Insurance agent is sued over teacher pension pitch Fund withdrawal from state pension system at issue

October 02, 1992|By Robert A. Erlandson | Robert A. Erlandson,Staff Writer

A former football coach turned insurance agent is being sue for allegedly persuading between 100 and 200 Baltimore County teachers and state employees to withdraw from the state pension system and invest in a "pension maximization plan" that was no more than a life insurance policy.

The suit has been filed by Richard Eshmont, athletic director at Towson High School, against Carroll T. Giese, Jr., former coach at Woodlawn High School, and the Franklin Life Insurance Co. of Springfield, Ill.

Last month, Mr. Eshmont's lawyer asked the Baltimore County Circuit Court to make the suit a class action to include all employees who withdrew their pension contributions to invest in a Franklin program.

In the original suit filed last December, Mr. Eshmont, 41, said that Mr. Giese, 54, promoted the program using sales materials showing there would be no tax or penalty for withdrawing his $45,000 pension contributions and reinvesting in an individual retirement account.

However, in November 1988, before the deal was consummated, Mr. Eshmont learned that he was really buying a life insurance policy. He refused it, and Mr. Giese returned his $216 down payment. In July 1990, the IRS slapped Mr. Eshmont with a $17,000 penalty for early withdrawal from the retirement system.

The suit alleges that Mr. Giese, "acting on behalf of Franklin, induced between 100 and 200 Maryland state employees, primarily teachers in Baltimore County, to withdraw their interest in the State Retirement System and purchase a 'pension maximization plan' " called the President's Plan.

So far, said Andre Weitzman, Mr. Eshmont's lawyer, and Stanley Lipshultz, Mr. Giese's lawyer, only one other suit has been filed, against a Franklin agent in Frederick County.

Mr. Weitzman said the sales materials Mr. Giese and other Franklin agents used were adapted from company material. Teachers were seen as a lucrative source of pension money, he said.

"In preparing their sales pitch, however, there is barely any mention of life insurance. Mr. Eshmont didn't know he was buying life insurance," Mr. Weitzman said.

The suit's court file includes a letter dated May 9, 1989, from James H.B. Gillard, a Franklin company lawyer, to the company's district manager in Glen Burnie. The letter warns that it "would be quite reckless" for any agent to make the claim that a rollover of pension funds into an IRA would be tax-deferred.

The company subsequently sent a letter telling others who invested with Franklin that the roll-overs were taxable. Mr. Giese mentioned this in a deposition, Mr. Weitzman said.

Mr. Weitzman also said Mr. Eshmont would have had to pay $75,000 to buy back into the state retirement system, under a special emergency law. Because Mr. Eshmont did not have that much money, he invested his remaining funds in an individual retirement account and a mutual fund.

Mr. Eshmont claims a loss of $72,700, including the IRS penalty payment and the earnings he would have had if he had not withdrawn the pension funds.

Mr. Lipshultz, of Silver Spring, said, "Whether Mr. Giese or Franklin made a mistake is a matter that has to be determined by a court." Once Mr. Giese returned Mr. Eshmont's down payment there was no further contact between the men "and Mr. Giese believed that was the end of it," he said.

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