Another fleecing in the works? Employees, lawyers will be laughing all the way to the bank while some retirees subsist on $18,000 annual pensions

Bonus settlement reportedly worth $3 million Workers originally sought $1.75 million from state teachers retirement system

Friday, November 04, 2005
Bill Bush
THE COLUMBUS DISPATCH

The State Teachers Retirement System board could have paid $1.75 million in bonuses to 268 employees in 2003, but the price tag now could be much higher.

Last month, Judge Guy L. Reece of Franklin County Common Pleas Court found the pension system had breached a contract with those employees and ordered that the bonuses be paid. A settlement approved Wednesday night by the pension-system board is reportedly worth more than $3 million.

Those amounts could be dwarfed by punitive damages - a possibility that Reece has ruled he'll allow.

Reece has asked both sides to brief him on the legal issues surrounding punitive damages, but Michael Szolosi, the employees' attorney, said it's generally an issue left to the members of a jury, who "get to select the number."

That number is reviewed by the judge, who determines whether passion or exaggeration entered into jurors' deliberations, Szolosi said.

"In cases where there are a lot of economic damages, you can get large (punitive damage) amounts," said Ohio State University law professor Martha Chamallas.

In some cases, juries can consider "what would be punitive given the (size of the) organization," Chamallas said.

The teachers pension system is the state's second-largest public-employee retirement system, with $59 billion in assets.

Ohio and federal constitutional law place some limits on punitive damages, but Chamallas couldn't say yesterday how they might apply to this case.

The group's board voted 8-3 to approve a "partial settlement" of the lawsuit on Wednesday night, but members would not provide the details.

Sources said yesterday that the board agreed to pay slightly more than $3 million toward the original bonuses, the required employer contribution to the employees' pensions, accumulated interest and more than $600,000 in attorney fees. The sources spoke on condition that they not be named because of the pending court case.

The settlement is 71 percent higher than what the retirement system would have paid if it had followed the advice of Assistant Attorney General John Patterson in May 2004. Patterson told the board to pay the original bonuses, because if the case went to trial "you're probably going to lose."

A majority voted not to pay the bonuses, including representatives of Attorney General Jim Petro - Patterson's boss - and Auditor Betty D. Montgomery.

At the time, "we felt strongly it was a defensible case," said Montgomery spokeswoman Jen Detwiler. "We felt there was no contract."

The case involved annual bonuses that pension-fund workers had received, beginning in 1997, for meeting goals during the fiscal year. Toward the end of the 2002-03 fiscal year, the pension system held up the bonuses, and the board later decided to cancel them.

"I hope the end result of this is not going to affect the pensions of current retirees and future retirees," said Dennis Leone, who joined the board in September. He voted against the partial settlement Wednesday.

No documents exist detailing what the board approved, said Kim Norris, spokeswoman for the attorney general's office - which is representing the pension fund in the case.

The vote approved the settlement that was recommended in a private meeting by the special counsel appointed by the attorney general.

No minutes were kept of that meeting, Norris said. "It was simply an oral discussion."

Currently, the only record of what the board approved is in the memories of the board members and the other participants of the closed-door session, said pension-fund general counsel Bill Neville.

Leone said that he hopes everybody remembers the vote the same way.

"The public should have been given a summary," he said.

bbush@dispatch.com