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Appeals Court Rejects Suit Over NEA Annuity Plan

A federal appeals court has upheld the dismissal of a lawsuit alleging that the nation's largest teachers' union aggressively marketed retirement annuities that charged fees that were ten times as much as those for comparable products.

A three-judge panel of the U.S. Court of Appeals for the 9th Circuit, in San Francisco, ruled unanimously on Monday that the National Education Association's Valuebuilder annuities were not regulated by the federal Employee Retirement Income Security Act of 1974 and, thus, the plaintiffs' lawsuit could not go forward.

The annuity plan was challenged by NEA members who work for the South Kitsap School District, in Washington state, and the El Dorado Union High School District, in California. They alleged that the NEA worked with the Nationwide Life Insurance Co. and, after 2000, the Security Benefit Life Insurance Co. to promote to its members the Valuebuilder Plan, an annuity choice available through the employees' employer-based retirement plans.

The suit alleged that the insurance companies paid NEA royalties of as much as $2 million, which the teachers' union did not fully disclose to its members. The NEA marketed the Valuebuilder annuities provided by Nationwide and Security Benefit as the most favorable retirement option for its members, despite the fact that Valuebuilder annuities charged fees that were as much as ten times those charged on comparable annuity contracts.

The suit alleged that the NEA knowingly duped the plaintiffs into purchasing unattractive annuities by "creating an atmosphere of trust and confidence that was exploited by defendants for their financial gain."

The suit purported to represent as many as 57,000 NEA members nationwide and involve investments totaling more than $1 billion, court papers say.

The suit's theory was that by endorsing, promoting, and marketing the Valuebuilder plan, NEA created a retirement plan subject to ERISA. But both a federal district court and the 9th Circuit court held that the NEA plan was not subject to the federal law.

"It is clear from the NEA's website and the prospectuses offered by Nationwide and Security Benefit that these annuities were not established or maintained by either Plaintiffs' school district employers or by the NEA," says the 9th Circuit's Dec. 20 opinion in Daniels-Hall v. National Education Association.

"Plaintiffs have only themselves to blame for trying to fit the square peg of defendants' alleged misconduct into the round hole of an ERISA suit," the opinion adds. "The annuities at issue in this case are not regulated by ERISA, but by the securities laws."

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