According to The (Louisville, Kentucky) Courier-Journal, Kathy Cheatham of Louisville says in court records that she stands to receive $925 a month less from Social Security as a result of her participation in her employer-sponsored plan when she retires and that, since she quit the lottery corporation in January, she has lost disability insurance.
Lottery employees aren’t part of the Kentucky Employee Retirement System. Instead, the lottery takes the 6.2% of their pay that would normally go to Social Security plus its own 6.2% contribution, and invests it in mutual funds, according to the Courier-Journal.
The lawsuit claims that lottery executives have minimized the impact on Social Security payments and told employees their accounts would “greatly exceed” the value of their Social Security benefit. Top executives benefited more from the plan, the lawsuit continues, because the corporation matched their 6.2% contributions dollar for dollar even if they earned more than the maximum income subject to Social Security tax, according to the report.
Cheatham, who says her losses are at least $100,000, has asked that her lawsuit be declared a class action on behalf of all past and current lottery employees.
Michael D. Grabhorn, Cheatham’s lawyer, filed the lawsuit in Jefferson Circuit Court. The defendants have asked that it be moved to U.S. District Court in Louisville. According to the Courier-Journal, Grabhorn said it’s questionable whether the plan ever met the requirements for a Social Security substitute. Such a plan “can’t have losses” and must guarantee a “reasonable rate of return,” making safe investments in such instruments as Treasury bonds, he said. “If you’re going to have a retirement system, it has to have a predictable growth rate.”
The lottery’s plan suffered losses during the stock-market declines a few years ago, Grabhorn said, according to the report – and it doesn’t control the risks because it lets employees choose their funds.
Additionally, employees who had contributed to Social Security before working for the lottery lost benefits under federal rules that reduce Social Security benefits for people who get money from plans outside the system. Workers not only lose the immediate benefit, they also lose cost-of-living increases based on the diminished payments, the lawsuit maintains. And after five years of not paying Social Security taxes, workers lose their disability coverage.
However, lottery employees chose the benefit plan, according to lottery spokesman Chip Polston, who told the Journal-Courier in a statement that two weeks ago full-time workers voted 178 to 19 to keep the current plan.