"Workers Furious at Association of Counties" and "A Billion-Dollar Retirement Rip-Off"

"County employees claim the National Association of Counties enrolled them in a "high cost, high risk" deferred compensation plan through co-defendant Nationwide Retirement Services, so NACo could collect an undisclosed "multimillion dollar annual fee." The federal class action claims that NACo did not disclose that it took money from Nationwide "for promoting and endorsing Nationwide's plan," until Forbes magazine disclosed it.

Tracy Jackson
County Manager at Lincoln County 

Organizations; ICMA, NACA, NACO, NCCCMA,
 NCACC General Government Steering Committee

...They call the NACo/Nationwide program "a complex, high cost, high risk, tax deferred variable annuity unsuitable for government retirement savings plans," and say that NACo promoted it simply to fill its own pockets.

     NACo, based on Capitol Hill in Washington D.C., provides "essential services to the nation's 3,068 counties," according to its website. It claims to offer "legislative, research, technical and public affairs assistance as well as enterprise services," and is "a national advocate for counties."

     The class claims that for 30 years, NACo partnered with Nationwide, promoting its Section 457 Deferred Compensation Plan in exchange for a "multi-million dollar annual fee," though NACo is not even a registered investment adviser.

...The class claims that those "participants receive no additional tax benefit from the variable annuity format," because the Section 457 plans are "already tax-advantaged."

The class adds that the plan is "subject to substantial insurance charges and withdrawal penalties," which reduces the value of the accounts and investment returns.

In addition, "the majority of the plan assets are steered into proprietary investment options and unaffiliated mutual funds that pay revenue sharing and other kickbacks to Nationwide," the class claims.

It adds that the plan "exposes participants to significant single-issuer credit risk, i.e. Nationwide's, for which they are not adequately compensated."

NACo disclosed in 2009 that it had accepted a $7.4 million annual fee from Nationwide in 2008, though NACo claims it conducted a "due diligence process" before choosing the plan, according to the complaint.

The class says the quality of the plan "suggests otherwise." It claims that "NACo intentionally gave plaintiffs and the class members unsound advice in order to collect its annual fee from Nationwide."

County employees do not benefit from the annual fee, and "no competent investment adviser would ever advise a client to invest money that was already in a tax-deferred account (like a Section 457 Plan), into a tax-deferred investment (like a variable annuity), because there is no advantage to offset the disadvantage of the tax-deferred investment's lower expected return," the class claims. (Parentheses in complaint.)

The class adds that the "high fees associated with the plan enable Nationwide to pay NACo the annual endorsement fee, which reduces the net rate of return received by participants in the plan."

"A Billion-Dollar Retirement Rip-Off"

In a move that could have far-reaching consequences for a $140 billion industry, the Orange County, Fla., Sheriff’s Office has filed a class action charging units of Nationwide Financial Services with receiving illegal kickbacks from fund companies whose products it included in public employee retirement plans.

...The suit involves so-called 457 retirement savings plans, which are a public-sector equivalent of the 401(k). The 457 market, with $143 billion in assets, is dominated by variable annuities, which are bundles of mutual funds or separately managed accounts bundled into life insurance policies by Nationwide and other vendors. Variable annuities have been widely criticized as poorly disclosing what are sometimes excessive fees.

The Orange County suit claims that over the past decade and a half, Nationwide received kickbacks from the firms whose funds it included as investment options based on a percentage of plan assets gathered. Insurers refer to the payments as revenue sharing. To critics, they smack of pay-for-play...

...Mandel believes Nationwide’s revenue sharing has also included payments from it to the National Association of Counties, the national representative of county governments, in exchange for an endorsement of the firm’s 457 variable annuities. NACo, in turn, has encouraged local affiliates, like the Orange County Sheriffs’ Office, to invest in Nationwide’s product, Mandel believes.

...NACo Executive Director Larry Naake confirmed that his organization has received payments from Nationwide and endorsed its 457 variable annuities since the early 1980s. NACo shares the payments with 42 state affiliates. It does not, however, disclose the payments to the county employees sold the product. Naake declined Forbes‘ request to do so, claiming the payments are part of a confidential “business arrangement.”

...an investigation by New York Attorney General Spitzer. It concluded that ING had paid the New York State United Teachers union $3 million annually to promote its variable annuities in a deal that deliberately misled teachers. ING agreed to pay $30 million and the union $100,000 to settle the charges of wrongdoing."

"Nationwide Retirement Solutions (Nationwide) makes payments to the National Association of Counties (NACo) and the NACo Financial Services Center Partnership (FSC) for the value of services and endorsements that they provide generally for all their members related to Nationwide's products and services.

Nationwide pays a fee to NACo and FSC
Nationwide paid a fixed amount of $7,800,000 to NACo for fiscal year ending December 31, 2012 in exchange for its exclusive endorsement of Nationwide's products and services in the deferred compensation program. Nationwide also paid approximately $972 during 2012 to NACo in support of promotional items at NACo conferences.

Nationwide paid approximately $173,679 to FSC for fiscal year ending December 31, 2012 in exchange for its endorsement and for its promotion of other Nationwide products and services.

NACo and FSC may apportion some of the fees they receive to state associations of counties for their endorsement of the products and services."


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