Current Pension Topics: Limits on Ex-PBC Employees

Current Pension Topics

Limits on Ex-PBC Employees

Q.: I know that a retiree from a city/state agency may go to work for a New York State Public Benefit Corporation (PBC) without the suspension of his/her pension. How about the reverse: May a retiree from a PBC go to work for a city or state agency without the suspension of his/her pension?

P.O.

A.: With one exception, the answer is no. Mr. John Murphy, former Executive Director of the New York City Employees Retirement System tells me the following: "A retiree from the Transit Authority can go to work for the city or state without suspension of his pension (Barbera court decision) but not other PBCs. This is a very restrictive interpretation from the Law Department. It may be challenged in court, with a good possibility of winning, but there is always the financial cost and the chance of losing. A union might take up the issue for a retiree but there usually is no incentive. You might want to read the decision. This is a very twisted issue."

On June 13, after many months of investigating the New York State United Teachers (NYSUT) and its Member Benefits unit, the Attorney General of the State of New York found that since 1989 the Member Benefits unit has continuously violated the law by not disclosing that the unit was selling/marketing to NYSUT members an ING variable annuity called "Opportunity Plus" (http://http://www.oag.state.ny.us/press/2006/jun/jun13b_06.html ).

NYSUT President Richard Iannuzzi, on June 13, 2006 wrote to NYSUT members: "It is clear now the trust, despite its best intentions, could have - and should have - historically provided greater disclosure of the fees paid to the trust by ING and more regularly reviewed investment options. Mistakes were made. They will not be made again."

403(b) investing was first made available to public school employees in 1961 and from that date forward New York's public school personnel have been inundated with high-cost investment products. Since 1989, NYSUT has been the primary player in the marketing/selling of these high-cost 403(b) investments to public school personnel. Thanks to NYSUT, more than $2.3 billion dollars is currently invested in the "Opportunity Plus" Variable Annuity.

Prior to 1989, when the illicit business agreement was first entered into with ING's predecessor, Aetna, NYSUT officials knew full well that Teachers outside the city were being flooded with commission-based variable annuities for their 403b investing. They also knew that the State and City Universities were using the no-load firm, Teachers' Insurance and Annuity Association-College Retirement Equities Fund (TIAA-CREF) for their 403(b) investing and that city public school employees, about 40 percent of the NYSUT membership, were never infested with high-cost products but used the no-load Teachers' Retirement System for their 403(b) investing. Moreover, NYSUT was sponsoring for its own employees a no-load 401(k) plan. Its leaders also knew that in all the aforementioned cases, the union could not possibly share in the commissions being paid by their members because their members were not paying commissions. Against this backdrop, union officials embarked on their illegal "silent partnership" with Aetna/ING. The Member Benefits unit couldn't wait to receive the first commission/fee check.

What Teacher in his/her right mind would buy a variable annuity after being told that some of the commissions/fees he/she was paying were being shared with their union?

It was only after knowing that Mr. Spitzer's office was investigating insurance and retirement products did Mr. Iannuzzi and his crowd decide to disclose the commission/fee arrangement. Of note: Prior to signing the marketing/endorsement agreement in 1989, all the major 403b vendors recommended to NYSUT that no vendor be endorsed. NYSUT would not hear of it.

A NYSUT member whose initials are B.N. wrote the following:

"There needs to be a lesson taught to NYSUT/ING for allowing 55,000 members to be fleeced. There were no good intentions here as evidenced by the low-cost plan NYSUT makes available to its own employees. Some simple math suggests our members paid fees greater than $100 million. NYSUT's 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."

Mr. Frank is a fee-only Retirement Financial Planner. He can be reached by telephone at (732) 536-9472, by fax at (732) 536-7373, or via e-mail at rollover@optonline.net.