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Teachers want to unite, sue over retirement investment

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Teachers want to unite, sue over retirement investment
By Ryan Quinn, The Charleston Gazette

Attorneys argued from about 9 a.m. to 5 p.m. Tuesday about whether possibly more than 4,100 current and former West Virginia school employees can band together in a lawsuit against a company that allegedly misled them into investing retirement savings into a plan that didn’t perform as well as the traditional state Teachers’ Retirement System.

Kanawha Circuit Judge Carrie Webster said she has set aside one-and-a-half more days in the courtroom this week to hear arguments in the case, though she didn’t know after the many hours of debate Tuesday when she would rule on whether the teachers and other school employees can be allowed to unite in a class action lawsuit.

The claims in the case date back almost a quarter of a century, to when agents for a company called VALIC, now part of AIG, allegedly misled thousands of participants to invest heavily or entirely in its low-interest rate annuities in the early 1990s. VALIC’s attorneys argue the company guaranteed only a 4.5 percent annual return, but some employees allege they were led to believe they’d receive returns of 8 percent or higher.

The case was originally filed in Marshall County in 2008, where proposed class representative Cheryl Dougherty teaches, before it was transferred to Kanawha in late 2009, according to Webster’s recollection. Lawyers for the plaintiffs said the defense attempted to transfer the case to federal court before judges there remanded it back to Kanawha.

Harry Bell, a Charleston attorney representing the plaintiffs, said he believes it was the state Consolidated Public Retirement Board that originally moved the case to Kanawha, where state agencies have the right to have cases against them heard. The CPRB was a defendant in the case until Bell said it settled with his clients last week, though he declined to describe Tuesday what that settlement entailed.

The CPRB was targeted for its alleged fiduciary duty “to choose appropriate and honest financial service providers” for state employees using the retirement systems and to supervise the practices of those chosen providers. The suit is continuing against VALIC and four of VALIC’s agents or employees who allegedly used “misrepresentations” to help persuade teachers to participate in VALIC’s fixed annuity plan. One of those agents was Ramona Cerra, a former state delegate.

VALIC was one of several providers chosen by the CPRB as part of a Teachers’ Defined Contribution Plan created in 1991 that differed from the defined benefit plan offered through the Teachers’ Retirement System. Bell said state employees taking advantage as part of the Defined Contribution Plan had to invest only 4.5 percent of their paychecks into their retirement while the state would invest 7.5 percent -- as opposed to the traditional 6 percent investment from both the worker and the state.

When it became apparent that the Defined Contribution Plan wasn’t performing well, the state passed a law in 2008 allowing any of the then-19,000 teachers and school service personnel stuck with the severely underfunded plan to transfer back into the Teachers’ Retirement System.

Stacy Jacques, an associate attorney for Bell, said that Dougherty, for instance, had to pay more than $13,600 for the privilege to rejoin original plan, which she switched from to join the VALIC plan after Cerra allegedly told her that the Teachers’ Retirement System “was in grave danger” and there would be no retirement by the time she reached 55, according to the suit.

Cerra also allegedly pressured Dougherty, misrepresented information and omitted facts about the VALIC plan’s projected performance to get her to transfer.

 “We think it’s fraud,” Bell told Webster Tuesday. “We think it’s clearly all fraud, and that VALIC set up their entire system to take advantage of and entice teachers.”

That $13,600 was based off the 1.5 percent Dougherty would’ve been contributing had she stayed in the Teachers’ Retirement System.

Jacques said that Dougherty, before rejoining the Teachers’ Retirement System, also had to pay income taxes on the 1.5 percent difference in the amount she would have been giving to the original retirement plan had she not gone with VALIC, and she had to pay various other fees to rejoin her original plan. Jacques said she didn’t know the total amount all the current and former school employees could claim in damages, but noted that some of them also paid for investment advice when the Defined Contribution Plan showed weakness.

Atlanta, Georgia-based attorney Tod J. Sawicki, representing VALIC and its employees, argued Tuesday that Dougherty’s payment to rejoin the original plan actually made her break even, in part because she invested the 1.5 percent extra she would have been contributing elsewhere. Moreover, he argued that the individuals allegedly harmed between the Defined Contribution Plan’s creation in 1991 -- after the Teachers’ Retirement System was recognized as the most undercapitalized public pension plan in the nation -- and 2008 likely have claims that are too different to join them together as a class.

Sawicki argued that the defense and the court would have to analyze exactly what VALIC agents specifically said to each plaintiff -- or whether they were contacted by VALIC agents at all -- and whether the plaintiffs actually believed what the agents said or relied on other information, possibly from the CPRB.

He said the amount the individuals could claim in damages could also be too different to join them as a class, noting that they could’ve switched away from VALIC anytime they were with the company.

Bell -- who, like Sawicki, used video interviews of VALIC agents to make his case -- argued that the allegedly harmed employees are similar enough to join together, and that a class action suit would give certain workers, like custodians, a chance to recover money that they’d otherwise be unlikely to receive through individual lawsuits.

Regardless of the size of the eventual class -- if one is approved at all -- Jacques said more 700 employees have retained legal representation to file individual suits. The attorneys start again in their arguments 9 a.m. Wednesday.