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Save harmless clause bars employees and retirees from recouping Tax Deferred Plan investment losses from the School District

Save harmless clause bars employees and retirees from recouping Tax Deferred Plan investment losses from the School District
Meirowitz v Bayport-Bluepoint Union Free School Dist., 57 AD3d 858

Marcia Meirowitz sued the Bayport-Bluepoint Union Free School District after losing her contributions that the District transmitted to Horizon Benefits Administration, Inc., its third-party administrator of its retirement savings plan - a Tax Deferred Annuity Plan. The ?retirement savings plan? was made available to Bayport-Bluepoint's employees pursuant to Internal Revenue Code §403(b).*

Horizon also acted as a vendor of investment products and provided two investment options, known as Choices Unlimited and Choices Select.

Employees electing to participate in the retirement savings plan were required to enter into a written salary reduction agreement [SRA] with Bayport-Bluepoint. The SRA provided that Bayport-Bluepoint would deduct money from the participant's paycheck and transfer it to Horizon's custodial bank, where the funds would then be distributed by Horizon to the vendor selected by the employee-participant.

Significantly, the SRA contains a "Hold Harmless Provision" which provided that "[t]he Employee agrees that the Employer shall have no liability whatsoever for any loss suffered by the Employee with regard to his selection of an insurance company or mutual fund, or the solvency of, operation of, or benefits provided by said insurance company or mutual fund company."

The events leading to this lawsuit involved an investigation by the Attorney General of the State of Ohio that resulted in Horizon's assets being frozen and Horizon was eventually liquidated. Retired and active Bayport-Bluepoint employees who participated in the retirement savings plan and opted to have their salary reductions deposited in Horizon's Choices Unlimited product lost their money when Horizon was liquidated. They sued the District, alleging ?breach of contract.?

The Appellate Division said that Bayport-Bluepoint established a prima facie entitlement to summary judgment dismissing the lawsuit based upon the clear and unambiguous language of the SRA's Hold Harmless Provision. The Hold Harmless Provision said the court, "was clearly intended to encompass a situation like the one at hand."

The court also commented that only retirement savings plan employee-participants selecting the Choices Unlimited investment option offered by Horizon lost money. Employee-participants selecting Horizon's Choices Select investment option or having their money deposited in funds offered by other vendors did not suffer losses as a result of Horizon's liquidation.

* See, for example, Education Law Section 114 providing for reduction of salaries for investment in custodial accounts for employees of the State Department of Education and Education Law Article 8-C, authorizing a Tax Deferred Annuity Plan for employees of the State University, the City University and the community colleges.

Full post as published by New York Public Personnel Law on March 11, 2010 (boomark / email).