A Civil Lawsuit Attempts to Exact a Meaningful Punishment in a Situation Eliot Spitzer Virtually Let Ride
The New York State United Teachers Member Benefits Trust is in richly deserved hot water — but it had to come from the a private lawsuit and not the government:
A lawsuit filed in federal court in Manhattan last week contends that a retirement plan offered by the New York State United Teachers breached its fiduciary duty when it accepted millions of dollars in payments from an investment firm in exchange for endorsing the firm’s products to plan members.
The lawsuit, filed as a class action on behalf of participants in the New York State United Teachers Member Benefits Trust, taps into a growing concern among retirement plan participants that excessive fees are enriching investment firms while diminishing their savings. The suit also signals to those overseeing plans that the investment offerings must be appropriate and suitable to plan participants.
According to the court filing, the teachers’ trust exclusively endorsed a high-fee annuity investment offered by ING Life Insurance and Annuity Company, a subsidiary of the ING Groep, a Dutch investment firm.
In return, ING reimbursed the trust for salaries of some employees whose jobs were to promote the company’s products to plan members. “The excessive costs of the plan compared to lower cost equivalents resulted in tens of millions of dollars of lost retirement savings†for the trust’s members, the filing said.
Under ERISA, plan sponsors’ and trustees’ paramount duty is to help participants get the best returns they can consistent with safety and preservation of capital. The arrangement described is clearly a disgraceful betrayal of that duty.
“Conveniently” overlooked is how in June of last year, New York Attorney General Eliot Spitzer, who was in possession of the same set of facts that caused the civil suit to be filed, and who “happened” to be running for governor at the time, let the Teachers’ Union Trust off the state’s legal hook in return for a $100,000 fine and a promise by the Trust that it would sin no more — in reality, little more than a wrist slap.
Would it be impolite to ask if the fact that the Empire state’s teachers’ unions are mostly Democratic Party members had anything to do with Spitzer’s lenient treatment?
