Compliance October 19, 2006

ING Agrees to Settlement in Spitzer Fee Suits

ING Group has agreed to pay $33 million to settle lawsuits which allege it took fees in exchange for promoting particular funds in retirement plans and did not disclose those fees.
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ING Group has agreed to pay $33 million to settle lawsuits which allege it took fees in exchange for promoting particular funds in retirement plans and did not disclose those fees.

New York Attorney General Eliot Spitzer’s office announced on Tuesday that, under the settlement agreement, ING would pay $30 million to New York state teachers who invested through ING and $3 million to New Hampshire state employees for failing to disclose the fees to retirement plan participants.

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Somewhat ominously, David Brown, assistant attorney general and head of the agency’s investment protection bureau, told Reuters that Spitzer’s office is pursuing similar investigations of other retirement plan providers.

In addition, the settlement requires ING to provide full disclosure of its fee structure to investors and provide new information about the payments it collects for including other companies’ funds in its retirement plans. Reuters reports the disclosure includes a cover-page summary of plan costs, a chart showing how expenses can eat into returns over time, and a statement saying fund managers are paying ING to have their funds offered as options.

Spitzer is expecting the settlement to have an impact on the retirement industry and that clearer disclosure will help individuals and companies choose lower-cost providers, Reuters said.

Spitzer began investigating ING after reading reports of a deal between the insurer and a New York teachers union in which ING paid the union as much as $3 million a year to endorse and promote ING annuity plans and did not fully disclose these payments to union members.

The union settled with Spitzer in June, at the same time the New Hampshire’s Bureau of Securities Regulation began an investigation, saying ING committed fraud and allowed improper trades of mutual funds, according to Reuters. The Bureau also accused ING of not disclosing revenue-sharing agreements with fund companies.

You can read more about the settlement at http://www.oag.state.ny.us/press/2006/oct/oct10a_06.html
Compliance October 19, 2006

Court Approves $11M Settlement in Co. Stock Suit

The US District Court for the Southern District of Ohio has approved an $11 million settlement for a class of former employees of Broadwing Inc., which sued the company for fiduciary breaches under the Employee Retirement Income Security Act (ERISA) relating to offering company stock as a retirement plan investment.
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The US District Court for the Southern District of Ohio has approved an $11 million settlement for a class of former employees of Broadwing Inc., which sued the company for fiduciary breaches under the Employee Retirement Income Security Act (ERISA) relating to offering company stock as a retirement plan investment.

In approving the settlement, the court pointed out it was unlikely the class would win a trial on the merits of the case. “Several district court decisions favor the possibility of establishing liability in cases alleging fiduciary breaches concerning holdings of risky company stock in individual retirement accounts, however, few of these cases reached the stage of a decision based on the merits,” the opinion said.

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In addition, the court said the settlement was favorable since the $11 million plus interest would provide valuable relief to all class members. The court also pointed out that the case is likely complex and a trial would take long and be expensive to litigate. The opinion said it would be more beneficial for the class members to take the settlement now, since a delayed award minus expenses could result in less relief for each class member.

According to the opinion, the plaintiffs alleged that Broadwing, its board of directors, its employee benefits committee, and the plans’ trustees breached their fiduciary duties by failing to follow the provisions of the plans, failing to ensure that Broadwing stock was a prudent investment, failing to monitor the plans’ fiduciaries, and failing to disclose material information regarding the value of Broadwing stock to the plans’ participants.

The class included more than 5,000 participants in the plans, which the court noted was almost all of current Cincinnati Bell employees who worked for Broadwing from November 9, 1999 to February 28, 2003. The court awarded the class the $11 million plus interest, less attorneys’ fees and reimbursements.

The case is In re Broadwing Inc. ERISA Litigation, S.D. Ohio, No. 1:02-cv-00857, 10/5/06.

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