HSTA firm fails to report income, goes bankrupt


POSTED: Wednesday, March 04, 2009

Hawaii's schoolteachers should see no changes in their medical benefits as a result of the dissolution and bankruptcy of a union-owned corporation that administered their benefit trust fund, officials say.




In Chapter 7 bankruptcy

        A glance at the HSTA Member Benefits Corp.:

Incorporated: Aug. 19, 1993
        Assets: $500,000 to $1 million
        Liabilities: $500,000 to $1 million


HSTA Member Benefits Corp., a for-profit subsidiary of the Hawaii State Teachers Association, filed for bankruptcy late Monday amid claims of gross financial management.

As a contractor, it was paid to handle administrative tasks for the teachers' benefit trust fund, known as the HSTA-Voluntary Employee Benefits Association. But it did not have access to the funds in that tax-exempt trust.

“;MBC is a separate legal entity and its bankruptcy will not affect HSTA, its chapters, or its members' benefits,”; said Roger Takabayashi, HSTA president. “;Members should not see any change in services.”;

The union is the sole shareholder in HSTA Member Benefits Corp. It decided to dissolve the corporation late last year after a third-party review initiated by HSTA determined that the for-profit entity did not fit in the labor union's mission, given changes in federal and state laws on nonprofit organizations.

“;In the process of closing out MBC's books to meet the legal requirements for dissolution, an outside team of attorneys and certified public accountants found that MBC activities and finances had been grossly mismanaged,”; the union said in a statement to members.

Takabayashi said the corporation did not fully report its income, resulting in “;a tremendous liability to the company, including unpaid taxes, extensive penalties, and interest.”;

The Chapter 7 bankruptcy petition lists $500,000 to $1 million in assets and the same amount in liabilities. The company has more than 50 creditors, including the Internal Revenue Service, Hawaii Department of Taxation, the U.S. Postal Service and Panda Travel.

Former executives of Member Benefits Corp. could not be reached for comment. Raymond Sodetani, who was president until HSTA decided to dissolve the company, has an unlisted number. Former Treasurer Rodney Shinno did not return a call the Star-Bulletin placed to his home.

Yoshiichi Tanaka, a director whose term ended last August, said there were no signs of financial shenanigans when he was on the board.

“;I've got the utmost faith in Ray and everybody else there, and I'm quite certain there is no illegal kind of stuff going on,”; Tanaka said.

Another contractor, Associated Third Party Administrators, has been hired in place of MBC.

The HSTA-VEBA trust was formed in March 2006 to handle medical benefits for teachers and new retirees. When it runs a surplus, it refunds a portion to the state.

But the trust's status is now in question at the Legislature. A bill (SB 881) to repeal such trusts was scheduled for a public hearing this morning. Rep. Roy Takumi, education chair, said the bankruptcy shouldn't raise concerns about the concept of such trusts.

“;If a union can deliver benefits to its members at lower cost to taxpayers, it is still a sound concept,”; Takumi said.