CHARLESTON – School employees who borrowed on their pensions must fully repay the Consolidated Public Retirement Board even if they trimmed other debts through bankruptcy, the West Virginia Supreme Court of Appeals decided.
The Justices ruled March 5 that "pension loans were not 'debts' under bankruptcy law because the participants merely borrowed their own money."
They wrote that by the logic of Congress in pension law, a loan is nothing more than moving money from the right pocket to the left.
"Repaying the loan then becomes nothing more than shifting money back to the right pocket," they wrote.
Though they allowed the retirement board to recover loans from three individuals, they rejected the board's demand for interest.
That eased the pain of the three, for the loans linger from the 1980s.
The Justices wrote that "if one simply moves money from their right to their left pocket, it seems absurd for the right pocket to then demand that interest be paid for so long as the money sits in the left pocket."
School employees can no longer borrow from their pensions.
In the 1980s, they could borrow up to $8,000 from the former Teachers Retirement System, with five years to finance it by payroll deduction.
James G. Clay borrowed $3,830 in 1984, at 9.5 percent interest. He declared bankruptcy in 1986, owing $2,103.50.
Michael Corbett borrowed $6,403.17 in 1985, at 11.25 percent. He declared bankruptcy in 1987, owing $4,022.71.
Katherine Hoopengarner borrowed $6,503 in 1988, at 11.25 percent. She declared bankruptcy in 1989, owing $4,585.62.
As each bankruptcy case started, payroll deductions stopped.
All three would testify that they believed bankruptcy discharged the debts.
Pension managers believed it too, for an assistant attorney general wrote in 1990 that future petitions wouldn't discharge loans but past petitions probably did.
Out of the blue in 2003, demands fell on Clay, Corbett and Hoopengarner.
Clay paid $2,103.50, but received a demand for $7,671.24 in interest.
Corbett and Hoopengarner offered to pay their balances but balked at interest.
The board entered an order against them in 2005, and Kanawha Circuit Judge James Stucky affirmed it in 2008.
Stucky turned out right on principal but wrong on interest.
The Justices wrote that "the proper route would have been for the board to have immediately, in the 1980s, sought permission from the bankruptcy court to resume payroll deductions."
They wrote, "It was improper for the board to do nothing, and attempt to collect compounded interest decades after the fact."
Bradley Pyles of Logan represented Clay and Corbett. Timothy Sirk of Keyser represented Hoopengarner. Jeaneen Legato of Charleston represented the board.