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Lottery sued by former worker
Sunday, April 08, 2007 posted 03:00 PM EDT
A former employee has sued the Kentucky Lottery Corp., claiming that the agency's retirement plan will give her less money
and fewer benefits than would Social Security.
Kathy Cheatham of Louisville says in court records that she stands to receive $925 a month less from Social Security when
she retires and that since she quit the lottery corporation in January she has lost disability insurance.
Cheatham's lawyer says her losses are at least $100,000.
Lottery employees aren't part of the Kentucky Employee Retirement System. Instead, the lottery takes the 6.2 percent of their
pay that would normally go to Social Security plus its own 6.2 percent contribution, and invests it in mutual funds.
Cheatham's lawsuit names as defendants the lottery, several of its top executives and Fidelity Investments, an adviser to
the corporation. She has asked that it be declared a class action on behalf of all past and current lottery employees.
Michael D. Grabhorn, Cheatham's lawyer, filed the lawsuit in Jefferson Circuit Court. The defendants have asked that it be
moved to U.S. District Court in Louisville.
The lottery has had the retirement plan since it began operations in 1989. Spokesman Chip Polston issued a statement defending
the plan.
"We strongly believe the KLC has a good retirement benefits plan, that it was established according to law, and that it has
been properly administered," it said.
But Grabhorn said it's questionable whether the plan ever met the requirements for a Social Security substitute. Such a plan
"can't have losses" and must guarantee a "reasonable rate of return," making safe investments in such instruments as Treasury
bonds, he said. "If you're going to have a retirement system, it has to have a predictable growth rate."
The lottery's plan suffered losses during the stock-market declines a few years ago, Grabhorn said. And it doesn't control
the risks because it lets employees choose their funds.
Employees who had contributed to Social Security before working for the lotery lost benefits under federal rules that reduce
Social Security benefits for people who get money from plans outside the system.
Workers not only lose the immediate benefit, they also lose cost-of-living increases based on the diminished payments, the
lawsuit maintains. And after five years of not paying Social Security taxes, workers lose their disability coverage. The
lottery's own coverage ends when an employee stops working for the agency.
Lottery employees chose the benefit plan, Polston's statement said, and two weeks ago full-time workers voted 178 to 19 to
keep the current plan.
The lawsuit claims that lottery executives have minimized the impact on Social Security payments and told employees their
accounts would "greatly exceed" the value of their Social Security benefit.
Top lottery executives benefited more from the plan, the lawsuit continues, because the corporation matched their 6.2 percent
contributions dollar for dollar even if they earned more than the maximum income subject to Social Security tax. For 2006,
contributions to Social Security were based only on the first $94,200 of salary, but the lawsuit claims that lottery executives
making as much as $200,000 continued to receive 6.2 percent contributions to their accounts.
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