The National Education Assn. faces a federal lawsuit accusing it of breaching its duty to members by recommending a high-cost retirement plan in exchange for millions of dollars from the managers of the plan.
The suit, which seeks class-action status, was filed by two of the 57,000 schoolteachers who the suit says invested $1 billion in a so-called 403(b) retirement plan endorsed by the NEA.
The suit says the teachers were lured to invest in the plan by assurances that the NEA "conducted an extensive review of numerous financial services companies to find the best provider." But the NEA's member benefit unit "received millions of dollars ... as the quid pro quo for NEA's exclusive endorsement," the filing says.
The money received by the NEA ultimately came from its members' pockets, according to the suit, through "excessive" fees charged by plan providers Nationwide Life Insurance Co. and Security Benefit Life Insurance Co. The fees reduced the returns earned by the teachers who invested in the plan, the suit claims.
Nationwide and Security Benefit were also named as defendants, as were the NEA's benefit unit and its directors. All of the defendants declined to comment on the suit, filed last week in U.S. District Court in Washington state, saying they had not received a copy of the filing.
The suit, which liberally quotes from a Los Angeles Times article about lucrative union endorsements of teacher retirement plans, is unusual in that it is among the first to contend that a teachers union could be considered liable for a bad retirement plan under the Employee Retirement Income Security Act, which governs retirement plans in private industry.
The act requires employers to act in their workers' best interest when screening retirement plans. School districts have largely escaped those dictates because the law says that if a district makes retirement plans available but doesn't encourage membership in any particular one, it does not have to meet the same duty of care as other plan sponsors.
The suit, however, says the NEA, by endorsing, marketing and selling a retirement plan, became both sponsor and administrator to the plan's participants.
The lawsuit asks that the fees paid to the NEA be returned to the participants. The amount of damages would be determined in court, said Jeffrey Engerman, a Los Angeles attorney who is representing the plaintiffs.
The case was brought by teachers David Hamblen of Diamond Springs, Calif., who works for the El Dorado Union High School District, and Jerre Daniels-Hall of Port Orchard, Wash.