Federal Bankruptcy Records, State Audit, Detail Financial Troubles of Hawaii State Teachers Association's Benefit Corporation-Grossly Mismanaged" HSTA MBC Treasurer is now trust administrator of new fund"
The Hawaii State Teachers' Association (HSTA), Hawaii public school teachers' only union, sent a letter to members March 2, 2009, telling them that their for-profit insurance subsidiary, the HSTA Member Benefits Corporation, had declared bankruptcy the day before.
With $575,403.29 in assets and $780,446.61 in liabilities, the HSTA admitted in the letter to teachers that the Member Benefits Corporation was "grossly mismanaged."
The letter arrived four months after the HSTA laid off the entire staff of the Member Benefits Corporation and shut down the organization's operations.
Teachers were assured that they would not lose their health benefits, because administration was transferred to another entity, the Associated Third Party Administrators (ATPA).
Teachers did not lose their benefits when ATPA took over the trust fund's Honolulu on March 1, 2009.
However, the new organization, touted by union leadership as an "outside company" with "no relation to HSTA" retained the same HSTA Member Benefit Corporation treasurer, Rodney Shinno, who bankruptcy proceedings listed under Potential Claims as having made a "breach of fiduciary duty."
Jim Williams, executive director of HSTA, did not return repeated calls from 'Hawaii Reporter' seeking comment.
''Union Insurance Subsidiary Leads to Sweetheart Deals''
Past-HSTA MBC President Mike McCartney explained that the trust's Chapter 7 bankruptcy happened when the HSTA's Member Benefit Corporation failed to report income and pay federal and state taxes on that income. The management's negligence resulted in tax penalties and interest of more than $400,000.
The HSTA set-up the HSTA Member Benefits Corporation in 1993 as a "clearinghouse" for insurance products solicited to teachers. This allowed select insurance companies access to membership contact information. HSTA Member Benefit Corporation actively promoted these insurance products.
Commissions received by HSTA Member Benefit Corporation included:
It is not clear from bankruptcy records specifically how these commissions were spent.
Not recorded as "assets" on HSTA Member Benefit Corporation's books were hundreds of small household appliances and a home theater system as well as tote bags, t-shirts, luggage sets, sailor hats, and other logo items that were used to entice teachers to purchase selected insurance products, but these were recovered in the Member Benefit Corporation's office.
John Radcliffe, former University of Hawaii Professional Assembly Associate Executive Director and current owner of a lobbying firm, said that while he is not opposed to member discount programs, many education associations are "deep into insurance scams, using memberships to benefit themselves."
Milt Chappell, National Right to Work attorney confirmed that there are many state education organizations in trouble. The Indiana State Teachers' Association (ISTA) insurance subsidiary, for example, filed for bankruptcy, and as a result, the union went into receivership and a lawsuit was filed against their executive director in August 2009.
''Teachers foot the bill for "gross mismanagement"''
When the Legislature reinstated the HSTA Voluntary Employee Benefits Association (VEBA) in 2006, allowing teachers to have their own health fund, the HSTA Member Benefit Corporation was selected by the union to administrate the trust.
Now, 4 years later, the HSTA assures its members that no money was lost due to the bankruptcy of the trust.
However, federal bankruptcy records obtained by 'Hawaii Reporter' show a $30,000 "start-up" loan using teacher dues was given to the HSTA Member Benefits Corporation. Bankruptcy records also detail a promissory note to HSTA and other outstanding checks totaling $79,217.72.
Unsecured claims included teacher severance pay. In addition, there was a reported $79,779 accrued vacation pay for HSTA Member Benefit Corporation President Raymond Sodetani
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