A group of Texas public school educators has filed a lawsuit against Commercial Union Life Insurance Co. of America, alleging that the insurer convinced them to cancel their existing annuities without disclosing fees or penalties, and told them they could reduce their debts by taking out loans against their annuities — without telling them the consequences.
The suit was filed on behalf of Bobby Templeton and Michael Trudeau, both high school assistant principals, Mario Vasquez, a high school principal, and Juan Villanueva, a middle school teacher, in U.S. District Court in Nueces County, Texas, on April 13. The suit, which is seeking class action status, was filed by the law firm of Martin, Drought & Torres of San Antonio. Also named in the suit are Pro Financial Group of Austin and Platinum Insurance Marketing of Santa Barbara, Calif., independent brokerages that sold the annuities.
Mark McVeigh, vice president of marketing at Commercial Union, which is based in Boston, declined to comment on the allegations, saying that the company had not received a copy of the lawsuit. However, he says the company is unaware of any "inappropriate behavior" among its agents.
The suit targets Commercial Union's TSA Flex XV annuity, which was sold to the educators as a 403(b) plan, a retirement plan for public and non-profit employees. The suit alleges that Commercial Union convinced the teachers to roll over their existing annuities into a new one despite the surrender fees they'd have to pay, and increase contributions to the point where they were living off their savings. The increased contributions resulted in increased agent commissions on the annuity sale, according to the suit.
It is also alleged that Commercial Union misrepresented the annuities as a "debt consolidation" program, by which customers could take out loans against their annuities to pay off their debts. However, the suit claims Commercial Union did not tell policyholders the consequences of taking out a loan against a 403(b) plan. Under the federal tax code, loans against annuities in a 403(b) plan must be paid within five years or they are treated as an early distribution and thus subject to taxes.
| Vasquez says he was assured by the company
that he would
recover the tax and penalties through the plan's "debt consolidation" program. |
In March 1999, Vasquez claims he met with an agent from Pro Financial Group and Platinum Insurance Marketing who persuaded him to roll over his existing annuity with Northern Life Insurance Co., even though it meant he would incur surrender fees.
He also alleges that the company persuaded him to increase his contributions by $540 to $1,700 each month to "max out" his 403(b) contributions. To do this, Vasquez cashed out his Individual Retirement Account (IRA) and obtained a home equity loan to pay his regular monthly expenses. He also reduced the amount he withheld in his paycheck for taxes, which resulted in him owing $4,000 in income taxes. Vasquez says he was assured by the company that he would recover the tax and penalties through the plan's "debt consolidation" program.
Once Vasquez found out that the product was misrepresented to him, the company refunded his money, and waived surrender fees on the annuity. However, they did not pay him back for other losses, according to the suit.
G. Wade Caldwell, an attorney for the plaintiffs, says that the TSA Flex XV annuity has not been approved by the Texas Department of Insurance. He estimates that 6,000 of them have been sold in Texas.
Caldwell says that anyone — not just teachers — who bought the annuity under the premise of a "debt consolidation" salespitch would be an eligible class member.
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