Indiana Teachers’ Insurance Trust Hopes to Unload Debt

Indiana’s largest teachers union is working to untangle its insurance trust from millions of dollars in liabilities while the state and the FBI investigate whether fund managers did something more than make risky investments.

The Indiana State Teachers Association’s insurance trust has a net worth of negative $67 million, according to the state Department of Insurance. The department found that some of the trust’s investments had “disturbingly low liquidity” and that too much was put in private investments that are not publicly traded.

The FBI is investigating the trust, according to a person familiar with the case who spoke on condition of anonymity because he was not authorized to discuss the investigation. State regulators referred the matter to state and federal investigators after they found several red flags, including an increase in fees when the fund was not performing well and an unusually high number of transactions, the person said.

ISTA Deputy Director Dan Clark confirmed that there have been allegations of “inappropriate fees and inappropriate trading as well as inappropriate investments.”

The FBI said it was aware of the situation with ISTA – a powerful lobbying force in the Statehouse representing about 50,000 teachers and other members – but could not confirm or deny that it was investigating. The Indiana Secretary of State’s office is taking a similar stance.

Clark said the Secretary of State’s office issued subpoenas for two former ISTA employees who made decisions about the insurance trust. ISTA Executive Director Warren Williams, who had planned to retire at the end of the year, announced May 15 that his retirement would begin immediately. The trust’s director, Robert Frankel, resigned earlier this month. The reasons for their departures are unclear.

The Associated Press left a message seeking comment for Frankel at his Noblesville home. Calls to Williams’ Carmel residence rang to a fax machine, and The Associated Press sent a fax requesting comment.

The Secretary of State’s office also issued subpoenas to the fund’s trustees, Clark said, adding that he did not know the exact reasons why the subpoenas were issued or who outside of the union received them.

Meanwhile, union officials are working on a deal that would have a partner take over liabilities in the trust’s health and long-term disability plans. Details of the deal are still being finalized, Clark said, but officials hope to announce specifics next week.

The union will have to make sacrifices in the deal, although Clark said it was too early to tell whether the union or its trust would need to lay off any of its 150 employees.

“No one’s going to help us with this problem without making certain that we have done everything we can possibly do in the first place,” Clark said.

ISTA is working with two insurance companies it hopes will take over its medical and long-term disability plans on July 1. The deals wouldn’t cover claims made until that date, Clark said, which is why ISTA hopes a partner will take over those remaining liabilities. If a deal isn’t reached on the remaining debt, school districts could be left on the hook to pay insurance claims.

The trust’s long-term disability plan is in worse financial shape than the health insurance side, with the trust about $40 million short in what it needs to pay disability claims over several years, according to the state.

ISTA represents the majority of the state’s 60,000 teachers, but only a portion of them are covered through the union’s insurance. The medical insurance is used by about 30 Indiana school districts and covers about 7,000 employees and family members, while the long-term disability insurance is used by about a third of the state’s nearly 300 school districts, Clark said.