River City FOP sign

LOUISVILLE, Ky. (WDRB) -- Officers from the old Jefferson County police force who paid for a special death insurance-like program offered by their union are losing the benefit and the thousands of dollars promised to their families after they died. 

A class action lawsuit filed Monday in Jefferson County against the River City Fraternal Order of Police referred to the death benefit as a "Ponzi scheme." It worked like a supplemental insurance policy: officers paid $10 a month for a $10,000 payout to their loved ones after their passing, expected to help with funeral expenses. 

"The FOP was taking in the money, using that to pay premiums to a real insurance company and then at some point and time, decided those premiums are too expensive: 'We'll just collect the money and then pay out death benefits as needed,'" Attorney Tad Thomas said. "And that would be the definition of a Ponzi scheme, because whoever gets paid out first gets full payment. Whoever gets paid out last never gets paid."

Thomas represents Dan Coulter, the lead plaintiff in the case. He said Coulter, 71, worked for the Jefferson County Police Department from 1971 to 1996.

Coulter was among dozens of retirees who received a letter in February from the FOP. 

"A former lodge employee who had been entrusted by the Lodge and the Welfare Trust board to maintain Welfare Trust records and correspondence as well as make bank deposits for Trust funds had destroyed all computer records pertaining to the Lodge and the Welfare Trust," the letter alerted members. 

It's unclear whether the destroyed files were a mistake or done on purpose. A union board voted to dissolve the Trust and pay the remaining members $2,000.

"Every death benefit ever due has been paid in full," FOP attorney David Leightty said. "Every penny paid by a living person into that trust will be returned to that person."

"(Coulter) doesn't need $2,000," Thomas said. "He needs to be able to pay for his burial, and that money is not going to be there, and that's a real problem for him," Thomas said. "Because of his age, he can't go out and replace this insurance policy with another policy. No one is going to insure him."

The lawsuit says the predecessor to the FOP lodge set up the death benefits in 1991. Officials say it stopped taking new members when the county and city police departments merged along with their unions. 

Leightty said about 80 members remain in the Trust. The memo to those members said the FOP would be providing about $1,200 per Trust member just to provide the $2,000 to those impacted. Those figures indicate approximately $64,000 left in the Trust.  

"There is no criminal investigation, and we're not sure what happened to the documents," Leightty said.

In added reasoning for getting rid of the Trust, FOP leaders revealed it may not be legal. The memo to members said FOP counsel contacted the Kentucky Department of Insurance, and state staffers said the Lodge could be operating the Trust in violation of violate state law. 

"For this to have gone on for 30 years or more, it's pretty astounding no one looked at this," he said. "And if people did look at this, that it didn't get uncovered, it just makes no sense."

Copyright 2019 by WDRB Media. All rights reserved.