W. Va Teachers' Retirement Plan Merger Unconstitutional

January 29, 2007 (PLANSPONSOR.com) - A West Virginia circuit court judge has ruled that merging the state's two teacher pension plans is unconstitutional, handing a legal victory to a high school teacher who has been contesting the merger for two years.

The ruling by Judge Paul Zakaib comes nearly nine months after the Kanawha circuit judge temporarily blocked the plan to combine the two retirement funds to wait for a ruling in a case led by high school teacher Anthony Barberio, according to the Charleston Daily Mail. Barberio had argued that he was satisfied with the investments he made in his 401(k)-style account and that the move to merge the funds would cost him money (See Court Blocks W.Va. Pension Merger ).

The Barberio suit contended that more than 1,000 members in the newer, defined contribution plan believed they stood to lose sizable amounts of money if the merger were to proceed. The lawyer for the plaintiffs argued that the move would create debt for some teachers retroactively and that funneling the $645 million in assets into other fund would create a “bookkeeping nightmare” if the state later found the merger unconstitutional.

Most of the teachers in the state contribute to a 401(k)-style plan, which offers a full state match if the employee contributes 4.5% while the Teachers’ Retirement System (TRS) takes 6% of participants’ pay. The Teacher’s Defined Contribution plan was launched 15 years ago, but the TRS has been around for more than seven decades, according to the news report.

Because the two contribution levels are different, those moving from the 401(k)-style plan to the TRS would have to make sizable payments to catch up, according to the news reports.

That was the basis for Zakaib’s finding that the plan to merge the plans amounted to the “taking” of citizens’ private property, which the constitution prevents. “As the private property of each such member, the defendant (the retirement board) may not take such property of the (Teachers Defined Contribution Plan) members without the express consent of each such member,” Zakaib wrote.

According to the news report, after the West Virginia Legislature voted to close the newer plan – with a huge unfunded liability – and reopen the old one in 2005, about 62% of those who cast ballots voted to merge with the old plan.

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