INDIANAPOLIS (AP) -- The Indiana State Teachers Association and its parent organization have agreed to a proposed $14 million settlement with 27 Indiana school districts to resolve Indiana regulators' lawsuit targeting the state union's now-defunct health insurance program.
Secretary of State Connie Lawson announced the tentative deal Tuesday between state regulators, ISTA and the National Education Association in a case she said involved program "mismanagement" and "alleged defrauding" of Indiana teachers.
State officials had sued the ISTA — Indiana's largest teachers union — and the NEA in December 2009, alleging they violated state securities law by offering a health care plan for school districts.
The federal lawsuit said the health care program actually represented the sale of unregistered securities and that money generated from the program's insurance premiums was mixed with other funds, with much of the money going into risky investments.
The suit also alleges some of the money was used to pay claims for ISTA members in a long-term disability insurance plan — a situation Lawson's statement describes as a "Ponzi-like scheme."
The health care plans in question were sold to 27 school districts. If any of them fail to agree to the proposed settlement, Indiana's nearly 4-year-old suit will proceed to trial in October.
Lawson said the losses to the districts totaled $27 million, but that each would recoup only about half of that money under the proposal.
"This is the right result for teachers and schools," she said in a statement. "The tentative amount puts roughly 50 cents for every dollar lost from this mismanagement back to the school corporations."
ISTA spokesman Mark Shoup said the settlement money will come from funds the union recovered through lawsuits filed against its former insurance trust fund managers for risky investments blamed for the health insurance program's collapse in 2009.
"This money is coming from the entities that were responsible for this meltdown in the first place," he said.
Shoup said the teachers union is happy that a settlement has been reached in the long-running case. He called the proposed deal a "fair and final resolution."
The problems with the ISTA's health insurance program prompted the NEA to assume control of the group's state chapter in May 2009 due to the program's insolvency. The following month the ISTA it sold its downtown Indianapolis office building to a wholly-owned subsidiary of the NEA.
Shoup said a trustee appointed by the NEA continues to oversee the union's Indiana chapter.
Lawson's statement includes a link to a case summary which states that ISTA's "entities" violated state securities laws by selling "an unregistered security" in the form of participation in the union's health insurance program.
Indiana's suit alleges the program allowed school districts to accumulate surpluses from excess insurance premiums paid by teachers, money that was to be held as reserves "and invested on their behalf by ISTA."
Those surpluses and investment earnings were supposed to be used to lower future district health costs and other district expenses, Lawson's timeline states.
But in fact, participating districts received "falsified reports" showing the districts had more than $27 million in accumulated surpluses and earnings, when in reality no such reserves actually existed, the time-line indicates.
State regulators attributed the collapse of the ISTA's health insurance program to "poor investment decisions and mismanagement" by ISTA's trustees.
The timeline states that a review by the Indiana Department of Insurance found the trustees had invested 88 percent of the money intended for teachers' health care and disability insurance in "alternative investments" — far more than the originally planned 20 percent.