A group of current and former West Virginia public school employees has filed a lawsuit against a provider to the state’s defined contribution (DC) retirement plan.
The lawsuit claims VALIC, a part of AIG, misled thousands of participants to invest heavily or entirely in its low-interest-rate annuities in the early 1990s, the Charleston Gazette reports. VALIC’s attorneys argue the company guaranteed only a 4.5% annual return, but some employees allege they were led to believe they would receive returns of 8% or higher.
The news report said the suit names VALIC and four of VALIC’s agents or employees who allegedly used “misrepresentations” to help persuade teachers to participate in VALIC’s fixed-annuity plan.
A spokesperson for VALIC told PLANSPONSOR, “We believe the plaintiffs’ claims in this action are without merit. VALIC has played an integral role in helping West Virginia teachers and other employees of the public school system save for their retirements and is proud that so many plan participants have chosen the guaranteed fixed-return product it offered.”
VALIC was one of several providers chosen by the CPRB as part of a defined contribution plan created in 1991 that differed from the defined benefit plan offered through the state Teachers’ Retirement System. Employees switching to the DC plan were required to invest only 4.5% of their paychecks into that plan as opposed to 6% into the state defined benefit plan.
However, realizing that the DC plan was not providing the best retirement outcomes for employees, the West Virginia legislature passed a law in 2008 allowing any of the teachers and school service personnel in the that plan to transfer back into the Teachers’ Retirement System.
The news report notes that employees have paid income taxes on the 1.5% difference in the amount they would have been giving to the original retirement plan and that they had to pay various other fees to rejoin the defined benefit plan. It is unknown what total amount all the current and former school employees could claim in damages.
Kanawha County Circuit Judge Carrie Webster said she has set aside one-and-a-half days to hear arguments before deciding whether the teachers and other school employees may be allowed to unite in a class action lawsuit.