Retirement accounts belong to teachers, not board, Lees says

By Steve Korris | Jun 1, 2007


CHARLESTON – Teachers who have managed their retirement accounts wisely and teachers who have managed their accounts poorly would receive the same benefits if the West Virginia Consolidated Public Retirement Board has its way, according to attorney Jim Lees of Charleston.

Lees represents about 1,000 teachers who sued last year to keep the board from merging individual retirement accounts into a single fund.

About 28,000 teachers invest in individual retirement accounts. According to Lees, the accounts add up to about $700 million.

Lees argues that each account belongs to a teacher, not to the board.

Kanawha Circuit Judge Paul Zakaib agrees. He ruled in January that the board could not carry out the merger.

The board filed an appeal notice in circuit court May 25.

The board has 14 members including the governor, auditor and treasurer. The board runs two retirement systems for teachers – one from the 1930s and one from the 1990s.

A teacher in the old system receives a certain amount every month, no matter how much the board has collected on the teacher's behalf.

This "defined benefit" system led to severe underfunding in many states because pension boards did not assess enough contributions to keep up with their obligations.

Lees said May 30 that in West Virginia, "There were good payouts without adequate funding. They were billions of dollars behind."

In 1990, the Legislature created a new "defined benefit" system so teachers could start individual retirement accounts.

In the new system, school boards would match teacher contributions.

Retirement benefits would depend on individual investment decisions, not on a universal formula.

All newly hired teachers entered the new system. The board also allowed teachers to switch from the old system to the new one.

"In 2005 the Legislature suddenly decides to close the new fund, which happened to have seven hundred million dollars in it," Lees said. "They decide that they would merge the new system back into the old system, if teachers in the new system voted for it.

"Legislators said they heard complaints about the performance of investments in the new system. A cynical view would be that they grabbed seven hundred million to shore up the old fund which was still billions behind."

He said about 7,000 voted for the old system and 4,000 to 5,000 voted against it.

Lees, who ran for governor in the Democratic primary of 2000, said he heard from teachers he knew from campaigning.

He said they hard a hard time finding attorneys to represent them because the case would not yield a cash judgment.

"There is no money to gain, no one-third fee," Lees said. "It's not a car wreck kind of case."

He said he occasionally takes on a case that interests him, especially if it raises constitutional questions.

"Teachers I knew asked me, can they do this?" Lees said. "I took a look at it and concluded they could not."

Last year he petitioned for declaratory judgment blocking the merger, on behalf of about 1,000 teachers.

He claimed the merger would violate a clause in the U. S. Constitution that prohibits the taking of private property.

He claimed it would violate a clause in the Constitution that prohibits government interference with private contracts.

"My clients played by the rules," Lees said. "Some people borrowed against their accounts. Others invested well."

He said that if one teacher has built a retirement account to $150,000 while another has built an account to $5,000, they would receive identical benefits after the merger.

He said the Legislature had no authority to hold an election on the merger.

"You can't vote yourself around the Constitution," Lees said.

Zakaib agreed with Lees on both constitutional claims.

The board authorized an appeal in April. Lees said the board made its decision in executive session, closed to the public.

He said investment professionals have paid close attention to the case.

"The state is saying an individual retirement account is not your money, not your property," Lees said. "That would be news to a whole bunch of people around the country."

He said legislators insulted teachers by declaring they merged the systems because investment decisions were a heavy burden for teachers.

"Most Americans today are personally responsible for their retirement funds," Lees said. "The state is bucking a trend by going back to the old defined benefit system with its runaway costs and inadequate funding.

"How can that possibly be better for the state?"

More News

The Record Network