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Court Rejects Teachers’|ERISA Case Against Union

(CN) - The 9th Circuit on Monday dismissed a class action that accused the National Education Association of tricking teachers into buying expensive retirement annuities in exchange for millions of dollars in annual royalties.

The federal appeals panel in Seattle ruled that the lead plaintiffs - two public school teachers in California and Washington - had failed to state a claim under the Employee Retirement Income Security Act (ERISA) because the annuities at issue do not qualify as employee pension benefit plans.

"Plaintiffs have only themselves to blame for trying to fit the square peg of defendants' alleged misconduct into the round hole of an ERISA suit," Judge Diarmuid O'Scannlain wrote for the court.

Jerre Daniels-Hall and David Hamblen claimed on behalf of a purported class of 57,000 members of the educators' union that they were duped into purchasing so-called Valuebuilder annuities offered by Nationwide Life Insurance and Security Benefit Life Insurance.

The teachers argued that since the 1990s the union had convinced its members to purchase more than $1 billion in annuities by "creating an atmosphere of trust and confidence that was exploited by defendants for their financial gain," according to the plaintiffs' complaint, quoted in the ruling.

That "financial gain" amounted to about $2 million per year in royalty income, which the NEA did not disclose to its members, the plaintiffs alleged. The insurance companies also took on the salaries of 110 NEA representatives and contributed to NEA charitable foundations, according to the ruling.

The teachers accused the union of breaching its fiduciary duty by pushing the annuities despite the much higher fees that Nationwide and Security Benefit charged in comparison to other firms.

U.S. District Judge Ronald Leighton dismissed the case over jurisdiction, finding that the teachers' ERISA lawsuit could not stand because the Valuebuilder annuities were not covered by ERISA.

The three-judge appeals panel affirmed but found that satisfying ERISA requirements is a matter of the case's merits, not jurisdtion.

"It is clear from the NEA's website and the prospectuses offered by Nationwide and Security Benefit that these annuities were not established or maintained by either plaintiffs' school district employers or by the NEA," O'Scannlain wrote. "The NEA's website explains that the 'NEA Valuebuilder Variable Annuity is a flexible purchase payment deferred variable annuity issued by Security Benefit Life Insurance Company and distributed by Security Distributors, Inc." (Emphasis in original.)

Since the NEA is not registered to sell securities, it cannot establish or maintain annuity contracts for its members, O'Scannlain added.

"The annuities at issue in this case are not regulated by ERISA, but by the securities laws," he wrote. "And the companies issuing these securities are regulated by the Securities and Exchange Commission and various state insurance regulators, not the Department of Labor."

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