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The Honolulu Advertiser
Posted on: Monday, January 13, 2003

State finds new pension savings administrator

By Johnny Brannon
Advertiser Staff Writer

The state has quietly dumped the longtime administrator of its Deferred Compensation Plan for public employees and selected another firm owned in part by a parent company targeted in a major fraud investigation.

The state has put its new contract with CitiStreet LLC on hold, however, because of unrelated protests filed by other bidders, including Hawaii Benefits Inc., which has managed the plan for more than 20 years.

CitiStreet is a joint venture half-owned by Citigroup, one of the top lenders to collapsed energy giant Enron. Members of the U.S. Senate Governmental Affairs Committee have alleged that Citigroup helped Enron hide its massive debt problems from investors, and an investigation is ongoing.

The deferred compensation plan administrator manages the enrollment and record keeping for money that public employees elect to have deducted from their paychecks and invested for future needs such as retirement. There are more than 43,000 participants employed by the state and the counties of Hawai'i, Kaua'i and Maui.

The administrator proposes investments, but a state board of trustees makes the final selections of investment options and monitors their performance.

A petition that sharply criticizes Citistreet has begun circulating among some state employees, which asks the trustees to reconsider its award because of the fraud probe and other matters.

Acting board president Diana Kaapu did not return repeated calls. She recently issued a notice to clarify key issues related to the choice "because inaccurate and misleading information concerning actions" by the board had "been disseminated recently."

The selection was made in October under the tenure of former board president Davis Yogi, who now serves as state airports director. He said the seven trustees considered a range of factors in making their selection, such as the variety of services offered and how the firm would educate participants about their investment options.

Yogi said the trustees voted anonymously, and declined to say whether he was satisfied with the selection that was made. He said the trustees were aware of the fraud allegations involving Citigroup and made numerous inquiries about its potential impact on CitiStreet.

The current five-year contract with Hawaii Benefits was worth about $16 million, and had been extended for one year at about $3.3 million, he said.

The administrator contract was put out to bid because Hawaii Benefits' contract expires on June 30. The contract is paid for by plan participants through administrative fees, rather than by the state.

In a letter to the board, Hawaii Benefits president Mike Moss said he was "disappointed and perplexed" that his firm was not chosen to continue as plan administrator. He said the company enjoyed "the highest level of participant satisfaction."

He said the company had been given no indication that the board was dissatisfied with Hawaii Benefits and requested an opportunity to satisfy any changed expectations of board members.

The other company challenging the award is Great-West Life and Annuity Insurance Company/Benefits Corp.

The firm believes CitiStreet will unfairly be able to use a subsidiary to handle its marketing, Great-West senior vice-president of government marketing Gregg Seller said.

That would give the subsidiary access to plan participants' addresses and phone numbers to market other products that had not been approved by the trustees, he said.

He said the board had also refused to accept a written response to a clarification to the bid Great-West submitted.

"We weren't modifying the proposal, just explaining how it would work," he said.

Representatives from CitiStreet did not immediately return calls.

Many members of the Hawai'i Government Employees Association have called the union's headquarters to inquire about the new plan administrator and ask a wide variety of questions, HGEA deputy executive director Randy Perreira said.

"This is retirement money for these people, so certainly we would hope their money is safe," he said.

The union was apprised of the new contract but was not involved in the selection process and has little information about the challenges that have been lodged, he added.

Citigroup's links with Enron are being probed by the Senate panel's Permanent Subcommittee on Investigations.

"Enron's deceptions were shocking, and equally shocking was the extent to which respected U.S. financial institutions like Chase, Citigroup and Merrill Lynch helped Enron carry out its deceptions," the subcommittee's head, Sen. Carl Levin, D-Mich., said in a written statement.

Citigroup announced earlier this month that it would establish a $1.5 billion reserve to pay for litigation and settlements.

Reach Johnny Brannon at jbrannon@honoluluadvertiser.com or 525-8090.