NEA Hit with 403(b) Revenue Sharing Lawsuit

David Hamblen of  Diamond Springs,  California and Jerre Daniels, ofHall of Port Orchard , Washington filed the federal court lawsuit against the Washington, D.C.-based educators’ professional organization. The suit seeks class action status to represent the 57,000 teachers who it said have invested $1 billion in the NEA-endorsed 403(b) Valuebuilder  program.

Also named in the suit are plan providers Nationwide Life Insurance Company and Security Benefit Life Insurance Company and a variety of NEA officials.

Seattle law firm Keller Rohrback, representing the plaintiffs, charged that the NEA selected both the providers and the investment options based on their revenue sharing potential and not in the participants’ best interest. Participants ended up losing money, the suit charged, because the investment options selected had “excessive” fees, which ate into participants’ potential returns.

“Prudent and loyal fiduciaries, as opposed to conflicted and self-serving ones, would not have endorsed the plan nor encouraged participants to invest their hard-earned retirement savings in the plan,” the suit charged. “Indeed, the plan is widely regarded as one of the most expensive and worst performing retirement products offered to teachers and other school employees in the  United States.”

The suit charged that NEA and its benefits subsidiary should be considered fiduciaries because they endorsed the plan to members, worked closely with the providers to market and promote the plan, that the benefits unit – a registered investment adviser – tracks the plan performance and prepares monthly participant reports and that both NEA and the benefits subsidiary have representatives around the country to provide “face-to-face counseling.”

According to the suit, as a result, NEA and the benefits subsidiary “functioned as fiduciaries for the plan because they exercised discretionary authority or discretionary control with respect to the management of the plan (and) exercised authority and control respecting management or disposition of plan assets…”

Plaintiffs also alleged that the defendants never adequately disclosed the revenue sharing arrangements to participants.

Keller Rohrback announced in April that it was investigating the Valuebuilder program for potential Employee Retirement Income Security Act (ERISA) violations (See Keller Rohrback Targets 403(b) Program ).