Justices back Zakaib in stopping merger of teacher pension funds

By Steve Korris | Jan 16, 2008

CHARLESTON – Kanawha Circuit Judge Paul Zakaib made no mistake when he declared the merger of two teacher pension funds unconstitutional, the West Virginia Supreme Court of Appeals has decided.

After a hearing Jan. 8, three of five Justices refused a petition of the West Virginia Consolidated Public Retirement Board for an appeal of Zakaib's order.

Zakaib ruled that the board could not roll individual retirement accounts into the greater pension fund because assets in the individual accounts represented private property.

He held the merger unconstitutional not only as taking of property but also as a violation of contract clauses in the U. S. and state constitutions.

The merger would have combined an older fund, featuring variable contributions and definite benefits, with a newer fund featuring definite contributions and variable benefits.

Employees in the old fund could not set up individual retirement accounts. Employees in the new fund could, and many of them did.

The merger would have liquidated individual accounts of employees in the new fund and would have rolled those employees into the old fund.

Now the West Virginia Legislature, which enacted the merger three years ago, must write a new merger law or leave teacher pensions as they stood four years ago.

Legislators authorized the merger in response to a projected shortfall of several billion dollars in teacher pensions.

Jim Lees of Charleston, who represented employees challenging the merger, said the Legislature can fix the merger easily.

He recommends an option so employees in the new fund can either roll their pensions into the old fund or open individual accounts.

"If they were to do that, it's legal and they accomplish what they set out to do," he said.

The old fund withholds six percent of salary. The new fund withholds 4.5 percent.

"The defined contribution plan is less expensive, and the state's record in its operation of the defined benefit plan is horrible," Lees said.

He said about 22,000 employees belong to the new fund.

Lees sued the retirement board in April 2006, on behalf of Anthony Barbario and Richard Goff.

Zakaib granted a temporary injunction against the merger in May 2006. He entered a final order against it last January.

The retirement board petitioned for appeal last May.

At the Supreme Court of Appeals on Jan. 8, Justice Larry Starcher said the Court should hear the appeal because other courts deserved to know if the law was constitutional.

Starcher persuaded only one of his colleagues. He and Justice Joseph Albright would have granted the appeal, but Chief Justice Spike Maynard and Justices Brent Benjamin and Robin Davis refused to grant it.

Charles Love III of Charleston represented the retirement board.

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