By Associated Press
Montgomery AL – The Alabama State Employees Association, a leading lobbying group at the capital, receives more than one-third of its budget about $1 million annually from a company that the group has recommended state workers to use for retirement investments.
Now two state employees are suing the association and the company, Nationwide Life Insurance Co., claiming the arrangement is a bad deal for state workers.
They contend the association breached its fiduciary duty when it accepted payments from Nationwide, and that the association and Nationwide are benefiting from the plan at the expense of the participants.
The suit seeks an order halting the payments and giving nearly 12,000 state employees the money Nationwide has paid to the association.
ASEA's attorney, Joe Espy, said last week the suit is unfounded and the defendants have asked a judge to dismiss it.
Circuit Judge Howard Bryan has scheduled a hearing Sept. 9.
The Alabama State Employees Association represents state workers at the Legislature, lobbying for pay raises and other benefits. It also operates a political action committee, where its members contribute money that is distributed to candidates supported by the association.
Under state law, the association recommends a deferred compensation plan for use by state workers, and the state Personnel Board is "directed to adopt" the recommended plan. Then state workers, including those who don't belong to ASEA, can use payroll deductions to make contributions to the retirement investment plan.
ASEA first recommended a Nationwide plan to the Personnel Board in 1976. ASEA has presented the board with revisions to the Nationwide agreement over the years and had them approved. The last occurred in 2004, when the Personnel Board approved a new agreement involving Nationwide Life Insurance and its National Retirement Solutions.
State Personnel Director Jackie Graham participates in the deferred compensation plan, but she said the payments to the association were not mentioned in the agreement approved by the board four years ago.
Tax returns filed by the association show that the 2004 agreement provided ASEA with a major source of funding from Nationwide.
Out of $2.6 million in 2004 revenue ASEA reported, $950,000 came from a "Nationwide commission." ASEA's members provided $1.46 million.
Tax returns show the amount grew the next two years and was paid to a wholly owned subsidiary of the association as an "endorsement fee." The association reported endorsement fees of $1.1 million out of $2.8 million in total revenue in 2005 and $1.2 million out of $3 million in total revenue in 2006.
The suit was filed late last year by two employees of the state court system, Ruth Gwin and Sandra Turner, who participate in the plan.
Nationwide spokeswoman Erica Lewis said the company disagrees with the allegations and plans to aggressively defend itself.
"Nationwide was selected to offer retirement products and services in Alabama based on a competitive bidding process that was conducted by Aon, an independent consultant," she said.
She declined to say if there were any payments prior to 2004, citing the litigation as a reason.
The plaintiffs are represented by James "Chris" Christie Jr. of the Bradley Arant Rose & White law firm in Birmingham. The firm has done legal work for state government for many years.
Christie, who specializes in employee benefits, said the suit seeks to end "improper payments" to the association and return that Nationwide money to deferred compensation accounts of plan participants.
The suit could have broad impact. Gina Smith, spokeswoman for the state Finance Department, said 11,882 state employees currently have payroll deductions for the Nationwide plan.
The plaintiffs are seeking to make the suit a class-action case on behalf of state workers who participate in the plan.
The State Personnel Board is not named as a defendant in the suit, but the board voted in February to hire an attorney to review the matter because the board had approved Nationwide. That review is still in progress, Graham said Wednesday.
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