AIG VALIC Relents on Revenue Sharing Disclosure

The insurance company agreed last week to disclose its revenue-sharing agreements as part of a new 457 retirement plan offering to Los Angeles Unified School District (LAUSD) employees.

According to the LA Times, in meetings this summer, teachers serving on an advisory committee learned that the funds in the district’s 457 plan would assess an average annual fee of 0.27% on account balances for revenue sharing. According to the report, AIG VALIC initially opposed explicitly disclosing this fee separately to teachers, preferring instead to leave it as an imbedded component of the 0.72% investment management fee charged by each fund.

Similar to 401(k) plans in the private sector, 457 accounts allow public-sector workers to set aside a portion of their salary and not pay taxes on it until they begin withdrawing it in retirement. Starting this month, the Los Angeles school district is for the first time making a 457 plan available to its teachers.

Disclosure Concerns

Steven Schullo, who served on the LAUSD advisory committee, said that AIG VALIC had no intention of disclosing the fee separately to teachers, according to the Times. However, Schullo and others objected, contending that revenue-sharing fees are often inflated. Full disclosure, they said, would allow teachers to choose funds in the 457 plan with lower revenue-sharing fees or opt out.

The Times said that, in response to the criticism from Schullo and others, school district benefits manager David Holmquist pressed AIG VALIC to fully disclose the revenue-sharing fees. “The committee wants full disclosure,” Holmquist told AIG VALIC Vice President Ron Gatti at a meeting in the district’s offices last week, according to the report. However, Gatti resisted, saying that disclosing general administrative fees of 0.15% and fund management fees, which will average 0.72%, would be sufficient. “I’m afraid the revenue sharing would just confuse people,” Gatti said, according to the report.

Teacher Alan Warhaftig countered that the district might find itself liable for failing to disclose the fees, citing lawsuits recently filed against sponsors of several large 401(k) plans in the private sector over failure to disclose similar revenue-sharing payments (see Lawyer: Excessive Fee Suits Not an Organized Anti-Plan Campaign at http://www.plansponsor.com/pi_type10/?RECORD_ID=34943). The district’s teachers union, United Teachers Los Angeles, also threatened to withhold its support for the 457 plan unless full disclosure was made.

Objections Withdrawn

In response, Gatti said the company would create a separate page in marketing presentations that would spell out the portion of the fund management fee that was paid to AIG VALIC through revenue sharing. As the result of the compromise to boost disclosure, the teachers withdrew their objections, although they remained critical of the revenue-sharing provisions in the funds.