Two Charleston law firms are filing a class-action lawsuit on behalf of participants in the Teachers Defined Contribution plan, contending that many were fraudulently misled into investing most or all of their pension contributions into low-interest fixed rate annuities.
“It’s based on fraud and misrepresentation,” said Rusty Webb, whose law firm has joined with Bell & Bands in filing the lawsuit in Marshall Circuit Court.
The suit contends that representatives of Variable Life Insurance Co. (VALIC) misled thousands of participants in the 401(k) style TDC plan to invest heavily or entirely in their low-interest rate annuities in the early 1990s. VALIC has since been acquired by AIG Retirement.
“There’s a constant pattern of misrepresentation,” Webb said Thursday. “Whether you talk to someone in Marshall or Mercer county, or Berkeley or Cabell, the scenario is identical.”
Because of poor investment decisions, the vast majority of the nearly 19,000 teachers, school service personnel and administrators enrolled in TDC have critically under-funded retirement portfolios. That led to legislation this spring to give TDC enrollees the option to transfer to the Teachers Retirement System, a defined benefits plan.
Webb said the firms waited until the transfer election deadline of midnight Monday before filing the lawsuit.
“We didn’t want to file it before the voting was over,” he said. “We didn’t want to confuse an already confusing situation.”
The suit alleges that VALIC hired retired principals, school administrators and other “prominent local citizens” to sell the fixed-rate annuities in the schools. VALIC agents, the suit contends, systematically misled teachers and school personnel, advising many to switch from a TRS system they warned would soon be bankrupt, and encouraging investment in “safe” annuities, instead of “gambling” on stocks and bonds. In addition to VALIC and its agents, the firms also intend to make the Consolidated Public Retirement Board a party to the suit.
“We believe they had a fiduciary responsibility to not allow these quote-unquote investment advisers to run amok around the state,” Webb said.
Anne Lambright, director of the CPRB, said she received the required 30-day notice of the firms’ intent to sue the agency on Thursday. Under state law, 30-day notice is required before lawsuits are filed against state agencies or public officials. Lambright said she could not comment on the suit, because all she has received is the letter of notice.
“I can’t give you an answer or any kind of comment because I haven’t seen the complaint,” she said.
However, she said the office was flooded with calls Thursday from TDC participants concerned that the lawsuit could halt the TDC/TRS transfer process. “It’s just caused such a huge panic,” Lambright said. “We’ve been overwhelmed by calls the lawsuit engendered.”
In 2005, Charleston lawyer Jim Lees blocked a plan to have all TDC participants transfer into TRS, on the grounds it would have amounted to an illegal taking of assets from those who wanted to stay in the 401(k) style plan.
Webb said the current class action lawsuit does not attempt to halt the transfer process.
If the TDC/TRS transfer proceeds, which requires that a minimum of 65 percent of TDC participants elect to transfer, damages will be based on the buy-in costs to obtain full TDC pension benefits. If the transfer passes – and a preliminary count may not be available until later this month – buy-in costs could vary from a few thousand dollars to as much as $40,000 to $50,000, depending on transfer election percentages and how close an individual is to retirement age.
TDC participants who transfer to TRS but do not buy-in would receive a pension equal to 75 percent of normal TRS benefits.
AIG corporate spokesman John Pluhowski could not be reached for comment Thursday.
The Charleston Gazette
Staff writer: Phil Kabler