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Teacher Pension Transfer Faces Possible Penalty
A player in West Virginia’s 401(k)-style retirement plan for educators may levy an estimated $11 million “surrender charge” against the state when thousands of plan members transfer into another state-run pension program next month.

June 10, 2008-- State officials contend the threat comes as VALIC seeks leverage amid allegations blaming its annuities and sales agents for the poor performance of the Teachers’ Defined Contribution plan. Formerly known as the Variable Annuity Life Insurance Co., VALIC believes its contracts with TDC enrollees allow it to assess penalties if they move too much of their assets out of VALIC-provided annuities.


Plenty of TDC members will be doing just that as of July 1, when they transfer into the pension-style Teachers’ Retirement System.

More than 78 percent of TDC’s enrollees — 14,871 active and 281 inactive members — agreed to move last month. VALIC’s annuities, meanwhile, reflect about 30 percent of all TDC assets, which totaled nearly $908 million at the end of the past fiscal year.

VALIC is now part of insurance giant American International Group Inc., which did not respond to e-mails and phone calls requesting comment Tuesday.

Both AIG and its VALIC subsidiary are co-defendants in a class-action lawsuit alleging fraud and misconduct in the sale of the annuities to TDC members. The lawsuit reflects complaints from enrollees who allege they were duped into selecting the annuities over other investment options. TDC allows members to generate retirement benefits by managing their own investment accounts.

Some of these members also say they were misled into leaving the Teachers’ Retirement System — and its traditional pension benefit — when TDC opened in the early 1990s.

“I think VALIC sees their ability to level the transfer charges as a bargaining chip going forward,” said Carte Goodwin, general counsel to Gov. Joe Manchin. “We already know of private lawsuits, but the auditor’s office is also looking into possible securities violations dating from the 1990s.”

State officials also remain unconvinced that VALIC can pursue this gambit, as the terms of its contracts with TDC members have changed over time. The specter of a penalty first arose during this year’s legislative session, when lawmakers crafted the proposal that allowed voluntary transfers out of TDC.

A recent analysis by The Associated Press found that TDC enrollees have invested more of their funds into VALIC annuities than any other option — as much as three-fourths of all funds at one point. The AP review also suggests that the annuities’ returns lagged behind other investment options, particularly since 2000.

Source/Writer:

The Times West Virginian
By: Lawrence Messina

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