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State says life insurance offer to Pasco school district may be illegal

A proposal to give Pasco school employees free life insurance has failed to meet muster with the Florida Office of Insurance Regulation, effectively killing the idea.

The plan appeared not to meet state insurance law and might never have yielded payments to the families it was intended to help, the department's lead lawyer wrote in an opinion issued late Thursday.

District leaders said Friday they expected to end any further consideration of the concept, developed by Ohio-based Pollock Financial Group. They remained uncertain how a benefit written into the employees' 2013-14 contract, in anticipation of completing this deal, would play out.

The contract provides an $87,500 life insurance benefit to district employees, at no cost to them. It might not hold up, given the OIR opinion, United School Employees of Pasco negotiator Jim Ciadella admitted.

Still, he said, "this seemed really too good to be true. Some of the due diligence work probably should have been done prior to committing to anything."

District officials told the School Board in April they spent several months trying to determine the validity of the proposal, in which a group of New York investors would buy life insurance for all Pasco County school district employees in exchange for tax-free investment returns. Emails dating back to October 2013 show the staff seeking advice from several fronts.

The advice came back that nothing looked illegal. Still, the board remained dubious, asking for further investigation.

That effort took a major step when the OIR read about the concept in the Tampa Bay Times and, a couple of weeks later, demanded the district's documentation for an official inquiry. The findings included:

• Neither the district nor employees would be policy owners or beneficiaries. An offshore trust would hold the cards. As a result, "the Pasco County School District has no guarantee of receiving any monies from the proposed arrangement."

• Employees might not get free life insurance, as proposed, because any payouts would likely be taxable.

• The setup "may violate Florida's insurable interest laws," which govern who may buy life insurance for whom. A Bermuda investment vehicle and Cayman Islands trust "would not have an insurable interest in the lives of the employees."

Board members said they were glad state experts got involved, as the district does not have staff specializing in speculative insurance policy.

"I may have had a gut feeling, but the level of expertise they employed allowed them to base their conclusions on facts," board member Joanne Hurley said. "I would not want to embark on something like this after having read this letter."

Chairwoman Alison Crumbley noted the board gave only tentative approvals to keep reviewing the concept, and never authorized any contracts.

The details changed so often that the board never had a solid offer, she added. She and others sought input from their own contacts and were growing more uncertain over time.

"I'm just relieved the OIR did the work," Crumbley said. "I felt very confident that they'd get to the bottom of it, and they did. The process worked."

Bill Olive, national sales director for Pollock Financial, said he was disappointed by the state's findings. The company will abide by it, though, he said.

"We're going to withdraw everything and continue on our way," Olive said, suggesting the idea could be improved to help other government agencies in the future.

Pasco assistant superintendent Ray Gadd said the school district paid attention for as long as it did because of ongoing desires to find new sources of revenue to support expenses such as insurance and pensions.

Skepticism is required, he said.

"When you start looking out there for these types of things, everybody and their brother is going to come forward because they've got something to sell."

He said once it became apparent the OIR would nix Pollock's plan, Olive came to the district trying to sell a completely different but related program. Gadd sent Olive an email telling him not to contact the district again.

Board vice chairman Steve Luikart said he was pleased the administration looked at different ideas to boost the district's bottom line. He said they did a good job of not jumping into an expensive agreement the district and community might regret.

As Gadd said, "Who knows what would have happened had the press not gotten involved, if the OIR hadn't been involved?"

Jeffrey S. Solochek can be reached at jsolochek@tampabay.com.

State says life insurance offer to Pasco school district may be illegal 06/13/14 [Last modified: Friday, June 13, 2014 7:37pm]

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