1) Indiana State Teachers Association
Insurance Trust Near Bankruptcy, Under Investigation.
The insurance trust fund managed by the Indiana State Teachers Association
and overseen by the union's top officers
faces a $67 million deficit due to "high-risk investments." The state's
securities division and the FBI are reportedly investigating.
Bill Ruthhart of the Indianapolis
Star broke the story last Thursday and added further details
Saturday. According to Ruthhart:
"The health program was losing money and
cashing in its investments to keep up with claims payments. As a result,
[the Indiana Department of Insurance] helped broker a tentative deal with
United Healthcare, which is expected to take over the health insurance
program July 1.
"In the process, however, state
regulators say what they found was startling: more than a dozen high-risk
investments in hedge funds and private equities accounting for 88 percent of
the trust's $19 million in assets."
Much of what remains cannot be
liquidated because the money is tied up in long-term investments. That's bad
enough. What's worse is the trust has about $86 million in liabilities. It's
about $40 million short in long term disability obligations alone.
A report commissioned by the state found
that ISTA Executive Director Warren L. Williams and Morgan Stanley
investment broker David Karandos controlled all investments made by the
fund, and that Williams approved a 50 percent fee hike for Karandos "despite
large losses in the portfolio" and the fact Karandos was also receiving full
commissions on his more than 4,000 trades over a nine-month period.
Williams, who had announced his impending retirement last month, resigned
effective immediately last Thursday.
"They need to open their books,"
Insurance Commissioner Jim Atterholt said. "We don't think ISTA membership
is aware of how serious the situation is, and we don't even know how
well-informed their board is."
ISTA Deputy Executive Director Dan Clark
also said it was unclear how much the union's board of directors knew. "It's
my understanding that (Williams and Karandos) reported information to the
boards," he said, "but there are some issues about how well all of the
information was explained." If the state union's top officers were ignorant
and incurious about such large sums of money, well,
it wouldn't be the first time.
Part of the reason for the doubts is an
April 28 memorandum from ISTA insurance trust director Richard J. Darko to
the union's UniServ directors (attached
as Exhibit A here). In it, Darko does not mention the trust's financial
problems, and insists UniServ directors keep districts from dropping the
ISTA long term disability coverage, to the point of threatening grievances
against districts who try to opt out:
"It is CRITICAL that you remind your
local leaders that long term disability insurance, and all other insurance,
is a mandatory subject of bargaining. A school corporation cannot drop an
insurance plan, add an insurance plan, or change an insurance plan, without
the agreement of the local collective bargaining agent.
"We implore you to suggest strongly to
your local leaders that there be NO AGREEMENT on a change in regard to long
term disability coverage carried by the Trust, for the next 30 days.
"ISTA's Programs and Legal departments
will vigorously assist any local association in filing proceedings with the
Indiana Education Employment Relations Board to stop attempted, unilateral,
changes in long term disability coverage."
Even with a new insurance carrier, the
ISTA trust would still be responsible for the 650 teachers to whom it
currently pays disability benefits, and would still be liable for $21
million in health insurance credits. If the trust defaults, Indiana
taxpayers would be on the hook for those funds.
The directors of the trust made efforts
to generate more income to close the deficit, but at least in one case, a
school board didn't fall for the pitch.
The Bloomfield Board of School Trustees
voted unanimously to drop ISTA as the district's health coverage
reinsurer after the union's financial services corporation proposed a 26
percent increase in premiums.
"We had an outstanding claim year last
year...We only used about 67 percent of what could have been our maximum
claim liability amount," superintendent Dan Sichting said. "When that
happens, usually when it is at 72 percent or below, premiums hold where they
are, or the premiums decrease."
The board voted just before the story
broke. The Washington Township school board plans to follow suit. I've
posted on EIA's
a current ISTA analysis of all fringe benefit costs and coverage for
each school district in the state, including a table of long-term disability
The ISTA Financial Services Program has
faced controversy before. Several ISTA members
sued the union subsidiary and MetLife for misinformation about their
403(b) retirement plans. With strange timing, the U.S. District Court was
scheduled to grant the union's motion to dismiss that two-year-old lawsuit
on or about last Friday.
Indiana becomes the second NEA affiliate
this year to experience a financial scandal because of a subsidiary. The
Hawaii State Teachers Association Member Benefits Corporation filed for
bankruptcy after being "grossly mismanaged," according to a team of
attorneys and accountants.
2) The Story Behind the Story.
On April 27 I received a tip from a source outside the union that Indiana
State Teachers Association Executive Director Warren L. Williams had been
fired, that the firing was related to financial problems with ISTA's
Insurance Trust, and that an internal NEA investigation had been launched to
determine if any wrongdoing had occurred.
That's pretty big stuff on my beat. I
don't have eyes and ears everywhere, but I did my best to dig further. All I
could learn was that Williams hadn't been fired, but that he had announced
his retirement (effective at the end of the year) on April 25 at the ISTA
Representative Assembly (RA). I also discovered that ISTA had received a
clean audit, though I couldn't determine if the Insurance Trust was included
as part of that audit. No one at the national level knew anything about an
In short, I couldn't confirm any of it
as true, and could confirm one key fact - Williams' firing – was false. So I
kept the net out for further information but filed the story away. As it
turns out, I was sitting on something that wouldn't hit the state's
newspapers for another two-and-a-half weeks.
The Darko memorandum, referenced in the
above story, highlights a difficulty in reporting about teachers' unions:
information control. Union sources can't confirm facts they know nothing
about. ISTA's RA delegates weren't told about the insurance trust's immense
financial problems, and the union's UniServ directors were being advised to
stonewall any change to a school district's long-term care coverage for at
least 30 days.
One ISTA employee issued a flat denial even after the story broke.
I feel like I screwed up, but I don't
want my failure to get the story to discourage any sources out there from
sending tips my way. It's my job to separate the wheat from the chaff, but I
can't do it unless you pass along the grain.
3) California Teachers Association
Reaches Tentative Agreement with Staff Unions. The
California Teachers Association and unions representing their professional
and support employees reached agreement on a three-year contract. The deal
calls for no increases to the salary scale for the first two years, and a
1.6 percent increase in the third year
CTA's contributions to staff pensions
were the major sticking point in negotiations. The new contract includes a
12 percent increase in CTA's contributions, with 2 percent of that increase
coming from a "redirection" of CTA's contribution to employee 401k accounts
in the first year, 1 percent in the second year, and none in the third year.
Overall, the contract looks like a
victory for the staff, as major cuts, benefit caps, and revisions to
seniority language were averted. CTA did manage to hold salaries in check,
and was able to increase vesting for retiree health care benefits from 10
years to 12, beginning in 2012.
The next big union management/staff
battle now moves to NEA headquarters, where professional employees are
balking at a management proposal of a four-year contract with raises of 0,
0.5, 0, and 1 percent. One source tells EIA the staff held a
mini-protest/rally at NEA HQ last Friday.
4) Contract Hits.
Wherein we highlight a contract provision from the current agreement between
the National Education Association and its largest staff union. This is
Article 16, Section 3, subsection (a):
"If an employee who is required to
relocate within the meaning of Section 1 as the result of an involuntary
transfer or reassignment is unable to fulfill the terms of a lease on an
apartment or house which is his/her actual and primary residence and which
is located in the metropolitan area which includes the employee's principal
place of assignment, NEA shall indemnify him/her for any liability incurred
up to a maximum cost of 12 months rent, provided the employee authorizes NEA
to take such steps as it may deem appropriate to reduce his/her liability
under said lease."
5) Last Week's Intercepts.
Intercepts, covered these topics from May 11-18:
Randi's Garden. Performance pay cross-purposes.
California: Coming to a State Near You. Reason TV boils it down.
CA Public Employee Unions Account for Half of Initiative Spending. The
only people in California with money to burn.
Who's Climbing the Education Career Ladder? Teachers teach. So who moves
into labor/management positions and why?
United Teachers Los Angeles Opposes 1A. But they're paying to support it
6) Scheduling Note.
The next communiqué will appear Tuesday, May 26.
Quote of the Week.
"If you got ten or twelve of America's largest unions to relocate to the
metropolitan South, and offer its employees top wages and benefits for
routine clerical work, word would spread. Working for a national labor union
would now be coveted position. ("Hey, where do you work?" "I work for the
Teamsters."). By becoming an integral part of a municipal economy in the
Deep South, organized labor will have effectively infiltrated enemy lines
without, figuratively, firing a shot (i.e., without anyone even having to
join a union). Brilliant." – David Macaray. (May 15-17