationship with Aetna as a “[p]artnership – our
8
view is that we are not equal partners, but silent partners.” Exhibit 4. As part of this “silent
partnership,” the Trust took covert steps to expand Aetna’s business. For instance, in 1998, the
Trust began to endorse a new Aetna Financial Counseling Program ("FCP") to be conducted by
Ernst & Young ("E&Y"). In promotional material issued by the Trust, this program is described
as providing an “independent review” and offering unbiased advice. Exhibit 5. In fact, however,
it was a program to sell ING/Aetna products: an undated email from an ING Managing Director
to the Manager of the Trust stated that the “initial purpose of the FCP program [sic] was to
generate 403(b) leads for the Opp. Plus Producer.” Exhibit 6. The relevant agreement between
Aetna and the Trust reflects this purpose:
... Aetna's Representatives will be the only persons Members will be referred to
for individualized financial planning services pursuant to the Program. All
requests from Members who participate in the Program for individualized
financial planning services will be referred to Aetna or its Representatives. The
Trust will instruct E&Y to refer Members who need or desire financial planning
services to Aetna or its Representatives.
Exhibit 7. ING representatives capitalized on the FCP to sell Union members a variety of other
products beyond Opportunity Plus, including variable annuities, mutual funds, long-term care
insurance, stocks, term life insurance, Roth IRAs and medical insurance. Exhibit 8.
13. Another Trust program, Financial Building Blocks, was also advertised as a
source of neutral investment information for members: “There’s no sales pitch - they do not
promote specific products or services.” [Emphasis in original] Exhibit 9. However, an internal
ING email from January 2004 praised an ING employee who participated in the Financial
Building Blocks program for using the opportunity “as a ‘foot in the door’ to promote” ING
products. Exhibit 10. The Trust itself attempted to obscure the role that ING/Aetna played in
9
delivering these seminars: an email to all Trust employees dated February 5, 2001 instructs them
to route calls about the program to ING/Aetna employees who would not identify themselves as
such over the phone.
Please make a note of the following: When we get calls for Financial Building
Blocks, please transfer them directly to [two Aetna employees].
The reason is that everyone else over in Aetna answers the phone ‘ING-Aetna,’
and we say FBB is NYSUT's program with no sales agenda. We don't want the
local leaders to get the wrong idea right off the bat. [The two Aetna employees]
answer the phones with their names, not Aetna.
Exhibit 11. [Boldface type in original]
14. As discussed above, there have always been lower cost 403(b)(7) alternatives to
the Opportunity Plus plan. In 1998, the Trust – which had a financial stake in the total amount
invested by NYSUT members – asked Aetna to take steps to retain teachers with large account
balances who wanted to shift to cheaper plans. Aetna thereafter offered such individuals “a free
consultation with an Aetna planner” as an inducement to stay. Exhibit 4. When members
continued to switch, the Trust asked Aetna in 2000 to create a cheaper alternative product to
“assist in retaining the 5%-6% of assets that [were] being lost to lower cost competitors each
year.” Exhibit 12. The result, a 403(b)(7) plan called “Opportunity Independence,” offered
direct access to mutual funds without insurance charges. Opportunity Independence investors
therefore avoided M&E fees; on the other hand, they were charged a 0.40% “Administration
Fee” in addition to the applicable fund expenses. The mutual funds available through
Opportunity Independence were, in some instances, more expensive than those offered in
Opportunity Plus. For example, Opportunity Independence – supposedly a low cost alternative --
offered an S&P 500 index fund with an expense ratio of 0.93%, even though an S&P 500 index
10
fund costing 0.10% was offered in the Opportunity Plus plan.
15. As noted above, the Trust received approximately $600,000 a year from ING to
pay its Coordinators’ salaries. According to the Trust’s endorsement agreement with ING, the
Coordinators were responsible for “acting as liaison between [ING] and the Trust, and overseeing
on behalf of the Trust all aspects of the [ING] programs and services sponsored by the Trust.”
Exhibit 13. The Coordinators held themselves out to teachers as working solely on behalf of the
Trust in the best interests of NYSUT members. As one Coordinator wrote to a teacher in 2003:
A final note, which I hope I made clear at the meeting, but which I would like to
reiterate here: I work for [the Trust], not ING. My pay is not tied in any way to
ING. Whether or not NYSUT members choose to use ING, or remain with ING,
has no bearing whatsoever on my compensation. My sole interest is to maximize
this benefit for NYSUT members, who are the only people I ultimately need to
answer to.
Exhibit 14. In fact, however, the Coordinators’ salaries were paid entirely by ING (though the
Trust paid for their benefits).
16. Contrary to what they told Union members, the Coordinators acted as sales agents
for ING. For example, if a local school district or union limited ING’s ability to sell to teachers
(by, for example, banning ING sales representatives from entering school grounds to solicit in
teachers’ break rooms), the Coordinators used “soft pressure tactics . . . to apply to the Union
leaders to stress the importance of being supportive of NYSUT and it’s [sic] endorsed products.”
Exhibit 15. The Trust even issued written guidelines for the Coordinators to follow to help ING
gain access to uncooperative school districts, including sending “a formal letter of protest from
the [Union] local to the [school] district . . .” in situations where “there appears to be
discrimination against ING . . . .” Exhibit 16. The Coordinators also accompanied ING sales
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agents to conferences where ING was marketing its products to teachers and Union leaders.
17. The Trust’s role in steering business to ING is illustrated by its 2001 initiative to
encourage school districts to contribute to teachers’ retirement plans. Emails written by
Coordinators show that, as it sought this benefit for its membership, the Trust also worked to
ensure that as much of the employer contribution money as possible was funneled to
Opportunity Plus. For example, on February 4, 2002, one Coordinator wrote to ING:
My goal in the initial meeting is to educate the leadership on the benefits for both
the Employees and Employer. I do explain the process of establishing an
Employer 403b account and the advantages of using the ING/Aetna Opportunity
Plus 403b.
I’m concerned that the local leadership and/or District will feel ‘Sales’ pressure if
I’m there w/a Representative of ING at the initial meeting.
Once I guage [sic] their interest, I would certainly welcome both you and/or the
Representative on follow-up meetings . . . .
Exhibit 17. Upon reviewing the above message, Lynette Metz, the Director of the Trust,
commented “[t]his approach is the way to go,” and instructed that the message be forwarded to
all Coordinators. Exhibit 17.
18. Another Coordinator wrote on March, 2, 2004: “Generally, I prefer to do
executive board meetings by myself so I can sell them on using ING exclusively without the
pressure of an agent being there.” Exhibit 18.
19. ING viewed the Coordinators as valuable assets in their marketing efforts. An
ING Regional Manager on November 26, 2001 wrote:
Since the appointment of [two Coordinators] in my territory the future could not
look brighter. What these two folks have brought to our marketing efforts with
their knowledge and enthusiasm is truly gratifying. To accompany seasoned
agents with them to new teacher meetings and see the enthusiasm is very
12
noticeable. I think at this point they have worked with each of my producers at
least for a day each and the rapport and chemistry is there. Both of these folks
were great appointments for our short and long term marketing plans . . . .
Exhibit 19.
20. One ING employee wrote a review of a Coordinator on October 27, 2003, praising
his assistance in ING’s marketing efforts. She wrote:
A case in point . . . was a recent deal that was done in Chappaqua. The union
president wanted no mention of specific product or company, etc. [the
Coordinator] used a nice soft selling approach and somebody in the audience
finally was baited to ask why this [sic] NYSUT approved ING and as a result we
have an exclusive. A soft sell that worked very well. He has done this approach
in many other places . . . .
Exhibit 20.
C. The Trust and ING Failed to Adequately Disclose their Relationship
21. Until it learned of the OAG investigation into retirement and insurance products,
the Trust had never disclosed to NYSUT members that the Trust received payments from ING.
Exhibit 21. In January 2005, the Chairman of the Trust recognized the need for disclosure of the
endorsement arrangement:
In light of the current financial and insurance industry environment, issues
continue to arise regarding the fees associated with 403(b) programs. In order to
address these issues and better educate our members, the Trust is in the process of
creating an internal document, which fully explains the fees connected to the ING
Opportunity programs as well as the expense reimbursement paid to the Trust. A
final reader-friendly version of the document will be available at the NYSUT RA
in April and will be included going forward in the ING Opportunity Plus
enrollment kits.
Exhibit 22.
22. On February 23, 2005, Lynette Metz described the Trust’s contemplated first
disclosure relating to this topic:
13
Just thought you’d like to see a new piece that is going in the 403(B) [sic]
enrollment kit. . . . We went from a ‘try to hid [sic] it’ to a ‘full disclosure’
environment within the last year on the topic of expense reimbursement. The . . .
Security and Insurance sandals [sic] have moved us in this direction. Dick
[Iannuzzi] thought is to spell it out up fount [sic] that we get an expense reimb.
for the program - if members don’t like it then they can go elsewhere.
Exhibit 23. Previously, the Trust’s relationship with Aetna and ING had never been
“spelled out” so that members could make an informed choice to “go elsewhere.”
23. For its part, originally Aetna did not make any disclosure at all regarding its
financial arrangements with the Trust. Thus from June 1989 through November 1992, the Aetna
prospectus for Opportunity Plus (the formal disclosure available to all investors) stated only that
“Opportunity Plus is endorsed by [NYSUT] and [the Trust].” Exhibit 24. Subsequent Aetna and
ING prospectus disclosures referred to the payments made to the Trust, but never revealed that
they were used in large part to market the Opportunity plan to teachers. For instance, the 2001
Opportunity Plus prospectus states: “We contribute to the costs incurred by [the Trust] for
retaining up to six employees who assist in management of the Opportunity Plus program.”
Exhibit 25. This description of the Coordinators’ role fails to reflect their significant marketing
activities.
24. One Coordinator objected to an anticipated change in prospectus language which
would have shown the Trust's financial incentive to push members to invest with ING:
I am hesitate [sic] to have the prospectus outline a reimbursement per Opp+ client.
I know that myself and most likely the other financial coordinators and probably
others, often pitch IN as an exclusive carrier of employer monies. We also have a
role in assisting ING in school Districts that ING may be having difficulty with. I
am often asked or simply bring up myself, that neither NYSUT nor myself receive
extra money from ING should a local choose to use them as an exclusive carrier.
Same goes when were [sic] assisting with access. Should the prospectus outline a
dollar amount reimbursement based on the number of Opp+ clients, we can no
14
longer state that, and I feel that we lose some of our objectivity. I can certainly
see us using that as an “off the books” formula in determining the dollar amount,
but would prefer not to have it in the prospectus.
Exhibit 26. The change in prospectus language was never adopted.
25. In 2001, a senior NYSUT executive objected when ING wanted to enhance its
disclosure in Opportunity Plus marketing materials to comport with National Association of
Securities Dealers’ regulations. The proposed new language read: “All fees and expenses
associated with Opportunity Plus including those received by NYSUT Benefit Trust are
detailed in the current prospectus, which should be read carefully prior to investing or sending
money.” Exhibit 27 [emphasis supplied]. Thereafter, NYSUT's then-Executive Director of
Finance and Administration wrote to ING’s Chief Executive Officer to request that the language
in bold above be removed. He argued:
The issue, as I’m sure you can understand, is that [the Trust] does not want to
advertise the financial arrangement between ING and NYSUT Benefit Trust to
our competition. This is exactly what will happen, as they will use this
information against us to persuade potential participants against our program. In
addition, the ING type of disclosure on work site posters could create political
problems for our local presidents. We need the support of local presidents in
order to properly market this program. As you can well imagine, competition is
fierce in New York State school districts. It is our position that the expense
reimbursement arrangement should be disclosed to participants only in the
prospectus. This matter must be resolved in order resume more active marketing
and promotion of our program. Millions of dollars are being lost to our
competition each day that this matter is allowed to go unresolved.
Exhibit 27.
26. ING ultimately agreed to compromise language as follows:
Opportunity Plus is a tax deferred variable annuity issued by [Aetna/ING]. . . .
All fees and expenses associated with [Opportunity Plus], including those of the
Trust, are detailed in the current prospectuses, . . . which should be read carefully
prior to investing or sending money.
15
Exhibit 28. Metz, the Trust’s Director, enthusiastically noting its obfuscating quality, approved
this compromise language: “I think this lang. is even better. It makes you think that the
expenses they are talking about are the expense [sic] of the ING National Trust.” Exhibit 28.
D. The Trust Overstated its Role as Union Advocate
27. Brochures created by the Trust to describe its endorsed products assured
prospective investors that “we’ve done all the background work, so you don’t have to!”, (Exhibit
2) and “you needn’t spend a lot of time searching for quality insurance and investments. We
already did.” Exhibit 29. One brochure vouched that every “program endorsed by NYSUT
Benefit Trust is researched, designed and monitored to ensure it will enhance your lifestyle. . . .
When you participate in a NYSUT benefit program, NYSUT acts as your advocate to ensure that
you receive satisfaction.” Exhibit 30.
28. In fact, the Trust did little or no “background work.” It never conducted a formal
RFP for retirement products after 1988. The Trust conducted an “informal process” in 1998 that,
according to the Trust, demonstrated the superiority of Opportunity Plus to all other available
plans. Exhibit 31. The Trust retained no documents relating to this “informal process.” Nor did
the Trust perform any due diligence before selecting ING as the provider of Opportunity
Independence in 2000.
29. Even though the Trust employed people with a variety of NASD licenses and
CPA and Certified Financial Planner designations, it never conducted an effective review
unencumbered by loyalty to the current provider, Aetna/ING. NYSUT management did
demonstrate financial sophistication, however, when it came to selecting retirement products for
16
the Union’s own employees (including those who work for the Trust). They are offered 401(k)
plans which are not available to school districts but are similar to 403(b)(7) plans. The 401(k)
plans are administered by Fidelity Investments with combined annual expenses of approximately
.50% – less than a third of the expenses of the Opportunity Plus product that the Trust urges on
Union members.
E. The Effect of Opportunity Plus Fees on NYSUT Members
30. The endorsed Opportunity Plus plan was and remains far more expensive than low
cost retirement plans offered by other providers. The impact of the higher fees charged by the
Opportunity products as compared to a low-cost 403(b)(7) retirement plan is significant over the
long term. For example, an investor who, from 1994 through 2005 contributed $10,000 a year to
Opportunity Plus and invested his entire contribution in the S&P 500 Index Fund offered in the
plan, given the S&P Index’s 11.5% annual increase over the eleven year period, would have
saved $183,077.47 by the end of 2005. In contrast, a comparable investment in the S&P 500
Index Fund offered by one competing low-cost 403(b)(7) retirement plan would have saved
approximately $200,282.91 -- a difference of $17,205.44. Of course, the low-cost 403(b)(7) plan
is a no-frills retirement vehicle, lacking the “enhancements” offered to Opportunity Plus
investors. As is demonstrated above, however, these “enhancements” are worth little and are
utilized by relatively few Union members.
F. Violations
31. The foregoing acts and practices of the Trust violated the Martin Act, Article 23-
A of the General Business Law, which makes it illegal to employ any deception or concealment
in the purchase, sale or promotion of securities.
17
32. The foregoing acts and practices of the Trust violated § 63(12) of the Executive
Law, because they demonstrate a persistent fraud or illegality in the conduct of a business.
AGREEMENT
IT NOW APPEARING THAT the Trust desires to settle and resolve the
Investigation without admitting or denying the OAG’s Findings;
NOW, THEREFORE the OAG and the Trust hereby enter into this Assurance of
Discontinuance (“Assurance”), pursuant to Executive Law § 63(15), and agree as follows:
I. Remedial Measures
A. Independent Consultant
33. The Trust, at its sole cost and expense, will retain an independent
consultant (“Consultant”) acceptable to the OAG, to oversee the implementation of the remedial
measures agreed to herein. The Trust shall cooperate fully with the Consultant and shall provide
the Consultant with access to its files, books, records and personnel as requested for review. The
Consultant shall oversee or perform the following tasks:
(a) Determine whether it is in the best interests of NYSUT’s members to have
the Trust endorse any retirement products;
(b) If the Consultant decides that an endorsement by the Trust of a retirement
product is appropriate, he or she shall oversee the RFP Process described
below;
© Within 90 days of the execution of this Assurance, develop policies,
procedures and training programs for all Trust employees relating to
endorsement of products and conflicts of interest; and
18
(d) Prepare and submit to the OAG by June 1, 2007, a report (“Report”)
describing (1) the procedures to follow during the RFP; (2) the results of
the RFP; and (3) any appropriate recommendations to ensure compliance
with this Assurance. The Report shall be made available to NYSUT
members on request.
(e) The Trust shall adopt all recommendations made in the Report. As to any
recommendation upon which the Trust and the Consultant do not agree,
the Trust and the Consultant shall attempt in good faith to reach an
agreement within 90 days of issuance of the Consultant's Report. In the
event the Trust and the Consultant are unable to agree on an alternative
proposal, the Trust will abide by the recommendation of the Consultant.
34. Upon certification by the Consultant that the tasks specified in paragraph I.A.33
have been completed, and agreement by the OAG that such is true, the work of the Consultant
shall be deemed terminated. The Trust shall not have the authority to terminate the Consultant
prior to said certification and consent. The Trust also shall not be in and shall not have an
attorney-client relationship with the Consultant, and shall not invoke the attorney-client privilege,
or any other doctrine or privilege, to prevent the Consultant from transmitting any information,
reports or documents to the OAG.
B. RFP Process for Future Providers
35. If it is determined by the Consultant that members will be best served by the
Trust's endorsement of retirement plans, the Trust shall conduct an RFP process in order to
identify at least three suitable retirement plan providers to endorse for the consideration of
19
NYSUT members. The Trust shall make available to every RFP participant all pertinent data
and/or information available to any one RFP participant. The Trust shall not give preferential
treatment in the RFP process to any provider.
36. If, after the conclusion of the RFP process, the Consultant continues to believe
that endorsing retirement plans is in the best interests of Union members, the Trust shall endorse
at least one suitable low-cost plan.
37. If, at the conclusion of the RFP and consistent with the terms of this Assurance,
the Trust determines that an ING Life Insurance and Annuity Company product is a suitable and
appropriate product for NYSUT’s membership, the Trust may continue to endorse ING as one of
its endorsed plan providers.
C. Other Provisions Relating to Retirement Products
38. The Trust shall establish a mechanism whereby plan participants may roll over, at
no cost to them, their investments in the Opportunity products to the plan or plans of the new
plan providers.
39. Payments received by the Trust from endorsed 403(b) product providers shall be
limited to reimbursements for actual expenses incurred by the Trust in performing its oversight
functions and shall not be used to promote any plan.
40. The Trust shall establish a program to provide Union members with unbiased
professional investment advice at least once every year for so long as the Trust endorses any
retirement products. The investment advice shall not be offered by, affiliated with, or directly
paid for by any endorsed retirement plan provider.
41. All funds that the Trust has received from ING but not yet disbursed shall be spent
20
solely on improved investment products made available to all NYSUT members, and not for
NYSUT employee salaries, overhead, conventions, hotel charges or entertainment.
D. Notification to Union Members
42. Within 30 days of the execution of this Assurance, the Trust shall send to every
active or retired Union member a signed copy of the letter attached hereto as Exhibit A. The
Trust further agrees to provide a copy of said letter to new Union members for at least two years
from the date of this Assurance.
43. Within 30 days of the completion of the RFP, the Trust shall, in a form acceptable
to the OAG, send to every active or retired Union member a second letter that contains the
following information:
(a) An explanation of the RFP process and an explanation as to why
the successful providers were endorsed;
(b) A comparison of the fees and expenses of the endorsed plan
providers;
© An explanation of the services offered by each endorsed provider;
(d) A projection of the impact of the various fees and expenses on
long-term investment returns;
(e) An explanation on how plan participants may roll over their
investments in the Opportunity products, at no cost, to another
endorsed plan; and
(f) An explanation disclosing in simple and clear language the
arrangement between the endorsed provider and the Trust.
21
E. Costs
44. The Trust shall pay the sum of $100,000 to the OAG, representing the costs of the
Investigation.
F. General Relief
45. The Trust agrees that the OAG has jurisdiction over the matters discussed herein.
The Trust will cease and desist from engaging in any acts in violation of the Martin Act and/or
Executive Law § 63(12), and will comply with the Martin Act and Executive Law § 63(12).
II. Other Provisions
A. Scope of this Assurance of Discontinuance
46. Except as provided below, this Assurance concludes the Investigation and any
action the OAG could commence against NYSUT, the Trust and its current and former officers,
trustees and employees (but not ING), arising from or relating to the subject matter of the
Investigation; provided however, that nothing contained in this Assurance shall be construed to
cover claims of any type by any other state agency or any claims that may be brought by the OAG
to enforce the Trust’s obligations arising from or relating to the provisions contained in the
Assurance. The Assurance shall not prejudice, waive or affect any claims, rights or remedies of
the OAG with respect to any person, other than the Trust and its current and former officers,
trustees and employees, all of which claims, rights, and remedies are expressly reserved.
47. If the Trust commits a breach of any of the obligations described herein, the OAG
may in its sole discretion terminate the Assurance upon written notice to the Trust and the Trust
agrees that any statute of limitations or other time related defenses applicable to the subject of the
Investigation and any claims arising from or relating thereto are tolled from and after April 12,
22
2005. In the event of such termination, the Trust expressly agrees and acknowledges that the
Assurance shall in no way bar or otherwise preclude the OAG from commencing, conducting or
prosecuting any investigation, action or proceeding, however denominated, related to the
Investigation, against the Trust or from using in any way any statements, documents or other
materials produced or provided by the Trust after commencement of the Investigation, including,
without limitation, any statements, documents or other materials provided for purposes of
settlement negotiations.
48. Pursuant to the terms of Executive Law § 63(15), in the event this Assurance is
violated, evidence of such violation shall constitute prima facie proof of violation of the Martin
Act in any civil action or proceeding thereafter commenced by the OAG and the may seek an
order permanently enjoining the Trust from further violating said statute.
B. Cooperation
49. The Trust shall fully and promptly cooperate with the OAG with regard to the
Investigation, and related proceedings and actions, of any other person, corporation or entity,
including but not limited to current and former employees, concerning retirements plans. The
Trust shall use its best efforts to ensure that all its officers, directors, employees and agents also
fully and promptly cooperate with the OAG in the Investigation and related proceedings and
actions. Cooperation shall include without limitation: (1) production voluntarily and without
service of subpoena of any information and all documents or other tangible evidence reasonably
requested by the OAG, and any compilations or summaries of information or data that the OAG
reasonably requests be prepared; (2) without the necessity of a subpoena, having NYSUT’s and
the Trust’s officers, directors, employees and agents attend any proceedings at which the presence
23
of any such persons is requested by the OAG and having such persons answer any and all
inquiries that may be put by the OAG to any of them at any proceedings or otherwise
(“proceedings” include but are not limited to any meetings, interviews, depositions, hearings,
grand jury hearing, trial or other proceedings); (3) fully, fairly and truthfully disclosing all
information and producing all records and other evidence in their possession relevant to all
inquiries made by the OAG concerning any fraudulent or criminal conduct whatsoever about
which the Trust has any knowledge or information; (4) in the event any document is withheld or
redacted on grounds of privilege, work-product or other legal doctrine, a statement shall be
submitted in writing by the Trust indicating: a) the type of document; b) the date of the document;
c) the author and recipient of the document; d) the general subject matter of the document; e) the
reason for withholding the document; and f) the Bates number or range of the withheld document.
The OAG may challenge such claim in any forum of its choice and may, without limitation, rely
on all documents or communications theretofore produced or the contents of which have been
described by the Trust, its officers, directors, employees, or agents; and (5) the Trust shall not
jeopardize the safety of any investigator or the confidentiality of any aspect of the Investigation,
including sharing or disclosing evidence, documents, or other information with others during the
course of the investigation, without the consent of the OAG. Nothing herein shall prevent the
Trust from providing such evidence to other regulators, or as otherwise required by law.
50. The Trust shall comply fully with the terms of this Agreement. If the Trust
violates the terms of Paragraph 49 in any material respect, as determined solely by the OAG: (1)
the OAG may pursue any action, criminal or civil, against any entity for any crime it has
committed, as authorized by law, without limitation; (2) as to any criminal prosecution brought by
24
the OAG for violation of law committed within six years prior to the date of this Agreement or for
any violation committed on or after the date of this Agreement, the Trust shall waive any claim
that such prosecution is time barred on grounds of speedy trial or speedy arraignment or the
statute of limitations.
C. Miscellaneous Provisions
51. This Assurance and any dispute related thereto shall be governed by the laws of the
State of New York without regard to any conflicts of laws principles.
52. No failure or delay by the OAG in exercising any right, power or privilege
hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude
any other or further exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies provided herein shall be cumulative.
53. The Trust consents to the jurisdiction of the OAG in any proceeding or action to
enforce the Assurance.
54. The Trust enters into this Assurance voluntarily and represent that no threats,
offers, promises or inducements of any kind have been made by the OAG or any member, officer,
employee, agent or representative of the OAG to induce the Trust to enter into this Assurance.
55. The Assurance may be changed, amended or modified only by a writing signed by
all parties hereto.
56. The Assurance, together with the attached Exhibits, constitutes the entire
agreement between the OAG and the Trust, and supersedes any prior communication,
understanding or agreement, whether written or oral, concerning the subject matter of this
Assurance.
NEW YORK STATE UNITED
TEACHERS MEMBER BENEFITS
~~cr Ivan' r, rhairrmm
ACKNOWLEDGMENT
STATE OF NEW YORK )
COUNTY OF ALBANY
:s.s.
)
On this II day of June, 2006, before me personally came Ivan Tiqer
, known to me, who, being duly sworn by me, did depose and say that he is
(Chi'!i rmi'!n NY~TT'T'MPmhp~f Rpnpfi t- 'T'rll",t- ., the entity described in the
foregoing Assurance of Discontinuance, is duly authorized by New York State United Teachers
Member Benefits to execute the same, and that he signed his name in my presence by like
authorization.
My commission expires:
r4«oQ
26
NEW YORK STATE UNITED
TEACHERS MEMBER BENEFITS
BY~~
Roderick Shennan, Secretary
ACKNOWLEDGMENT
STATE OF NEW YORK )
:s.s.
COUNTY OF WARREN )
On this \ 2:11ay of June , 2006, before me personally came
ROc1priC'k ~hprm""Jmown to me, who, being duly sworn by me, did depose and say that he is
~p('rpt-"'ry of J>TYC;;TTT M"mn~r Benefit:;; ., the entity described in the foregoing
Assurance of Discontinuance, is duly authorized by New York State United Teachers Member
Benefits to execute the same, and that he signed his name in my presence by like authorization.
,~ ~C?\~
NotaryPublic \
-My commission expires)
27
28
Exhibit A
*****, 2006
[Member Name]
[Address]
Dear [Name]:
As you may be aware, New York State United Teachers Member Benefits
Trust (“the "Trust") recently reached a settlement with the Office of the New York State Attorney
General (“OAG”) relating to the Opportunity Plus retirement plan, which the Trust has endorsed
since 1989. I am writing to inform you about certain steps that the Trust has agreed to take, as
part of the settlement, in order to ensure that the Trust only endorses the best available retirement
products.
The Trust has agreed to hire an Independent Consultant - someone who is
completely objective - to consider whether it makes sense for the Trust to continue to endorse any
retirement products. In the event that the Consultant concludes that such endorsements are in the
best interest of NYSUT members, the Trust will conduct an open Request for Proposal (“RFP”)
process to identify at least three plans for endorsement, including one low-cost plan. The
Independent Consultant will oversee the RFP process to make sure that it is fair, and will also
review the Trust's policies, procedures and training relating to endorsement of products and
conflicts of interest. The Independent Consultant will issue a public report summarizing the
review of the RFP process as well as the review of compliance matters.
In the event the Trust endorses any new retirement products, you will
receive another letter informing you of the newly-endorsed plans. Union members who have
invested in the Opportunity products will be offered the opportunity to shift their assets into the
new plans at no cost.
Finally, the Trust has agreed to implement a program to provide all
NYSUT members with free and objective investment and retirement planning advice. [Trust to
provide details.]
If you have any questions about the settlement with the New York Attorney
General or the Opportunity Plus plan, please contact Betsy Porter at 1-800-626-8101, Ext.1247 or
Derek Clement at 1-800-626-8101, Ext.1251.
Sincerely,
commenced.
1
ATTORNEY GENERAL OF THE STATE OF NEW YORK
BUREAU OF INVESTMENT PROTECTION
-------------------------------------------------------------------------------X
In the Matter of
NEW YORK STATE UNITED TEACHERS
MEMBER BENEFITS,
Respondent.
-------------------------------------------------------------------------------X
ASSURANCE OF DISCONTINUANCE
PURSUANT TO EXECUTIVE LAW § 63(15)
WHEREAS, in April 2005, as part of a larger investigation into retirement products,
Eliot Spitzer, Attorney General of the State of New York (the “OAG”), commenced an
investigation (“Investigation”) pursuant to Executive Law § 63(12) and Article 23-A of the
General Business Law (the “Martin Act”), into a retirement benefits plan endorsed by the New
York State United Teachers Benefits Trust (the “Trust”); 1
WHEREAS, New York State United Teachers ("NYSUT" or "Union") is a federation of
more than 900 local unions representing more than 525,000 people who work in, or are retired
from, New York State's primary schools, colleges and healthcare facilities;
WHEREAS, the Trust is a not-for-profit trust established in 1983 to endorse and monitor
the quality of insurance plans, investment products and benefit programs provided to NYSUT
members;
WHEREAS, the Trust exclusively endorsed and marketed the tax-deferred annuity
Aetna remained NYSUT’s endorsed 403(b) plan provider until late 2000, when it sold its 2
retirement product line of business to ING Groep NV. The Trust endorsed 403(b) provider was eventually renamed
ING Life Insurance and Annuity Company (“ING”), but was called “ING/Aetna” during a transition period after the
sale.
2
retirement products of one insurance company, Aetna Life Insurance and Annuity Company
("Aetna"), to eligible Union members; 2
WHEREAS, in the course of the Investigation extensive documentary evidence was
reviewed by the OAG;
WHEREAS, the Trust has cooperated in the Investigation by producing documentary
evidence and identifying evidence relevant to the Investigation;
WHEREAS, as set forth in the findings of fact (“Findings”) below, the Investigation
revealed that certain practices engaged in by the Trust violated the Martin Act and Executive
Law § 63(12);
WHEREAS, the Trust has advised the OAG of its desire to resolve the Investigation;
WHEREAS, the Trust, without admitting or denying the OAG's Findings made below,
has agreed to implement certain reforms and to reimburse certain costs (see Agreement below);
and
NOW THEREFORE, the OAG, based upon the Investigation, makes the following
Findings:
FINDINGS
1. NYSUT is a large federation of local unions, spread throughout New York, that
represents more than 525,000 people employed in or retired from New York’s schools, colleges
and healthcare facilities. NYSUT, in turn, is a part of the American Federation of Teachers, the
Citations refer to documents in the accompanying exhibit binder. 3
3
AFL-CIO and Education International -- larger union federations with national and international
representation. Certain unions that are affiliated with NYSUT, including the United Federation
of Teachers, the United University Professions and the Professional Staff Congress, have opted
out of the ING plans that are the subject of the Investigation.
2. In 1983, NYSUT established the Trust to provide benefits to members of NYSUT
and affiliated unions. The Trust offered some benefits directly. These included a broad array of
life, medical and property insurance and car rental, travel and shopping discounts. In addition to
these benefits offered directly by the Trust, the Trust also negotiated with various vendors for
other voluntary benefit programs, including retirement products such as 403(b) plans. A
successful vendor would receive a Trust endorsement for its product. One Union official stated
that by engaging in the endorsement process, NYSUT members would gain “an advocate for
their concerns or problems.” Exhibit 1. While the Trust has the power to endorse products, it 3
cannot dictate what the various New York school districts offer their teachers and other
employees. Each school district makes its own decision as to which retirement products it will
sponsor. Nevertheless, the NYSUT name and collective buying power gives a significant
advantage to vendors approaching school districts and individuals, allowing those vendors to
capitalize on the sense of security and trust embodied in the Trust's endorsement of the products
being sold. NYSUT members often invested in endorsed products because they believed that the
Union was vouching for the quality of those products. The Trust -- which urged members in
flyers to "take advantage of your union-endorsed benefits" (Exhibit 2) -- has a fiduciary duty to
act in the best interest of members as it considers and endorses products.
4
A. 403(b) Retirement Plans and NYSUT’s Endorsed Product
3. A 403(b) retirement plan, named for section 403(b) of the Internal Revenue Code,
is a tax deferred retirement savings plan established for the benefit of employees of educational
institutions and certain other not-for-profit organizations. It allows teachers and other qualifying
employees to invest for retirement, on a tax-deferred basis, in various mutual fund and fixed
income investment options offered by an insurance company. Until 1974, 403(b) plans were
solely a form of annuity contract -- investment vehicles with insurance features for which fees are
charged. In 1974, section (7) was added to the Code, eliminating the need for an insurance
"wrapper" for 403(b) plans and permitting investments to be made in mutual funds without any
insurance charges. Both types of 403(b) plans -- the 403(b) annuity and the 403(b)(7) low-cost
alternative -- allow teachers and other not-for-profit employees an opportunity to save for
retirement much as private sector employees can through 401(k) tax-deferred retirement plans.
4. In 1988, with the assistance of an outside consultant, the Trust issued a formal
Request for Proposal ("RFP") to identify a retirement plan for endorsement. At the conclusion of
the RFP process, the Trust selected Aetna and endorsed a new 403(b) annuity product called
Opportunity Plus which allowed for investments in both mutual funds and a fixed income
account. The Trust did not consider offering members a low-cost 403(b)(7) plan. In return for
the Trust’s endorsement of Opportunity Plus, Aetna agreed to pay an expense reimbursement that
initially approximated $40,000 a year.
5. The Opportunity Plus product was first endorsed by the Trust and offered for sale
in June 1989. In the first year alone, 7,500 participants invested $100,000,000. By 1994,
participation in Opportunity Plus increased to 26,000 people with a total investment of
5
$735,000,000; by 1999, 40,400 people had invested over $2,000,000,000 in the plan. At the end
of 2003, there were approximately 50,000 current and retired school district employees invested
in Opportunity Plus, though the total value of their investments had diminished slightly from the
plan’s 1999 peak due to the 2000 stock market decline. Today, more than 53,000 current and
retired school district employees participate in Opportunity Plus, which holds approximately
$2,350,000,000.
6. Since its inception in 1989, investors in Opportunity Plus have been charged every
year both for the expenses of the mutual funds they select plus an insurance charge, a so-called
Mortality and Expense fee (“M&E”), on their mutual fund investments. A fixed-income option
offered by the plan carries no M&E fees. In 1989, the annual M&E was 1.25% of each
retirement account’s mutual fund balance, and the average mutual fund cost was .54% (although
costs varied by fund), giving average combined annual charges of 1.79%. The combined charges
for mutual fund investments have changed little as the plan has grown in the years since then:
they grew to 2.04% in 1994 (an amount that could be as high as 2.85% for a teacher investing in
the most expensive mutual fund) and declined slightly thereafter, reaching 1.86% in 2004. The
M&E component of the combined costs was reduced to 1.10% in 2000, 1.05% in 2001 and
finally to 1.00% in 2002.
7. The only insurance benefits plan participants have ever received in exchange for
the Opportunity Plus annual M&E fee is the right to annuitize their investment upon retirement,
meaning that instead of taking their savings as a lump sum, they can opt for a guaranteed stream
of payments. Opportunity Plus offers no death benefit -- in the event of death, a participant’s
heirs simply receive the money in the participant’s account.
6
8. As more NYSUT members invested in the endorsed product, Aetna, and later
ING, paid ever increasing amounts to the Trust to keep the endorsement. In 1994, the
endorsement agreement increased the annual payments to the Trust from $40,000 to $400,000 a
year. The figure increased further to $592,000 a year in 1998. In 2001, after Aetna sold its
retirement business line to ING, the Trust negotiated a payment scale starting at $1,852,000 in
2001 and gradually increasing to $2,402,000 in 2006. Also in 2001, the Trust negotiated for
additional payments based on the amount of NYSUT member assets invested in ING products,
later changed to a flat “per head” endorsement fee based on the overall number of NYSUT
members. In 2004, the Trust projected that these additional amounts would increase the total
endorsement payment to the Trust to over $3,000,000 in 2005 and 2006, rising to $4,200,000 in
2009. Exhibit 3.
9. The Trust used a portion, but not all, of these funds to pay for additional account
“enhancements” that were offered to Opportunity Plus investors but not to other NYSUT
members. In 1992, for example, the Trust began to allow investors to automate their monthly
withdrawals. In 1994, the Trust started offering Opportunity Plus investors insurance that would
cover $500 of a member’s Opportunity Plus contributions in the event of disability, as well as
sliding scale life insurance with an option to purchase further protection. In 1996, Trust also
began to offer free financial counseling for the families of deceased Opportunity Plus investors.
10. Another “enhancement” involved the Trust hiring financial advisors for its
members. In 2001, the Trust began to receive payments of $600,000 per year from ING to pay
the salaries of six “Coordinators of Financial Services” (“Coordinators”) who traveled around
New York State and gave presentations on retirement issues to school districts and Union
7
members. In September 2004, Opportunity Plus offered a number of new "enhancements"
including: a free $10,000 term life insurance policy; a financial counseling service for terminally
ill participants and families of deceased participants; a legal service plan that included a free
simple will every three years and two free one-hour office sessions with an attorney per year;
three hours of access a year to a financial planning hotline; and an in-person financial planning
session (for a fee).
11. These features proved of little use to the vast majority of Opportunity Plus
investors. During the year spanning from September 1, 2004 through August 31, 2005, only 297
investors (out of more than 50,000) called the financial hotline. A mere eleven members (or their
spouses) received the counseling for ill or deceased investors. Just 32 members received the
$10,000 life insurance payout. And the legal services plan produced only 587 simple wills, 213
healthcare proxies and 155 letters. The total direct cost to the Trust of all these benefits (not
including Trust overhead) was $1,067,000, less than one-half of what the Trust received from
ING during the same period. On the other hand, NYSUT members paid ING over $12,000,000
in M&E fees and approximately the same amount in mutual fund costs during these twelve
months. Thus in the course of one year, teachers paid about $24 million, ING paid the Trust
about $2.66 million, and the Trust gave teachers “enhancements” costing about $1 million. The
difference between the monies the Trust received from ING and the cost of the "enhancements"
went into the Trust's overhead, certain other costs associated with the Opportunity Plus plan, and
a pool of excess cash, controlled by the Trust, that grew to $5.5 million in August 2005.
B. The Trust’s “Silent Partnership” with Aetna/ING
12. By 1998, the Trust referred to its relationship with Aetna as a “[p]artnership – our
8
view is that we are not equal partners, but silent partners.” Exhibit 4. As part of this “silent
partnership,” the Trust took covert steps to expand Aetna’s business. For instance, in 1998, the
Trust began to endorse a new Aetna Financial Counseling Program ("FCP") to be conducted by
Ernst & Young ("E&Y"). In promotional material issued by the Trust, this program is described
as providing an “independent review” and offering unbiased advice. Exhibit 5. In fact, however,
it was a program to sell ING/Aetna products: an undated email from an ING Managing Director
to the Manager of the Trust stated that the “initial purpose of the FCP program [sic] was to
generate 403(b) leads for the Opp. Plus Producer.” Exhibit 6. The relevant agreement between
Aetna and the Trust reflects this purpose:
... Aetna's Representatives will be the only persons Members will be referred to
for individualized financial planning services pursuant to the Program. All
requests from Members who participate in the Program for individualized
financial planning services will be referred to Aetna or its Representatives. The
Trust will instruct E&Y to refer Members who need or desire financial planning
services to Aetna or its Representatives.
Exhibit 7. ING representatives capitalized on the FCP to sell Union members a variety of other
products beyond Opportunity Plus, including variable annuities, mutual funds, long-term care
insurance, stocks, term life insurance, Roth IRAs and medical insurance. Exhibit 8.
13. Another Trust program, Financial Building Blocks, was also advertised as a
source of neutral investment information for members: “There’s no sales pitch - they do not
promote specific products or services.” [Emphasis in original] Exhibit 9. However, an internal
ING email from January 2004 praised an ING employee who participated in the Financial
Building Blocks program for using the opportunity “as a ‘foot in the door’ to promote” ING
products. Exhibit 10. The Trust itself attempted to obscure the role that ING/Aetna played in
9
delivering these seminars: an email to all Trust employees dated February 5, 2001 instructs them
to route calls about the program to ING/Aetna employees who would not identify themselves as
such over the phone.
Please make a note of the following: When we get calls for Financial Building
Blocks, please transfer them directly to [two Aetna employees].
The reason is that everyone else over in Aetna answers the phone ‘ING-Aetna,’
and we say FBB is NYSUT's program with no sales agenda. We don't want the
local leaders to get the wrong idea right off the bat. [The two Aetna employees]
answer the phones with their names, not Aetna.
Exhibit 11. [Boldface type in original]
14. As discussed above, there have always been lower cost 403(b)(7) alternatives to
the Opportunity Plus plan. In 1998, the Trust – which had a financial stake in the total amount
invested by NYSUT members – asked Aetna to take steps to retain teachers with large account
balances who wanted to shift to cheaper plans. Aetna thereafter offered such individuals “a free
consultation with an Aetna planner” as an inducement to stay. Exhibit 4. When members
continued to switch, the Trust asked Aetna in 2000 to create a cheaper alternative product to
“assist in retaining the 5%-6% of assets that [were] being lost to lower cost competitors each
year.” Exhibit 12. The result, a 403(b)(7) plan called “Opportunity Independence,” offered
direct access to mutual funds without insurance charges. Opportunity Independence investors
therefore avoided M&E fees; on the other hand, they were charged a 0.40% “Administration
Fee” in addition to the applicable fund expenses. The mutual funds available through
Opportunity Independence were, in some instances, more expensive than those offered in
Opportunity Plus. For example, Opportunity Independence – supposedly a low cost alternative --
offered an S&P 500 index fund with an expense ratio of 0.93%, even though an S&P 500 index
10
fund costing 0.10% was offered in the Opportunity Plus plan.
15. As noted above, the Trust received approximately $600,000 a year from ING to
pay its Coordinators’ salaries. According to the Trust’s endorsement agreement with ING, the
Coordinators were responsible for “acting as liaison between [ING] and the Trust, and overseeing
on behalf of the Trust all aspects of the [ING] programs and services sponsored by the Trust.”
Exhibit 13. The Coordinators held themselves out to teachers as working solely on behalf of the
Trust in the best interests of NYSUT members. As one Coordinator wrote to a teacher in 2003:
A final note, which I hope I made clear at the meeting, but which I would like to
reiterate here: I work for [the Trust], not ING. My pay is not tied in any way to
ING. Whether or not NYSUT members choose to use ING, or remain with ING,
has no bearing whatsoever on my compensation. My sole interest is to maximize
this benefit for NYSUT members, who are the only people I ultimately need to
answer to.
Exhibit 14. In fact, however, the Coordinators’ salaries were paid entirely by ING (though the
Trust paid for their benefits).
16. Contrary to what they told Union members, the Coordinators acted as sales agents
for ING. For example, if a local school district or union limited ING’s ability to sell to teachers
(by, for example, banning ING sales representatives from entering school grounds to solicit in
teachers’ break rooms), the Coordinators used “soft pressure tactics . . . to apply to the Union
leaders to stress the importance of being supportive of NYSUT and it’s [sic] endorsed products.”
Exhibit 15. The Trust even issued written guidelines for the Coordinators to follow to help ING
gain access to uncooperative school districts, including sending “a formal letter of protest from
the [Union] local to the [school] district . . .” in situations where “there appears to be
discrimination against ING . . . .” Exhibit 16. The Coordinators also accompanied ING sales
11
agents to conferences where ING was marketing its products to teachers and Union leaders.
17. The Trust’s role in steering business to ING is illustrated by its 2001 initiative to
encourage school districts to contribute to teachers’ retirement plans. Emails written by
Coordinators show that, as it sought this benefit for its membership, the Trust also worked to
ensure that as much of the employer contribution money as possible was funneled to
Opportunity Plus. For example, on February 4, 2002, one Coordinator wrote to ING:
My goal in the initial meeting is to educate the leadership on the benefits for both
the Employees and Employer. I do explain the process of establishing an
Employer 403b account and the advantages of using the ING/Aetna Opportunity
Plus 403b.
I’m concerned that the local leadership and/or District will feel ‘Sales’ pressure if
I’m there w/a Representative of ING at the initial meeting.
Once I guage [sic] their interest, I would certainly welcome both you and/or the
Representative on follow-up meetings . . . .
Exhibit 17. Upon reviewing the above message, Lynette Metz, the Director of the Trust,
commented “[t]his approach is the way to go,” and instructed that the message be forwarded to
all Coordinators. Exhibit 17.
18. Another Coordinator wrote on March, 2, 2004: “Generally, I prefer to do
executive board meetings by myself so I can sell them on using ING exclusively without the
pressure of an agent being there.” Exhibit 18.
19. ING viewed the Coordinators as valuable assets in their marketing efforts. An
ING Regional Manager on November 26, 2001 wrote:
Since the appointment of [two Coordinators] in my territory the future could not
look brighter. What these two folks have brought to our marketing efforts with
their knowledge and enthusiasm is truly gratifying. To accompany seasoned
agents with them to new teacher meetings and see the enthusiasm is very
12
noticeable. I think at this point they have worked with each of my producers at
least for a day each and the rapport and chemistry is there. Both of these folks
were great appointments for our short and long term marketing plans . . . .
Exhibit 19.
20. One ING employee wrote a review of a Coordinator on October 27, 2003, praising
his assistance in ING’s marketing efforts. She wrote:
A case in point . . . was a recent deal that was done in Chappaqua. The union
president wanted no mention of specific product or company, etc. [the
Coordinator] used a nice soft selling approach and somebody in the audience
finally was baited to ask why this [sic] NYSUT approved ING and as a result we
have an exclusive. A soft sell that worked very well. He has done this approach
in many other places . . . .
Exhibit 20.
C. The Trust and ING Failed to Adequately Disclose their Relationship
21. Until it learned of the OAG investigation into retirement and insurance products,
the Trust had never disclosed to NYSUT members that the Trust received payments from ING.
Exhibit 21. In January 2005, the Chairman of the Trust recognized the need for disclosure of the
endorsement arrangement:
In light of the current financial and insurance industry environment, issues
continue to arise regarding the fees associated with 403(b) programs. In order to
address these issues and better educate our members, the Trust is in the process of
creating an internal document, which fully explains the fees connected to the ING
Opportunity programs as well as the expense reimbursement paid to the Trust. A
final reader-friendly version of the document will be available at the NYSUT RA
in April and will be included going forward in the ING Opportunity Plus
enrollment kits.
Exhibit 22.
22. On February 23, 2005, Lynette Metz described the Trust’s contemplated first
disclosure relating to this topic:
13
Just thought you’d like to see a new piece that is going in the 403(B) [sic]
enrollment kit. . . . We went from a ‘try to hid [sic] it’ to a ‘full disclosure’
environment within the last year on the topic of expense reimbursement. The . . .
Security and Insurance sandals [sic] have moved us in this direction. Dick
[Iannuzzi] thought is to spell it out up fount [sic] that we get an expense reimb.
for the program - if members don’t like it then they can go elsewhere.
Exhibit 23. Previously, the Trust’s relationship with Aetna and ING had never been
“spelled out” so that members could make an informed choice to “go elsewhere.”
23. For its part, originally Aetna did not make any disclosure at all regarding its
financial arrangements with the Trust. Thus from June 1989 through November 1992, the Aetna
prospectus for Opportunity Plus (the formal disclosure available to all investors) stated only that
“Opportunity Plus is endorsed by [NYSUT] and [the Trust].” Exhibit 24. Subsequent Aetna and
ING prospectus disclosures referred to the payments made to the Trust, but never revealed that
they were used in large part to market the Opportunity plan to teachers. For instance, the 2001
Opportunity Plus prospectus states: “We contribute to the costs incurred by [the Trust] for
retaining up to six employees who assist in management of the Opportunity Plus program.”
Exhibit 25. This description of the Coordinators’ role fails to reflect their significant marketing
activities.
24. One Coordinator objected to an anticipated change in prospectus language which
would have shown the Trust's financial incentive to push members to invest with ING:
I am hesitate [sic] to have the prospectus outline a reimbursement per Opp+ client.
I know that myself and most likely the other financial coordinators and probably
others, often pitch IN as an exclusive carrier of employer monies. We also have a
role in assisting ING in school Districts that ING may be having difficulty with. I
am often asked or simply bring up myself, that neither NYSUT nor myself receive
extra money from ING should a local choose to use them as an exclusive carrier.
Same goes when were [sic] assisting with access. Should the prospectus outline a
dollar amount reimbursement based on the number of Opp+ clients, we can no
14
longer state that, and I feel that we lose some of our objectivity. I can certainly
see us using that as an “off the books” formula in determining the dollar amount,
but would prefer not to have it in the prospectus.
Exhibit 26. The change in prospectus language was never adopted.
25. In 2001, a senior NYSUT executive objected when ING wanted to enhance its
disclosure in Opportunity Plus marketing materials to comport with National Association of
Securities Dealers’ regulations. The proposed new language read: “All fees and expenses
associated with Opportunity Plus including those received by NYSUT Benefit Trust are
detailed in the current prospectus, which should be read carefully prior to investing or sending
money.” Exhibit 27 [emphasis supplied]. Thereafter, NYSUT's then-Executive Director of
Finance and Administration wrote to ING’s Chief Executive Officer to request that the language
in bold above be removed. He argued:
The issue, as I’m sure you can understand, is that [the Trust] does not want to
advertise the financial arrangement between ING and NYSUT Benefit Trust to
our competition. This is exactly what will happen, as they will use this
information against us to persuade potential participants against our program. In
addition, the ING type of disclosure on work site posters could create political
problems for our local presidents. We need the support of local presidents in
order to properly market this program. As you can well imagine, competition is
fierce in New York State school districts. It is our position that the expense
reimbursement arrangement should be disclosed to participants only in the
prospectus. This matter must be resolved in order resume more active marketing
and promotion of our program. Millions of dollars are being lost to our
competition each day that this matter is allowed to go unresolved.
Exhibit 27.
26. ING ultimately agreed to compromise language as follows:
Opportunity Plus is a tax deferred variable annuity issued by [Aetna/ING]. . . .
All fees and expenses associated with [Opportunity Plus], including those of the
Trust, are detailed in the current prospectuses, . . . which should be read carefully
prior to investing or sending money.
15
Exhibit 28. Metz, the Trust’s Director, enthusiastically noting its obfuscating quality, approved
this compromise language: “I think this lang. is even better. It makes you think that the
expenses they are talking about are the expense [sic] of the ING National Trust.” Exhibit 28.
D. The Trust Overstated its Role as Union Advocate
27. Brochures created by the Trust to describe its endorsed products assured
prospective investors that “we’ve done all the background work, so you don’t have to!”, (Exhibit
2) and “you needn’t spend a lot of time searching for quality insurance and investments. We
already did.” Exhibit 29. One brochure vouched that every “program endorsed by NYSUT
Benefit Trust is researched, designed and monitored to ensure it will enhance your lifestyle. . . .
When you participate in a NYSUT benefit program, NYSUT acts as your advocate to ensure that
you receive satisfaction.” Exhibit 30.
28. In fact, the Trust did little or no “background work.” It never conducted a formal
RFP for retirement products after 1988. The Trust conducted an “informal process” in 1998 that,
according to the Trust, demonstrated the superiority of Opportunity Plus to all other available
plans. Exhibit 31. The Trust retained no documents relating to this “informal process.” Nor did
the Trust perform any due diligence before selecting ING as the provider of Opportunity
Independence in 2000.
29. Even though the Trust employed people with a variety of NASD licenses and
CPA and Certified Financial Planner designations, it never conducted an effective review
unencumbered by loyalty to the current provider, Aetna/ING. NYSUT management did
demonstrate financial sophistication, however, when it came to selecting retirement products for
16
the Union’s own employees (including those who work for the Trust). They are offered 401(k)
plans which are not available to school districts but are similar to 403(b)(7) plans. The 401(k)
plans are administered by Fidelity Investments with combined annual expenses of approximately
.50% – less than a third of the expenses of the Opportunity Plus product that the Trust urges on
Union members.
E. The Effect of Opportunity Plus Fees on NYSUT Members
30. The endorsed Opportunity Plus plan was and remains far more expensive than low
cost retirement plans offered by other providers. The impact of the higher fees charged by the
Opportunity products as compared to a low-cost 403(b)(7) retirement plan is significant over the
long term. For example, an investor who, from 1994 through 2005 contributed $10,000 a year to
Opportunity Plus and invested his entire contribution in the S&P 500 Index Fund offered in the
plan, given the S&P Index’s 11.5% annual increase over the eleven year period, would have
saved $183,077.47 by the end of 2005. In contrast, a comparable investment in the S&P 500
Index Fund offered by one competing low-cost 403(b)(7) retirement plan would have saved
approximately $200,282.91 -- a difference of $17,205.44. Of course, the low-cost 403(b)(7) plan
is a no-frills retirement vehicle, lacking the “enhancements” offered to Opportunity Plus
investors. As is demonstrated above, however, these “enhancements” are worth little and are
utilized by relatively few Union members.
F. Violations
31. The foregoing acts and practices of the Trust violated the Martin Act, Article 23-
A of the General Business Law, which makes it illegal to employ any deception or concealment
in the purchase, sale or promotion of securities.
17
32. The foregoing acts and practices of the Trust violated § 63(12) of the Executive
Law, because they demonstrate a persistent fraud or illegality in the conduct of a business.
AGREEMENT
IT NOW APPEARING THAT the Trust desires to settle and resolve the
Investigation without admitting or denying the OAG’s Findings;
NOW, THEREFORE the OAG and the Trust hereby enter into this Assurance of
Discontinuance (“Assurance”), pursuant to Executive Law § 63(15), and agree as follows:
I. Remedial Measures
A. Independent Consultant
33. The Trust, at its sole cost and expense, will retain an independent
consultant (“Consultant”) acceptable to the OAG, to oversee the implementation of the remedial
measures agreed to herein. The Trust shall cooperate fully with the Consultant and shall provide
the Consultant with access to its files, books, records and personnel as requested for review. The
Consultant shall oversee or perform the following tasks:
(a) Determine whether it is in the best interests of NYSUT’s members to have
the Trust endorse any retirement products;
(b) If the Consultant decides that an endorsement by the Trust of a retirement
product is appropriate, he or she shall oversee the RFP Process described
below;
© Within 90 days of the execution of this Assurance, develop policies,
procedures and training programs for all Trust employees relating to
endorsement of products and conflicts of interest; and
18
(d) Prepare and submit to the OAG by June 1, 2007, a report (“Report”)
describing (1) the procedures to follow during the RFP; (2) the results of
the RFP; and (3) any appropriate recommendations to ensure compliance
with this Assurance. The Report shall be made available to NYSUT
members on request.
(e) The Trust shall adopt all recommendations made in the Report. As to any
recommendation upon which the Trust and the Consultant do not agree,
the Trust and the Consultant shall attempt in good faith to reach an
agreement within 90 days of issuance of the Consultant's Report. In the
event the Trust and the Consultant are unable to agree on an alternative
proposal, the Trust will abide by the recommendation of the Consultant.
34. Upon certification by the Consultant that the tasks specified in paragraph I.A.33
have been completed, and agreement by the OAG that such is true, the work of the Consultant
shall be deemed terminated. The Trust shall not have the authority to terminate the Consultant
prior to said certification and consent. The Trust also shall not be in and shall not have an
attorney-client relationship with the Consultant, and shall not invoke the attorney-client privilege,
or any other doctrine or privilege, to prevent the Consultant from transmitting any information,
reports or documents to the OAG.
B. RFP Process for Future Providers
35. If it is determined by the Consultant that members will be best served by the
Trust's endorsement of retirement plans, the Trust shall conduct an RFP process in order to
identify at least three suitable retirement plan providers to endorse for the consideration of
19
NYSUT members. The Trust shall make available to every RFP participant all pertinent data
and/or information available to any one RFP participant. The Trust shall not give preferential
treatment in the RFP process to any provider.
36. If, after the conclusion of the RFP process, the Consultant continues to believe
that endorsing retirement plans is in the best interests of Union members, the Trust shall endorse
at least one suitable low-cost plan.
37. If, at the conclusion of the RFP and consistent with the terms of this Assurance,
the Trust determines that an ING Life Insurance and Annuity Company product is a suitable and
appropriate product for NYSUT’s membership, the Trust may continue to endorse ING as one of
its endorsed plan providers.
C. Other Provisions Relating to Retirement Products
38. The Trust shall establish a mechanism whereby plan participants may roll over, at
no cost to them, their investments in the Opportunity products to the plan or plans of the new
plan providers.
39. Payments received by the Trust from endorsed 403(b) product providers shall be
limited to reimbursements for actual expenses incurred by the Trust in performing its oversight
functions and shall not be used to promote any plan.
40. The Trust shall establish a program to provide Union members with unbiased
professional investment advice at least once every year for so long as the Trust endorses any
retirement products. The investment advice shall not be offered by, affiliated with, or directly
paid for by any endorsed retirement plan provider.
41. All funds that the Trust has received from ING but not yet disbursed shall be spent
20
solely on improved investment products made available to all NYSUT members, and not for
NYSUT employee salaries, overhead, conventions, hotel charges or entertainment.
D. Notification to Union Members
42. Within 30 days of the execution of this Assurance, the Trust shall send to every
active or retired Union member a signed copy of the letter attached hereto as Exhibit A. The
Trust further agrees to provide a copy of said letter to new Union members for at least two years
from the date of this Assurance.
43. Within 30 days of the completion of the RFP, the Trust shall, in a form acceptable
to the OAG, send to every active or retired Union member a second letter that contains the
following information:
(a) An explanation of the RFP process and an explanation as to why
the successful providers were endorsed;
(b) A comparison of the fees and expenses of the endorsed plan
providers;
© An explanation of the services offered by each endorsed provider;
(d) A projection of the impact of the various fees and expenses on
long-term investment returns;
(e) An explanation on how plan participants may roll over their
investments in the Opportunity products, at no cost, to another
endorsed plan; and
(f) An explanation disclosing in simple and clear language the
arrangement between the endorsed provider and the Trust.
21
E. Costs
44. The Trust shall pay the sum of $100,000 to the OAG, representing the costs of the
Investigation.
F. General Relief
45. The Trust agrees that the OAG has jurisdiction over the matters discussed herein.
The Trust will cease and desist from engaging in any acts in violation of the Martin Act and/or
Executive Law § 63(12), and will comply with the Martin Act and Executive Law § 63(12).
II. Other Provisions
A. Scope of this Assurance of Discontinuance
46. Except as provided below, this Assurance concludes the Investigation and any
action the OAG could commence against NYSUT, the Trust and its current and former officers,
trustees and employees (but not ING), arising from or relating to the subject matter of the
Investigation; provided however, that nothing contained in this Assurance shall be construed to
cover claims of any type by any other state agency or any claims that may be brought by the OAG
to enforce the Trust’s obligations arising from or relating to the provisions contained in the
Assurance. The Assurance shall not prejudice, waive or affect any claims, rights or remedies of
the OAG with respect to any person, other than the Trust and its current and former officers,
trustees and employees, all of which claims, rights, and remedies are expressly reserved.
47. If the Trust commits a breach of any of the obligations described herein, the OAG
may in its sole discretion terminate the Assurance upon written notice to the Trust and the Trust
agrees that any statute of limitations or other time related defenses applicable to the subject of the
Investigation and any claims arising from or relating thereto are tolled from and after April 12,
22
2005. In the event of such termination, the Trust expressly agrees and acknowledges that the
Assurance shall in no way bar or otherwise preclude the OAG from commencing, conducting or
prosecuting any investigation, action or proceeding, however denominated, related to the
Investigation, against the Trust or from using in any way any statements, documents or other
materials produced or provided by the Trust after commencement of the Investigation, including,
without limitation, any statements, documents or other materials provided for purposes of
settlement negotiations.
48. Pursuant to the terms of Executive Law § 63(15), in the event this Assurance is
violated, evidence of such violation shall constitute prima facie proof of violation of the Martin
Act in any civil action or proceeding thereafter commenced by the OAG and the may seek an
order permanently enjoining the Trust from further violating said statute.
B. Cooperation
49. The Trust shall fully and promptly cooperate with the OAG with regard to the
Investigation, and related proceedings and actions, of any other person, corporation or entity,
including but not limited to current and former employees, concerning retirements plans. The
Trust shall use its best efforts to ensure that all its officers, directors, employees and agents also
fully and promptly cooperate with the OAG in the Investigation and related proceedings and
actions. Cooperation shall include without limitation: (1) production voluntarily and without
service of subpoena of any information and all documents or other tangible evidence reasonably
requested by the OAG, and any compilations or summaries of information or data that the OAG
reasonably requests be prepared; (2) without the necessity of a subpoena, having NYSUT’s and
the Trust’s officers, directors, employees and agents attend any proceedings at which the presence
23
of any such persons is requested by the OAG and having such persons answer any and all
inquiries that may be put by the OAG to any of them at any proceedings or otherwise
(“proceedings” include but are not limited to any meetings, interviews, depositions, hearings,
grand jury hearing, trial or other proceedings); (3) fully, fairly and truthfully disclosing all
information and producing all records and other evidence in their possession relevant to all
inquiries made by the OAG concerning any fraudulent or criminal conduct whatsoever about
which the Trust has any knowledge or information; (4) in the event any document is withheld or
redacted on grounds of privilege, work-product or other legal doctrine, a statement shall be
submitted in writing by the Trust indicating: a) the type of document; b) the date of the document;
c) the author and recipient of the document; d) the general subject matter of the document; e) the
reason for withholding the document; and f) the Bates number or range of the withheld document.
The OAG may challenge such claim in any forum of its choice and may, without limitation, rely
on all documents or communications theretofore produced or the contents of which have been
described by the Trust, its officers, directors, employees, or agents; and (5) the Trust shall not
jeopardize the safety of any investigator or the confidentiality of any aspect of the Investigation,
including sharing or disclosing evidence, documents, or other information with others during the
course of the investigation, without the consent of the OAG. Nothing herein shall prevent the
Trust from providing such evidence to other regulators, or as otherwise required by law.
50. The Trust shall comply fully with the terms of this Agreement. If the Trust
violates the terms of Paragraph 49 in any material respect, as determined solely by the OAG: (1)
the OAG may pursue any action, criminal or civil, against any entity for any crime it has
committed, as authorized by law, without limitation; (2) as to any criminal prosecution brought by
24
the OAG for violation of law committed within six years prior to the date of this Agreement or for
any violation committed on or after the date of this Agreement, the Trust shall waive any claim
that such prosecution is time barred on grounds of speedy trial or speedy arraignment or the
statute of limitations.
C. Miscellaneous Provisions
51. This Assurance and any dispute related thereto shall be governed by the laws of the
State of New York without regard to any conflicts of laws principles.
52. No failure or delay by the OAG in exercising any right, power or privilege
hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude
any other or further exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies provided herein shall be cumulative.
53. The Trust consents to the jurisdiction of the OAG in any proceeding or action to
enforce the Assurance.
54. The Trust enters into this Assurance voluntarily and represent that no threats,
offers, promises or inducements of any kind have been made by the OAG or any member, officer,
employee, agent or representative of the OAG to induce the Trust to enter into this Assurance.
55. The Assurance may be changed, amended or modified only by a writing signed by
all parties hereto.
56. The Assurance, together with the attached Exhibits, constitutes the entire
agreement between the OAG and the Trust, and supersedes any prior communication,
understanding or agreement, whether written or oral, concerning the subject matter of this
Assurance.
NEW YORK STATE UNITED
TEACHERS MEMBER BENEFITS
~~cr Ivan' r, rhairrmm
ACKNOWLEDGMENT
STATE OF NEW YORK )
COUNTY OF ALBANY
:s.s.
)
On this II day of June, 2006, before me personally came Ivan Tiqer
, known to me, who, being duly sworn by me, did depose and say that he is
(Chi'!i rmi'!n NY~TT'T'MPmhp~f Rpnpfi t- 'T'rll",t- ., the entity described in the
foregoing Assurance of Discontinuance, is duly authorized by New York State United Teachers
Member Benefits to execute the same, and that he signed his name in my presence by like
authorization.
My commission expires:
r4«oQ
26
NEW YORK STATE UNITED
TEACHERS MEMBER BENEFITS
BY~~
Roderick Shennan, Secretary
ACKNOWLEDGMENT
STATE OF NEW YORK )
:s.s.
COUNTY OF WARREN )
On this \ 2:11ay of June , 2006, before me personally came
ROc1priC'k ~hprm""Jmown to me, who, being duly sworn by me, did depose and say that he is
~p('rpt-"'ry of J>TYC;;TTT M"mn~r Benefit:;; ., the entity described in the foregoing
Assurance of Discontinuance, is duly authorized by New York State United Teachers Member
Benefits to execute the same, and that he signed his name in my presence by like authorization.
,~ ~C?\~
NotaryPublic \
-My commission expires)
27
28
Exhibit A
*****, 2006
[Member Name]
[Address]
Dear [Name]:
As you may be aware, New York State United Teachers Member Benefits
Trust (“the "Trust") recently reached a settlement with the Office of the New York State Attorney
General (“OAG”) relating to the Opportunity Plus retirement plan, which the Trust has endorsed
since 1989. I am writing to inform you about certain steps that the Trust has agreed to take, as
part of the settlement, in order to ensure that the Trust only endorses the best available retirement
products.
The Trust has agreed to hire an Independent Consultant - someone who is
completely objective - to consider whether it makes sense for the Trust to continue to endorse any
retirement products. In the event that the Consultant concludes that such endorsements are in the
best interest of NYSUT members, the Trust will conduct an open Request for Proposal (“RFP”)
process to identify at least three plans for endorsement, including one low-cost plan. The
Independent Consultant will oversee the RFP process to make sure that it is fair, and will also
review the Trust's policies, procedures and training relating to endorsement of products and
conflicts of interest. The Independent Consultant will issue a public report summarizing the
review of the RFP process as well as the review of compliance matters.
In the event the Trust endorses any new retirement products, you will
receive another letter informing you of the newly-endorsed plans. Union members who have
invested in the Opportunity products will be offered the opportunity to shift their assets into the
new plans at no cost.
Finally, the Trust has agreed to implement a program to provide all
NYSUT members with free and objective investment and retirement planning advice. [Trust to
provide details.]
If you have any questions about the settlement with the New York Attorney
General or the Opportunity Plus plan, please contact Betsy Porter at 1-800-626-8101, Ext.1247 or
Derek Clement at 1-800-626-8101, Ext.1251.
Sincerely,
#9
Posted 15 June 2006 - 08:58 AM
Question: Other than fine print disclosure, is there any significant difference between what NEA does with Security Benefit and what happened in NY?
#10 Guest_Sierra_*
Posted 15 June 2006 - 09:18 AM
QUOTE(apteacher @ Jun 15 2006, 09:58 AM)
Question: Other than fine print disclosure, is there any significant difference between what NEA does with Security Benefit and what happened in NY?
Apteacher: The situations are primarily the same.
#11
Posted 16 June 2006 - 09:41 AM
I read through the 238 page exhibit last night and found a few interesting tidbits. NYSUT was adamant about not wanting to disclose the fee arrangement it had with Aetna, they even went so far as to say it would undermine the program if people knew of it. More surprisingly is that it appears ING was the one that was pushing NYSUT to disclose the fee arrangement in the prospectus. NYSUT was unhappy about ING asking them to do this, they referred to the old provider (AETNA was bought by ING) and wondered by ING wanted this disclosed in the prospectus. They finally agreed and tried to bury and not acknowledge it. Finally in 2005 after the the Spitzer investigations and some poor press (I am willing to bet the 403bwise article) they decided to change course and not "try to hide it."
Interesting stuff.
ScottyD
Interesting stuff.
ScottyD
#12 Guest_Sierra_*
Posted 16 June 2006 - 12:31 PM
QUOTE(Scottyd @ Jun 16 2006, 10:41 AM)
I read through the 238 page exhibit last night and found a few interesting tidbits. NYSUT was adamant about not wanting to disclose the fee arrangement it had with Aetna, they even went so far as to say it would undermine the program if people knew of it. More surprisingly is that it appears ING was the one that was pushing NYSUT to disclose the fee arrangement in the prospectus. NYSUT was unhappy about ING asking them to do this, they referred to the old provider (AETNA was bought by ING) and wondered by ING wanted this disclosed in the prospectus. They finally agreed and tried to bury and not acknowledge it. Finally in 2005 after the the Spitzer investigations and some poor press (I am willing to bet the 403bwise article) they decided to change course and not "try to hide it."
Interesting stuff.
ScottyD
===================================================================
Scott,
These 238 pages of NYSUT internal documents reveals just how hell bent the Union was in concealing the fee arrangement. They knew that if they wanted to maximize the kickback they had to maximize the sales of the endorsed product... "Opportunity Plus"...secrecy of the fees was the chief ally of this process.
The United Federation of Teachers (UFT) is the largest local affiliate of NYSUT. About 40 percent of NYSUT's members are NYC educational employees. Many senior officials of the UFT hold senior positions at NYSUT.
Prior to NYSUT's endorsement of Aetna/ING in 1989 the teachers outside of the City were saturiated by high cost 403b products as they still are today. On the other hand the only 403b provider for UFT members has been the no-load 403b Program of the NYCity TRS which has been operational since 1970.
Q.: Prior to 1989 did the NYSUT attempt to get the State TRS to offer a 403b Program for out-of-City educational employees just like the UFT got the NYCity TRS to adopt a low cost 403b Program for City educational employees?
Q.: Prior to 1989 did the UFT suggest that out-of-City educational employees be allowed to contribute to the 403b Program of the NYCity TRS?
Q.: Prior to 1989 did the NYSUT ever approach a no-load outfit to design a 403b Program?
I believe in 1989 the NYSUT was hell bent on collecting some of those lucretive fees that its members were readily paying over the previous 25-30 years. So rather than follow the moral high ground and follow the no-load route traveled by 40 percent of its membership in NYC it decided to break the law and become a "silent partner" with one of those high cost vendors, Aetna/ING.
Peace and hope,
Joel
#13
Posted 16 June 2006 - 01:08 PM
In some of the documents it talked about how they needed the arrangement for operations of the program, they needed a specific amount. They saw this program as a cash cow to run operations and provide other benefits for other employees that were not part of the plan.
What amazes me is that they appeared to want to do the right thing, then didn't. They would consistently state the product was competitive - but they would only compare it to other variable annuity products.
They were not acting as fiduciaries. More interesting is that they were using the Ernst and Young program to funnel clients to ING reps and sometimes even charging them a fee, then placing them into the commission based product. So much for acting as fiduciaries.
I am encouraged that people will be able to get out of the program for free and into another product - hopefully that will be a good low cost product - but I doubt it!
ScottyD
What amazes me is that they appeared to want to do the right thing, then didn't. They would consistently state the product was competitive - but they would only compare it to other variable annuity products.
They were not acting as fiduciaries. More interesting is that they were using the Ernst and Young program to funnel clients to ING reps and sometimes even charging them a fee, then placing them into the commission based product. So much for acting as fiduciaries.
I am encouraged that people will be able to get out of the program for free and into another product - hopefully that will be a good low cost product - but I doubt it!
ScottyD
#14 Guest_Sierra_*
Posted 16 June 2006 - 01:17 PM
QUOTE(Scottyd @ Jun 16 2006, 02:08 PM)
In some of the documents it talked about how they needed the arrangement for operations of the program, they needed a specific amount. They saw this program as a cash cow to run operations and provide other benefits for other employees that were not part of the plan.
What amazes me is that they appeared to want to do the right thing, then didn't. They would consistently state the product was competitive - but they would only compare it to other variable annuity products.
They were not acting as fiduciaries. More interesting is that they were using the Ernst and Young program to funnel clients to ING reps and sometimes even charging them a fee, then placing them into the commission based product. So much for acting as fiduciaries.
I am encouraged that people will be able to get out of the program for free and into another product - hopefully that will be a good low cost product - but I doubt it!
ScottyD
All New York educational employees may join the no load NY State 457(b) Plan. Its a shame that the NYSUT did not use its considerable influence to encourage its members to join this plan rather than break the law by "silently partnering" with ING.
#15
Posted 18 June 2006 - 08:17 AM
THERE NEEDS TO BE A LESSON TAUGHT TO NYSUT/ING FOR ALLOWING 55OOO MEMBERS TO BE FLEECED. THERE WERE NO GOOD INTENTIONS HERE AS EVIDENCED BY THE LOW COST PLAN NYSUT MADE AVAILABLE TO ITS OWN EMPLOYEES. SOME SIMPLY MATH SUGGESTS OUR MEMBERS PAID FEES GREATER THAN 100 MILLION. NYSUTS DECISION TO SELL US TO ING IS AT BEST A BETRAYAL AND AT WORST CRIMINAL. THIS WILL NOT BE OVER UNTIL THERE IS A FULL ACCOUNTING EITHER BY A CLASS ACTION OR A REFUNDING OF FEES TO ALL BY UNION BROTHERS AND SISTERS
