Lawsuit against Neenah reinstated

May 14--A lawsuit brought by 62 former Neenah teachers and administrators against their former employer has received new life.

Last month, the 2nd District Court of Appeals reinstated the case. The retirees contend that the school district, National Insurance Services of Wisconsin, MidAmerica Administrative & Retirement Solution, Community Insurance Corp. and three unnamed insurance companies should pay income tax, Social Security and Medicare costs and fines because they set up retirement accounts that failed to meet Internal Revenue Service requirements.

The retirees are seeking more than $2 million in damages.

Judge Paul F. Reilly wrote in the appeals court's decision that the lawsuit isn't about whether the IRS illegally assessed or collected taxes, but whether the district and its insurance companies "(failed) to exercise ordinary care in the administration of a 403(b) plan that, if proven, may entitle the retirees to relief in state court."

Winnebago County Judge John Jorgenson dismissed the case in May 2014, saying the former school district employees could use IRS procedures to recover their funds.

The retirement plan included a 403(b) account, which was set up for retirees to receive stipends over a 10-year period. A 403(b) is a tax-sheltered annuity subject to income and Federal Insurance Contribution Act (FICA) taxes, which go toward Social Security and Medicare.

The IRS audited the school district and found that the 10-year payout period violated income tax requirements. In addition, neither the district nor retirees paid FICA taxes on the stipends -- which amounted to another violation.

To settle the violations, the school district agreed to shorten the stipend payment period to 5 { years, pay $564,621 to cover the employer and employee shares of the FICA taxes and pay a $60,000 penalty.

The school board then sought reimbursement for the employee share from staff members who retired between 2006 and 2011. As a result, the district withheld portions of stipend payments from some of them.

In a statement, District Administrator Mary Pfeiffer said the district believes the lawsuit will ultimately be dismissed.

"The district paid out all of the post-retirement benefits that were due to the plaintiffs under their employment agreements. Once remanded to circuit court the district will continue to seek dismissal of the claims as they are deficient under state law standards," Pfeiffer said. "The district is disappointed that its resources and time must be devoted to further addressing the merits of these claims."

David Sebora, a retired Neenah counselor, said the whole series of events is disheartening.

Sebora said the school district should have reached out to the teachers during the IRS negotiations and told them about the problems. Sebora said he faced more than $10,000 in tax liability the year after he retired. He found out from a letter sent by the IRS.

"Nobody had that conversation, and if they had, I think some people (retirees) would have made some different choices," he said. "Nobody likes lawsuits, and lawsuits are really the last recourse to settle any conflict.

"There's that financial side, but then there's the relationship side. Relationships with a school district -- the place where many of us worked and loved for 25-30 years ... Those relationships have been fractured."

This is the second lawsuit against the school district that has been sent back to the Winnebago County courts.

Oral arguments will begin Aug. 14 for a lawsuit brought by 261 teachers who seek more than $61 million in retirement benefits.

In March, the Wisconsin Supreme Court denied the school district's request to rule on the suit. The school district petitioned the state's high court after the 2nd District Court of Appeals reinstated the case in October 2014. A Winnebago County judge dismissed the case in September 2013.

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