U.S. Representative Barney Frank, chairman of the House Financial Services Committee, said on Sunday the government needs to determine if millions in employee bonuses at American International Group Inc can be recovered.

Embattled insurer AIG, which has received three government bailouts totaling $180 billion, had promised to pay about $1 billion in retention bonuses over a period of several years, half of which has already been paid.

AIG Chairman Edward Liddy said in a letter to U.S. Treasury Secretary Timothy Geithner that the firm was legally obligated to make already-committed 2008 employee-retention payments, the value of which were set early last year before problems at the Financial Products unit became public.

About half of the $1 billion was due to be paid to staff of AIG's main insurance businesses and the rest to employees of the largely unregulated AIG Financial Products.

AIG Financial Products was the unit that made bad bets on toxic mortgages and credit default swap contracts that led to the company's near collapse.

According to company documents obtained by Reuters on Saturday, the financial products unit is obligated to pay $220 million in employee retention payments for 2008, $55 million of which were paid in December and $165 million required to be paid by Sunday.

Liddy said in the letter the company agreed to revamp its system for paying bonuses after the Obama administration objected to the payouts.

(Reporting by Philip Barbara and John O'Callaghan; Editing by Bill Trott)