Sept. 2 (Bloomberg) -- With securities regulators getting more aggressive about tracking down and punishing miscreants, it’s harder and harder to make a buck the easy way these days. Ponzi schemers are going to jail. Brokers who lied about the risks of auction-rate securities are flooded with lawsuits.

With all the pesky new supervision, it’s worth paying attention when someone scores easy money without apparently breaking any laws. Consider the bosses who call the shots at the Alabama State Employees Association, which oversees a $382 million deferred compensation program into which 21,000 state workers have socked away retirement money.

In a report posted on the state personnel Web site on Aug. 21, the Alabama Securities Commission, the state’s securities regulator, described how the folks who run the employees association hit up their plan provider, Nationwide Retirement Solutions of Columbus, Ohio, for millions in, ahem, “endorsement fees.”

Some of those fees took the form of a Napa Valley vineyard tour, player slots for a celebrity golf tournament, first-class airfare, souvenirs, Chicago Cubs baseball tickets and, for the executive director, a handsome boost in salary. Other goodies made it onto the Alabama perk list, too, but you get the idea.

Nationwide Retirement Solutions is the largest operator of so-called 457 deferred compensation retirement plans -- the public sector’s version of the 401(k). Its parent, Nationwide Financial Services, became a wholly owned subsidiary of Nationwide Mutual Insurance Co. in January.

Baseball, Tchotchkes

The money that funded the Alabama perks came from the largesse of unsuspecting state workers who hadn’t a clue that their investment returns were going for baseball games and tchotchkes at the resort gift shop. These payments to the employee association cost retiree accounts about $10 million from 2000 to 2008, the report said.

Yeah, yeah, I know what you’re thinking: Everybody knows that the public pension world is a sewer pit of back-scratching and payola, so what’s the big deal? Brokerage firms “pay to play” in order to get municipal bond underwritings. Money managers cough up fees to consultants for a foot in the door to run megabuck pension money. Amazingly, even the long brain-dead U.S. Securities and Exchange Commission is getting tougher on those twisted transactions.

The club-swinging, baseball-loving folks in Alabama, though, have been playing in a field that even the newly vigilant stock cops haven’t detected. “Kickbacks related to 457 plans are going on in every state in the country” with little notice by regulators, says Edward Siedle, a former SEC lawyer who investigates pension fraud and is a consultant to two plans, though not Alabama.

Separate Agreement

Investors had $113 billion in 457 plans at the end of 2008, most of it retirement savings of state and local government employees, according to Spectrem Group, a retirement market consultant.

Officials at Alabama’s personnel board were supposed to sign off on details of the deferred compensation plan. Regrettably, operators at the employees association kept the board out of the loop by sequestering terms of the Nationwide endorsement deal in a discrete contract, according to the report.

The report says the association’s executive director, Edwin Jean “Mac” McArthur, made $142,000 in 1998, before the sponsorship deal with Nationwide was struck, and $375,000 in 2007, thanks in large measure to the unwitting generosity of plan holders who were by then giving up 85 basis points of return to fees and expenses.

‘Politically Correct’

In one instance cited in the report, a consultant working with the employees association shot off an e-mail saying, in part, “I couldn’t think of a politically correct way to word the kick-back item.” The consultant, Juliette DeCarteret, worked for AON Consulting Inc., which was helping the association evaluate plan providers in 2003. The association ended up sticking with Nationwide.

A spokesman for AON said neither the firm nor DeCarteret had any comment.

McArthur didn’t respond to e-mail or telephone calls. J. Mark White, a lawyer who represents a for-profit subsidiary of the employees association, said in an e-mail to Bloomberg that the association cooperated in the investigation and had reached a settlement agreement that was nixed “in an unprecedented move” by the personnel board and Alabama’s attorney general, Troy King. King has opened his own investigation.

Get a Regulator

Joseph Borg, director of the Alabama Securities Commission, said in a telephone interview that the employees association should have been registered as an investment adviser because it was sharing in Nationwide’s commissions. That at least would have brought the group under a regulatory umbrella.

Indeed, beneficiaries of sponsorship fees including AARP and the National Education Association have registered as investment advisers for that very reason.

Nationwide Financial Services spokeswoman Carah Brody says Nationwide Retirement Solutions “is an ethical company who takes its regulatory responsibility very seriously” and continues to cooperate with regulators.

Brody says Nationwide Retirement Solutions has been conducting its own investigation “to ensure our business practices and procedures are in compliance.”

What a great idea. And here’s a place to start: Last year, Nationwide Retirement Solutions gave $814,000 in sponsorship fees to the International Association of Fire Fighters, $3 million to the United States Conference of Mayors and $7.4 million to the National Association of Counties, according to its Web site.

Does any of that sponsorship money come out of members’ accounts, as happened in Alabama? Each arrangement “is unique and separate,” Brody said, so the Alabama plan can’t be compared with those of other Nationwide clients.

Memo to 457 investors: Take a minute to badger your plan’s bosses to find out where your dollars are going. You shouldn’t be flying coach while the administrator is sipping fine wine up in business class.

(Susan Antilla is a Bloomberg News columnist. The opinions expressed are her own.)

To contact the writer of this column: Susan Antilla in New York at santilla@bloomberg.net

Last Updated: September 1, 2009 21:41 EDT