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Another Fine Example

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Yet another reason to assume the worst when dealing with insurance salesmen.

 

http://www.nola.com/news/t-p/frontpage/index.ssf?/base/news-10/1120456590131180.xml

 

 

 

 

Teachers in New Orleans, B.R. file similar suits against insurers

Teachers sue over annuity plan

Monday, July 04, 2005

By Meghan Gordon

St. Tammany bureau

Kevin Frye had seen the fliers posted at 6th Ward Junior High School north of Pearl River and thought the investment plan they advertised could help him.

 

"Time is ticking," the fliers said. "Don't forget!" "Today is the final day."

 

 

The physical-education teacher wanted what the fliers offered: to earn interest on his withheld summer income, add to his retirement nest egg and maintain the same take-home pay.

 

After microwaving his lunch in the teacher's lounge that day in May 2000, Frye paused to enroll in the investment plan. Now, he regrets signing -- admittedly in a hurry -- the stack of papers the salesman put in front of him.

 

"It would take me three days to read through the papers I signed," he said.

 

Frye said he and other St. Tammany Parish teachers eventually learned what wasn't splashed across the fliers: the possibility of owing more money than they put into the plan and being forced to take out an unending cycle of loans against their annuities to receive summer paychecks. The plan's sellers contest the claims and describe their plan as a legitimate investment the plaintiffs didn't bother to try to understand.

 

"I swallowed it hook, line and sinker, because I thought the School Board was looking out for our best interest," Frye said, adding he feels let down by school officials who allowed the salesmen on campus. "I just feel like whoever looked at it didn't look at it close enough, because if they had, they probably wouldn't have endorsed it. I know I wouldn't have."

 

He and four other teachers have asked a judge in St. Tammany to certify their lawsuit against the investment plan's hawkers as a class action and add to the list of plaintiffs dozens of their colleagues also looking to recoup money from it.

 

The Summer Pay Annuity Retirement program, or SPAR program, was marketed to teachers who received paychecks year-round, instead of just the months they spent teaching. School districts typically offer the option of withholding income from each pay period to fund teachers' summertime checks.

 

Plaintiff's lawyer Kevin Tully said his clients were pitched a savings plan that would have allowed them to earn interest on that withheld money. In reality, Tully said, the program established annuities with the deferred summer income, from which teachers unknowingly took out loans to cover their summer paychecks. They were expected to repay the loans in the following year or face penalties. Annuities are tax-deferred investments that guarantee specific payments, usually upon retirement.

 

Named as defendants are John C. Hazard, who pitched the investment plan to underwriters and sold it to teachers; his company, Teachers Retirement Services; fellow salesman William Tyson Vanlandingham; and underwriters Columbia Universal Life Insurance Co. and American Heritage Life Insurance Co.

 

Defense lawyers, who have disputed all claims of misrepresentation, hope to halt the case before it becomes a class action by challenging its timeliness. The St. Tammany teachers signed up in spring 2000 and sued three years later. Plaintiffs' lawyers have argued their year to sue didn't start until well into the program, when they first started to understand its terms. But defense lawyers said their testimony proves they knew or should have known the terms of the program at least by fall 2001, still more than a year before they sued.

 

 

Other lawsuits

 

Teachers from New Orleans and Baton Rouge have filed similar lawsuits in their respective state courts, also attempting to earn class status against sellers of the SPAR program. The Orleans teachers -- Sharon B. Mumford, Emma W. Landrum, Clifton J. Allen and Nancy J.H. Collins -- sued the same salesmen but a different insurance company, Jackson National Life. The Baton Rouge suit names a different set of defendants: Ronald L. Seale; his company, Tax Sheltered Savings & Investments; ING North America Insurance Corp. and Reliastar Life Insurance Co.

 

"If you would have seen these pitches, you would have bought it," said lawyer Jennifer Willis, who represents the possible classes of Orleans and Baton Rouge teachers that she estimated to be in the hundreds. "I would have bought it. It looked like you couldn't lose."

 

Willis said teachers who enrolled in the SPAR plan learned that they weren't going to reap the financial rewards they were promised. The plantiffs' stories, according to Willis, include that of one teacher who received a $109 check upon retirement, after investing many times that amount, and that of a Baton Rouge coach who was stunned to learn that he owed the Internal Revenue Service $4,000 after he took a job in another school district and effectively broke the terms of the investment plan.

 

"It's sort of like that old song, you owe yourself to the company store," Willis said. "You keep getting deeper and deeper and deeper. People were just trapped in it."

 

 

The fine print

 

Besides the timeliness issue, defense lawyers have tried to cut down the teachers' claims that they were hoodwinked by the salesmen into a bad investment.

 

Judy Barrasso, who represents the three insurance providers in the St. Tammany suit, described as preposterous the teachers' claims that they knew nothing of the plan's actual terms, given that they signed contracts that contained the words "annuity" and "loan" dozens of times and received subsequent mailings about their enrollment.

 

"Lots of them said, 'Oh, we didn't know this involved a loan,' " she said of the plaintiffs' testimony in preliminary court hearings. "But it's all over there in one document, 30 times."

 

Barrasso said the five teachers complained about their investments only after independent insurance agent Bebe Labourdette convinced them that they had been dealt a raw deal.

 

"The bottom line was that this was ginned up by her," Barrasso said. "She's trying to sell them retirement (plans) and was upset that these guys were in the schools."

 

Labourdette declined to comment for this story.

 

Defense lawyer Edward Bergin, who represents Hazard, Vanlandingham and Teachers Retirement Services, said the five St. Tammany plaintiffs have fundamentally misrepresented the SPAR plan, which he called a well-intentioned investment to allow teachers to capture some of the interest that would have otherwise gone to the school district withholding their summer pay. He said the plan had fees comparable to other annuities and wasn't designed to hold a teacher's entire retirement savings.

 

Bergin tried to establish during a June 23 court hearing in Covington that each of the teachers earned money from SPAR. Mandeville Middle School teacher Phyllis Ibos, for example, put in $4,406 in 2000, her first year, and has seen it grow to $5,080.

 

"I don't think we've seen anybody who's really lost money on this deal," Bergin said. "The annual statements just don't bear that out."

 

 

Teachers want out

 

But the defendants' explanation of the program didn't satisfy the two dozen teachers who hoped to become part of the suit. Filling one side of Judge Elaine DiMiceli's court, they snickered at defense lawyers' statements at times and applauded when a fellow teacher testified that she simply wanted out of the program.

 

Several teachers, who would not give their names, said they wouldn't have gotten into what they described as a financial mess had the school district barred salesmen from campuses.

 

St. Tammany school Superintendent le Sloan did not respond to an interview request. Hazard said in a deposition that he outlined the program for Ron Caruso, the district's director of business affairs, and individual principals before getting clearance to enter teachers lounges.

 

John Lamarque, School Board president in the year Hazard pitched the plan on school grounds, said he never heard about the investment plan or teachers' complaints about it. He said teachers' concerns about salesmen operating inside schools is a chief example why the board hired a third-party administrator in the past year to review insurance or financial programs offered to teachers.

 

"It used to be that any insurance company that could get permission to do so could come into the schools and hawk their wares, and sometimes the teacher's lounge was full of insurance salesmen," Lamarque said. "That's why we went to this other system. Just because of that sort of thing."

 

. . . . . . .

 

 

Meghan Gordon can be reached at mgordon@timespicayune.com or (985) 898-4827.

 

 

 

 

 

 

 

 

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Guest Sierra

Notwithstanding the fact that one of the Defendants is ING, a major player in the 403(b) arena, their innocence or guilt should not be pre-judged.

 

Joel

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I'll repeat a recommendation I made some months ago. Regardless of whether the products are beneficial for teachers or not, salespeople should not be allowed to pitch their wares in our workplace.

 

However, if teachers actually prefer to have the salespeople available, then school systems should require the salespeople to distribute a clear disclaimer to every staff member they speak with. Something like...

 

"Hello. I am a salesperson working for ABC company. I am selling you a financial product and will make a commission on this sale. Please speak with an indepedent financial advisor before considering this, or any other, financial product."

 

Something this simple may have helped at least some teachers in this case...

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I think these posts are right on target. FT says READ THE CONTRACT BEFOR YOU SIGN. Absolutely on target! Unfortunately, that's not revolutionary. Apple says PUT A WARNING LABEL ON THE PACKAGE. I could not agree more, do it now! Well, maybe that'll work to save a few financial lives. But the evidence is that there will be many casualties.

 

I say, MAKE EVERY 403(b) PLAN AN ERISA PLAN WHERE A SPONSORING EMPLOYER HAS A FIDUCIARY OBLIGATION TO PLAN PARTICIPANTS. Employers, even SD's - have the resources to properly govern these plans and keep an eye out for these and other sorts of scams. They need to have a financial incentive to care.

 

I know there will be many who will raise the flag of consumer choice - which is sacrificed when an employer has liability (& hence takes control). But consumer choice in this arena means high ME Fees, excessive loads, and outright theft.

 

If SD's had to face the rigors of ERISA, we'd see an immediate change in the product distribution methods that lead to these sort of abuses.

 

Just my 2 cents worth!

 

Cheers,

 

Danc

 

 

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I say, MAKE EVERY 403(b) PLAN AN ERISA PLAN WHERE A SPONSORING EMPLOYER HAS A FIDUCIARY OBLIGATION TO PLAN PARTICIPANTS. Employers, even SD's - have the resources to properly govern these plans and keep an eye out for these and other sorts of scams. They need to have a financial incentive to care.

 

I know there will be many who will raise the flag of consumer choice - which is sacrificed when an employer has liability (& hence takes control). But consumer choice in this arena means high ME Fees, excessive loads, and outright theft.

 

 

I'd raise the flag of consumer choice myself...but it may be possible to have our cake and eat it too. If a district has options that include the full-service companies right alongside the no-loads, the consumer then has all the choices (s)he needs...along with the caveat that (s)he still needs to examine the options and read the fine print before making a decision, of course. (I go back to READ BEFORE YOU SIGN as an essential life lesson.)

 

If the current administration has its way, though, your wish will be granted, as 403(b)'s and 401(k)'s will go the way of the dodo and ERSA's and LRSA's will replace them. The funny thing is, everyone automatically assumes that if this happens, Vanguard will be everywhere and the full-service companies will simply disappear. I've heard people suggest that the need for "fiduciary responsibility" will inevitably lead to one no-load selection after another. But we see the exact opposite in place now, where companies such as the one detailgal works for cite "fiduciary responsibility" in keeping full-service companies in place.

 

From where I'm sitting, it would be FAR preferable to keep the current systems in place, warts and all, so that consumer choice is maintained. And for all those whose knee-jerk reaction is to disagree, contemplate how you might feel if you work in a district where Vanguard is on the menu and you're using them now, only to discover that your new SOLE option for an ERSA or a LRSA is the devil's spawn (aka ING). What then?

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