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Conflicts of Interest

Teachers union “benefits” frequently appear to benefit union officials more than they do union members. Recent investigative reporting has documented that when it comes to members’ retirement plans, union officials frequently offer up their endorsements to the highest bidder, regardless of whether endorsed plans actually meet teachers’ needs.

In July 2007, angry teachers filed suit against the National Education Association for its shady endorsement of a “Valuebuilder” plan that does anything but build value for its members and the $1 billion they have invested there. A 2006 The Los Angeles Times exposé on union benefit plans found that the NEA “collected nearly $50 million in royalties in 2004 on the sale of annuities, life insurance and other financial products it endorses.” And what do its members get? The right to “pay annual fees totaling at least 1.73% of their savings,” which is about ten times as much as what teachers would pay for low-cost plans that offer comparable returns. “The costliest option in the NEA-endorsed plan charges 4.85% a year,” the Times reported. “That means an investor would have to earn a return of nearly 5% just to break even.” The only people who benefit from these plans are union officials who reportedly receive payments akin to kickbacks.

An Ohio retirement planner told the Times: “The nature of the [union retirement fund] marketplace is such that you have these little under-the-table payments, or whatever you want to call them, and a good-old-boy network that really works against the teachers.” After profiling one teacher whose union-endorsed annuity netted one-fifth the return of her boyfriend’s 401(k), the Times wrote: “Public-school teachers across the country are in similar predicaments. And many have their unions to thank for it.”

Further evidence of union officials’ willingness to line their organizations’ pockets rather than those of their members is offered by the New York State United Teachers, the largest state affiliate of the American Federation of Teachers (and the second largest of the NEA). In May 2006, the New York Post reported that then-New York Attorney General Eliot Spitzer put off plans to receive NYSUT’s endorsement of his gubernatorial candidacy, since he was investigating the union’s financial relationship with insurer ING. A 2005 Forbes article highlighted the NYSUT Benefit Trust’s lucrative deal with ING, which pays “the union trust $6 for each of its members, or $3 million in 2005.”

The annuities offered to NYSUT teachers, however, are not quite as lucrative, Forbes reported: “For union members the deal includes variable annuity expenses as high as 3.56% and cancellation charges of up to 7% of assets. A teacher who puts in $10,000 for a decade and earns 5% annually will forfeit at least $3,976, or 63% of his returns, in fees.” Meanwhile, “The union’s 300 staff people save through a separate, cheaper 401(k) run by Fidelity.” Spitzer’s investment protection chief told The Los Angeles Times: “Under the guise of giving objective advice, the union not only endorsed this product, they steered people to it. They ultimately became a sales arm of the insurance company.”

NEA: Liable to Put Itself First

Another critical issue is liability insurance, which is meant to offer teachers legal and monetary assistance in the event of a lawsuit. Liability insurance is one of the most common reasons why teachers join unions (many are unaware that non-union professional associations typically offer liability insurance at much lower costs). In 1993, Forbes reported on a striking example of the NEA fighting to keep its membership beholden to the union for insurance, even when government offers to pick up the check:

Lamar Alexander, as governor of Tennessee, proposed that teacher’s liability insurance be provided by the state. To his astonishment, the NEA opposed him. “They were busy spending member money keeping the state from paying for liability insurance … They consistently advocate proposals that are against the interest of their members.”

The same article made clear that the NEA fought the change not to help its members, but to punish teachers who aren’t members: “Significantly, nonmembers who pay fair-share dues are not eligible for union-provided liability insurance.”