The National Education Association (NEA), has been siphoning millions of kickbacks over the past 17 years to its members for their trust and convincing them that they should invest in annuities or other investment vehicles. These vehicles charge high fees and outperform similar plans on the open market.
The New York Times reported for the first time on Daniels-Hall v. National Education Association. This lawsuit was filed in Washington by two NEA members who alleged that the union had breached its fiduciary obligation by promoting its “Valuebuilder Plan.”
The NEA offers Valuebuilder, an investment portfolio that is only available to its members.
According to the lawsuit, the plan charged exorbitant fees. The NEA, by putting its name on the plan and taking kickbacks from it, puts its interests above those of its members.
This article outlined how certain plans were charging fees exceeding 10 percent. It was almost impossible to earn a positive return. Similar plans that are not part of the Valuebuilder portfolio, however, charge fees between 1 and 4 percent.
These plans were promoted by NEA through a subsidiary called NEA Member Benefit. According to the 2007 lawsuit, NEA members have invested more than $1B into Valuebuilder.
NEA Member Benefit makes more than $50,000,000 per year in return for ripping off its members. This is in addition to the $1 million in kickbacks that NEA affiliates receive directly.
According to the lawsuit:
Nationwide and Security Benefit received royalties and annual fees in exchange for their role in the marketing of the Valuebuilder annuities. They also took on the salaries and contributions to NEA charitable foundations.
The NEA received approximately $2 million annually in royalty income from Security Benefits.
Nationwide and Security Benefit received fees from investment firms whose mutual funds were made accessible through Valuebuilder annuities.
“The NEA didn’t fully disclose to its members what nature and amount of payments it received through Nationwide and Security Benefit received payments from investment companies whose mutual funds were included in the Valuebuilder Annuities.
Instead, the NEA promoted the Valuebuilder annuities offered by Nationwide and Security Benefit to be the most favorable retirement option, despite the fact Valuebuilder annuities were subject to fees up to ten times higher than comparable annuity contracts.
Because of the enthusiastic endorsement by the NEA, plaintiffs participated in section 403(b), the retirement plans of their school district employers. They selected Valuebuilder annuities over other annuities offered by their employers.
Nationwide was the only provider of NEA’s Valuebuilder portfolio up to 2000.
Security Benefit purchased it for $72 Million. It had assets worth well over $800 millions.
In 2005, Security Benefit filed a form LM-10 with the US Department of Labor detailing payments to various labor unions. This was the first record of Security Benefits lining the pockets of the union.
For employers making payments to union officers or labor unions, Form LM-10 federal financial disclosure forms must be completed.
Security Benefit opposed the filing but didn’t include any reason as to why it couldn’t meet the filing requirements. Security Benefit had clearly made financial contributions for marketing services to labor unions.
The form indicated that the amount of money going to four NEA affiliates was relatively low.
Alabama Education Association was the fifth affiliate and received five $17,500 payments each.
Security Benefit’s next financial disclosure was not filed until 2019. It showed that the frequency, amounts, and number of unions that were receiving payments increased significantly, with four quarterly payments totaling nearly $900,000. Each to NEA Member Benefit.
All factors were again increased in 2020 with NEA Member Benefit receiving five payments totaling more than $950,000.
NEA Member Benefit saw similar increases in the amount sent to unions and the number of unions that received payments in 2021.
The payments were likely to continue between 2005 and 2019, even though there was a gap in LM-10 filings.
However, the extent of payments made during this period is not known without official disclosure.
NEA has a vested in pushing these plans upon its members. But the most important question is how members feel about not having options.
The NEA should have the primary responsibility to protect its members’ interests.
NEA could have claimed ignorance prior to the first lawsuit against Security Benefit — but did so in a way that was not obvious to the court.
Officials from the Union claimed that just because their names were on the benefit program doesn’t mean that they have any control over it.
In fact, NEA used its trust position to encourage Valuebuilder participation while also receiving millions of dollars in kickbacks each year.
Undisputed, the union will attempt to twist the truth of the payments towards a benevolent end. Security Benefit went so far as to describe payments in unusually clear language on the federal filing.
“Payments are for services rendered to the subsidiary of the filing employer, and endorsement fees for products that retired members with the endorsement and assistance from the union. This is pursuant to a written arrangement between the subsidiary and filing employer.”
These plans are what they do, and why is NEA being sued?
Clinton v. Security Benefit Life Insurance Co. was a lawsuit filed in 2020 against Security Benefit. However, NEA wasn’t named at this point. Nine plaintiffs were named in the lawsuit, all of whom had annuities purchased under different indexes.
The case file contained a summary of the plaintiffs’ experiences. Each claimed that deceptive sales tactics were used to cherry-pick historical index data in order to show the best scenario for their investment vehicle.
One of the most common complaints is:
In 2015, Ella Clinton bought five total value annuities in Florida for $500,000 and then allocated 100 percent to the BPHD Index. Clinton’s account received 0 percent interest after a two-year period. In the end, she transferred 75 percent to a
Different indexes before you surrender all five annuities.
William Carrick, the plaintiff, purchased a Florida Total Value Annuity for $1 million in 2014. He also allocated 50 percent to the ALTV Index. After five years, the ALTV Index portion was credited with 0% interest.
In 2014, Howard Rosen bought a Secure Income Annuity from California for $53,000. He gave 75 percent of the account value to MSDA Index. He was then credited with 0% interest after a two-year term. The MSDA Index portion of his account was linked again for a two-year term. He received 1.68 percent interest during the second year.
Terri Stauffer-Schmidt, the plaintiff, purchased an Illinois Total Value Annuity for $249,000 in 2013. She also allocated 75 percent to the ALTV Index. Her account earned 0 percent interest after a five-year term. The account still earns 0 percent interest one year into the second five-year term.
Plaintiff Wai Hee Yuen bought a Total Value Annuity (IL) in 2012 for $100,000. The ALTV Index was then allocated 75 percent. The account was credited with zero percent interest after a five-year term.
Donald and Martha Cox bought three Total Value Annuities (Arizona) in 2013. They then allocated 75 percent of the account value (approximately $775,000) to ALTV Index. Their accounts were credited with 0 percent interest after a five-year term.
Plaintiff Michael Webber bought two Total Value Annuities (Illinois) in 2014 for $492,000 & $116,000. The ALTV Index was 50 percent of the account value that Michael Webber allocated to it. After a five-year term, his accounts were credited at 0 percent.
Jean Wright, a plaintiff in Nevada, purchased a Total Valu Annuity for $98,000 in 2013. She also allocated 100 percent to the ALTV Index. Her account earned 0 percent interest after a five-year term. The account still earns 0 percent interest one year into the second five-year term.
What were the results of these cases?
Daniels-Hall v. National Education Association was filed under the Employee Retirement Safety Act (ERISA). This law governs and sets minimum standards that all voluntary retirement plans in the private sector must comply with.
The Valuebuilder Plan was not under ERISA jurisdiction, and the lawsuit was therefore dismissed.
ERISA doesn’t have a fiduciary obligation provision that would apply in relation to the nature and relationship of NEA to its members or the Valuebuilder plan.
An appeal was filed and the 9th Circuit Court of Appeals affirmed the dismissal decision of the district court.
Since the attorney representing the plaintiffs did not respond to our request for comment, it is unclear as to why he filed the lawsuit under ERISA.
However, it is possible that the suit would have been stronger if it was filed under the Labor Management Reporting and Disclosure Act. (LMRDA) contains a fiduciary provision that would prevent a labor union from acting in its best interests over those of its members.
LMRDA was established after the McClellan hearings, which were centered on Jimmy Hoffa. More than 8,000 subpoenas for witnesses and documents were issued during an investigation into corruption and criminal infiltration.
The hearing lasted 270 days. 1,526 witnesses were interviewed, and 343 invoked the Fifth Amendment.
Following the hearings, it became clear that a special statute was needed to govern labor unions. The result was the Labor Management Reporting and Disclosure Act.
LMRDA basically states that members own the union’s coffers and have the right to inspect how it is spent and vote on officers.
LMRDA also sets out a wide fiduciary obligation for labor unions to protect the interests of their members.
It is possible that a situation in which a union profits heavily from a third party for marketing investment plans it members that are undoubtedly more expensive and generate inferior returns to similar plans would fall under the purview of LMRDA’s breaching of fiduciary duty.
Unfortunately, the facts of this case were not fully explored due to lack of jurisdiction.
It shouldn’t be necessary to win in court to see that the Valuebuilder Plan’s exorbitant fees benefit NEA more than its members, particularly those who were tricked into investing.
The 2020 lawsuit Clinton v. Security Benefit Life Insurance Co. began originally as two separate lawsuits with similar claims, but they were merged into one class action.
The case was dismissed on technical grounds, just like the 2007 suit. Clinton v. Security Benefit Life Insurance Co. was again dismissed on technical grounds, just like Daniels-Hall v. NEA.
NEA has been sued by its members directly for products offered by Security Benefit. Security Benefit has also been the subject of multiple lawsuits alleging the same thing.
This begs the question: Why would NEA continue not to use Security Benefit to build its Valuebuilder portfolio but also actively market its products and services to its members?
It’s possible that the millions of dollars the NEA is taking home could be in part to cover the poor performance of its Valuebuilder program.