PUBLICATIONS Inside Illinois Vol. 25, No. 20, May 4, 2006

Financial group to be investigated for defrauding state employees

By Sharita Forrest, Assistant Editor
217-244-1072; slforres@illinois.edu

The UI Benefits Center and the Illinois State Attorney General Office have been asked to launch an investigation into the accounting practices and marketing of American International Group (AIG)-Sun America, a retirement savings and investment company that administers annuities for state employees and retirees, including people from the UI.

At its April 24 meeting, the Urbana-Champaign Senate unanimously approved without debate a resolution asking the state and the university to designate officials to check and verify AIG’s annuity calculations, review and monitor the company’s marketing and “provide for expeditious and efficient remedies safeguarding the interests and rights of employees/beneficiaries of the state of Illinois/University of Illinois.”

According to the resolution, AIG provided annuity calculations to account holders that did not comply with the average standard calculations of industry leaders. In two sample accounts, the calculations appeared to be 30 percent below industry averages, resulting in significantly lower benefits for the employees or beneficiaries.

John Kindt, business administration, presented the resolution on behalf of the Senate Committee on Faculty Benefits and said that “two solid cases” were discovered where AIG’s annuity calculations were questionable. Kindt, who is not a member of the faculty benefits committee currently but was elected to serve on the committee during the 2006-2007 academic year, had brought the matter to the committee’s attention.

Barclay Jones, chair of the Senate Committee on Faculty Benefits, asked senators to approve the resolution unanimously in order to send a “strong message.”

“Our concerns have been going on for a couple of years,” Kindt told the senate. “We want to send a message to the company and act as a unit on behalf of the state of Illinois and the University of Illinois. … This is another one of those concerns that relates to our employees and retirees, and we just want to make sure that everything is on track.”

Kindt said that AIG had been unresponsive to inquiries regarding the discrepancies and had contended that they were isolated cases.

The resolution said that the company also pressured account holders “to make hasty ‘take it or leave it’ decisions’ ” to accept its calculations. “In the two sample accounts, hasty decisions to accept AIG-Sun America calculations would have resulted in AIG-Sun America benefiting by thousands of dollars to the detriment of the account holders.”

Several Illinois legislators, including Rep. Naomi Jakobsson and Illinois State Attorney General Lisa Madigan, were faxed copies of the resolution after the senate meeting.

Robin Kaler, assistant vice chancellor for public affairs, said that the university is looking into the complaints. “We have a group that’s been assigned to research it and determine whether it should be addressed by the university or the state. As soon as we have more information, we will share it with the campus community.”

AIG-Sun America assumed administrative responsibility for state employees’ retirement accounts in 1999.

On Feb. 9, the U.S. Securities and Exchange Commission reached a $1.6 billion settlement with AIG as part of a global resolution of federal and state litigation involving claims of improper accounting, bid rigging and practices involving workers’ compensation funds. The SEC’s complaint identified a number of transactions in which AIG materially misstated financial results through sham transactions and entities created for the purpose of misleading the investing public.

Under the agreement, AIG agreed to undertake several corporate reforms, including appointing a new chief executive officer and chief financial officer and mandating that all its employees complete special ethics training, to prevent a recurrence of similar misconduct.

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