Tuesday, January 13, 2009
Blog Suspended...
Monday, November 24, 2008
Weekend DOL Blotter - 11/23/2008
"Owner of defunct North Carolina sign company pleads guilty to embezzlement of 401(k) and health plan assets."
The next action was a lawsuit filed by the DOL against a health plan provider in North Carolina: "U.S. Department of Labor sues North Carolina health provider to restore funds to employees’ pension plan".Atlanta — The owner of defunct Wesco Signs Inc., Concord, North Carolina, pleaded guilty in the U.S. District Court for the Middle District of North Carolina in Greensboro to two counts of embezzlement of assets from the company’s 401(k) and health plans.
The plea agreement was prosecuted by the U.S. Attorney’s Office for the Middle District of North Carolina and was investigated by the Atlanta Regional Office of the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA).
Mitchell W. Messer was indicted by a federal grand jury August 26 on two counts of embezzling assets from employee benefit plans governed by the Employee Retirement Income Security Act. The indictment charged Messer with embezzlement of $19,286.21 in 401(k) assets and $5,583.38 in health care premiums.
During the period from February 4 through June 17, 2005, he failed to forward retirement plan contributions deducted from employees’ paychecks. Messer also did not forward health care premiums withheld from employee wages during the period of July 11 to November 4, 2005.
At the time of the criminal violations, Messer was the majority owner and president of Wesco Signs. The company, which manufactured electric and on-premise signs, sponsored a 401(k) for 46 participants as well as a health benefit plan.
As part of his plea agreement, Messer will make restitution to the plans and agreed to pay a special assessment of $100 for each offense. He is scheduled to be sentenced February 5, 2009.
“Theft of employee benefit assets jeopardizes the benefits of workers. This case sends a clear message that theft of employee benefit plan assets is a serious crime that will be prosecuted to the full extent of the law,” said R.C. Marshall, director of EBSA’s Atlanta Regional Office.
U.S. v. Messer
Criminal Number 1:08CR324-1
Atlanta – The U.S. Department of Labor has sued current and former fiduciaries of the money purchase pension plan of Vance-Warren Comprehensive Health Plan Inc. of Manson, North Carolina, to restore more than $120,000 in employer contributions and interest owed to the company’s pension plan.
The Labor Department’s lawsuit, filed in the U.S. District Court for the Middle District of North Carolina, alleges that Vance-Warren, Hazel Silver-Boyd, Charles Worth, Charles Walton and A. Shelton McCray failed to fulfill their fiduciary duties under the Employee Retirement Income Security Act (ERISA).
Plan administrator Vance-Warren allegedly failed to pursue collection of $82,047 in mandatory employer contributions, lost earnings on those contributions and contributions recently funded into the trust. The suit also alleges that the company and other fiduciaries co-mingled plan assets with those of the company, and failed to collect and allocate interest income in the amount of $42,094 from December 2004 through October 2005 and plan years 2006, 2007 and 2008. The suit alleges that all of the fiduciaries failed to take reasonable action to rectify these fiduciary breaches.
The suit asks the court to bar the defendants from serving as fiduciaries to any employee benefit plan covered by ERISA, appoint an independent fiduciary to manage the plan and require the defendants to restore to the plan all losses with interest that resulted from their improper actions.
...
Chao v. Vance-Warren Comprehensive Health Plan Inc.
(Civil Action File Number 08-CV-827)
Workers Cautious about 401(k) Investments
Workers are increasingly cautious about investing in corporate retirement funds, having shifted money out of stocks, reduced how much they contribute and, in some cases, stopped contributions altogether or withdrawn money, according to a study released on Monday.
This is bad news for stock mutual funds as this report is confirming a trend we already knew existed:
New money input into stock funds is also trending lower:Stock holdings now account for 53.8 percent of assets, down more than 14 percentage points from a year ago. The decline reflects both the changes in allocation and the lower value of stock holdings.
Hewitt's analysis included 2.7 million U.S. employees and data collected through October.
INCREASED TRADING
"We're certainly seeing higher trading activity as people got their statements in the mail. The bad news is kind of sinking in," Hess said.
So far in November, balance transfers from equities are up further, with the money transferred to bond and stable value funds, as well as balanced funds, which mix equities, bonds and other assets with an eye toward preserving capital.
Also, another confirmation of trend of increased withdrawals and declining participation rates:More employers have put in incentives to invest, such as increasing their match, and some workers -- tempted by lower prices -- have increased contributions, she said. However, the proportion of new money dedicated to stocks is at an all-time low, at 58 percent.
This study is presenting some sobering thoughts for those in the industry. Now we know why the asset manager such as the likes of Fidelity are laying off staff due to the market downturn, as declines in asset values lead to lower management fee collections which is a direct hit to revenue.Some employees, especially in economically sensitive sectors like retail, have stopped contributing altogether. Also, since the credit crunch has made borrowing more difficult, more employees are also tapping 401(k)s for cash.
Overall, 6 percent of employees pulled money out, up from 5.4 percent a year ago. So-called hardship withdrawals, in which workers have to meet certain criteria but are still liable for penalties and additional taxes, are up 16 percent. Loans, which often come with low interest rates, are a better option, Hess said.
One factor to watch in coming months, according to Hewitt: More employers may need to reduce their 401(k) matches to conserve cash. In 2002, about 5 percent of companies cut back their matching contributions.
Whether current trends continue depends on the stock market's performance, Hess said.
"Some of the opt-outs could accelerate, the trading activity could accelerate, if markets keep going down. It's starting to scare people that it could be more than just the little dip that we saw back when the tech bubble burst."
Friday, November 14, 2008
Fidelity - Yet More Job Cuts
Combined with 1,300 cuts that Fidelity announced last week, the second round disclosed Friday will eliminate about 7 percent of the company's work force of about 44,400, said Anne Crowley, a spokeswoman for Boston-based Fidelity.
Details on which jobs are to be cut in the second round haven't been worked out. But the cuts will be spread roughly proportionally across Fidelity's operations, with the reductions occurring sometime in the first three months of next year, Crowley said.
In the first round, which is taking place this month, layoff notices began going out earlier this week, affecting management positions as well as lower-level jobs at privately held Fidelity. No fund managers or investment analysts are being laid off in the first round. Crowley said Friday it was too early to say whether that would be the case in the second round.
In a letter distributed to employees describing the initial cuts, Fidelity President Rodger Lawson said recent market volatility has hurt company revenue, leading him to conclude that "many of the cost improvement plans which would have been phased in by our business units over the next three years need to be accelerated."
In addition to its more than 11,000-employee Massachusetts operations in Boston and Marlborough, Fidelity has sizable offices in Florida, Kentucky, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Rhode Island, Texas and Utah.
The latest cuts are in addition to reductions totaling about 800 jobs in two rounds earlier this year after Fidelity reorganized some business units.
While Fidelity is more diversified than many of its rival money managers, it still relies heavily on money management fees for much of its profit. Those fees are based on the assets held in Fidelity's more than 400 mutual funds, and assets there have been shrinking.
Cuts also have been announced in recent weeks at smaller mutual fund firms including Janus Capital Group Inc., which is eliminating about 115 jobs, or about 9 percent of its work force.
According to Financial Research Corp., assets at Fidelity's funds lost nearly 23 percent of their value through October of this year, to nearly $717 billion. The total excludes money-market funds, an area in which Fidelity is the industry leader based on more than $400 billion in assets. Overall, Fidelity managed $1.4 trillion as of Sept. 30.
Fidelity has sought to diversify beyond its core mutual funds in recent years, moving into areas such as individual retirement planning and employee benefit management.
It looks like more resumes will be hitting professional recruiters' desks soon and, if the cuts are in the benefits administration areas, once again, we can expect to see a great pool of candidates forming...
Wednesday, November 12, 2008
Weekend DOL Blotter - 11/10/2008
U.S. Department of Labor obtains default judgment appointing independent fiduciary for abandoned Georgia 401(k) plan
Atlanta – The U.S. Department of Labor has obtained a default judgment appointing M. Larry Lefoldt as the independent fiduciary for the 401(k) plan of defunct TDH Enterprise Corp. of Morrow, Georgia.
The judgment also removes TDH as a fiduciary to the plan and bars it from violating the provisions of the Employee Retirement Income Security Act. When TDH ceased operations in July 2005, the automotive repair company failed to terminate the plan and ensure that funds were distributed to participants. Another fiduciary to the plan, Barry Grosselin, has failed to administer the plan since that time.
“Even though the defendant has abandoned this plan, the Labor Department will not abandon the employees who count on these funds for their retirement,” said R.C. Marshall, regional director of the Labor Department’s Employee Benefits Security Administration (EBSA) in Atlanta.
The court order directs the independent fiduciary to assume control of the plan, including all assets, with the intention of terminating it and distributing any remaining assets to the plan participants. As of October 2006, the latest data available, the plan had five participants and $12,669 in assets.
Employers and workers can reach EBSA’s Atlanta Regional Office at 404.302.3900 or toll-free at 866.444.3272 for help with problems relating to private sector retirement and health plans. In fiscal year 2007, EBSA achieved monetary results of $1.5 billion related to pension, 401(k), health and other benefits for millions of American workers and their families.
Chao v. TDH Enterprise Corp.
Civil Action File Number 1:07-cv-1764-JEC
"Suddenly Simply Having a Plan is Not Enough"
U.S. Labor Department sues to appoint independent fiduciaries to protect assets of abandoned 401(k) plans of Bay Area companies
San Francisco – The U.S. Department of Labor has sued Vigilance, Inc. of Sunnyvale, California, and its subsidiary Harmony Software Inc. of San Mateo, to obtain the appointment of independent fiduciaries to manage and distribute approximately $580,565.22 in assets to participants covered by the two companies’ abandoned 401(k) plans.
Separate lawsuits were filed against the Vigilance and Harmony Software in U. S. District Court for the Northern District of California, each alleging that the company failed to provide for the continued administration of its 401(k) plan. The suits seek removal of each company as fiduciary to its plan and the appointment of an independent fiduciary to terminate the plan and distribute its assets to participants and beneficiaries.
Both companies have ceased operations. Vigilance was a supplier of event software and Harmony Software was a business management software company.
Under the Employee Retirement Income Security Act (ERISA), employee benefit plans must be managed by named fiduciaries. In the absence of a plan fiduciary, participants and beneficiaries cannot obtain plan information, make investments or collect retirement benefits.
“The Department of Labor is committed to doing everything we can to assist workers whose plans are abandoned,” said Bradford P. Campbell, Assistant Secretary of the Labor Department’s Employee Benefits Security Administration (EBSA). “This legal action paves the way for the plan’s participants to receive retirement assets due them.”
The lawsuits resulted from investigations conducted by EBSA’s regional office in San Francisco. Employers and workers can contact the office at 415.625.2481 or toll-free at 866.444.3272 for help with problems relating to private sector pension and health plans. In fiscal year 2007, EBSA achieved monetary results of $1.5 billion related to pension, 401(k), health and other benefits for millions of American workers and their families. Additional information can be found at www.dol.gov/ebsa.
Chao v. Vigilance, Inc. (Civil Action No. CV-08-5083)
Chao v. Harmony Software, Inc. (Civil Action No. CV-08-5084)
Thursday, November 6, 2008
Fidelity - More Job Cuts
BOSTON – Fidelity Investments is cutting nearly 1,300 jobs this month and the mutual fund company says more layoffs are coming early next year.
Boston-based Fidelity said Thursday it will lay off about 2.9 percent of its more than 44,000-employee work force later this month. The company isn't specifying which of its far-flung locations will be affected.
A second rounds of layoffs is planned in the first three months of next year. Fidelity says the number of those cuts will be determined in coming weeks.
Fidelity says the cuts are a response to global economic conditions, and unsettled financial markets.
Job-seekers beware: There will be a flood of ex-Fido's soon!
Tuesday, November 4, 2008
Weekend DOL Update - Radio Silence at the DOL???
One guess of mine is that Secretary of Labor Elaine Chao is wrapping up her work pending the transition/handoff of work to the new administration. This may be one reason for the slowdown.
Who knows?
Friday, October 31, 2008
Pension Time Bomb Explodes
"Pension Time Bomb Explodes In US and Canada
The ticking time bomb of overpromised, underfunded public pension plans has finally exploded. Here are a few headlines to consider. My comments appear at the end starting with the bold heading “Future Expectations Too High”
I recommend reading the whole thing - it is a great survey of what's happening to pension plans around the country. Mish is known for his blunt and incisive commentary. He writes:
The above is just a random sampling of hundreds of articles about pension plan woes. 40% of pension plans are underfunded and that assumes future returns of 8% annually. Good luck with that.These are some dire warnings coming from a insightful market observer...
...
Taxpayer Backlash Brewing
A huge taxpayer backlash against overly generous public pension plans is brewing. Boomers with destroyed stock funds and IRAs are not going to want to have taxes increased so that public workers can get 90% of their salaries for the rest of their lives during retirement.
Vallejo California went bankrupt over benefits earlier this year. Expect to see more cities and counties take that action if the stock market continues to decline from these levels.
Wednesday, October 29, 2008
Weekend DOL Update - 10/26/2008
"U.S. Labor Department files complaint against fiduciary of defunct cardiology clinic in Memphis, Tennessee to recover 401(k) asset"
MEMPHIS, The Labor Department’s lawsuit seeks to recover delinquent employer matching contributions and Safe Harbor Non-elective Contributions from the 2004 through 2006 plan years. The employer remitted the contributions made by employees into the 401(k) plan but did not contribute the required employer contributions, and did not contribute the required safe harbor contributions to the account of each eligible participant.
The suit seeks to recover lost earnings on the contributions, remove Martin as the plan fiduciary, and appoint an independent fiduciary to terminate the plan and distribute its assets. The suit also asks the court to permanently bar Martin from serving as a fiduciary to any ERISA-covered employee benefits plan in the future.
The cardiology clinic that operated the retirement plan ceased operations in July 2006.
The case is:
Chao v. Cardiovascular Specialties P.C.
Civil Action Number 2:08-cv-02700-JPM-tmp
The second case involves a massive $8.6 million settlement out of New York:
"U.S. Labor Department recovers $8.6 million for workers in settlement involving Agway 401(k) plan in New York"
New York – The U.S. Department of Labor has obtained a settlement restoring $8,590,000 to participants of the Agway Inc. 401(k) plan in DeWitt, New York, and barring plan officials and the board of directors from service to employee benefit plans for one to two years unless they complete fiduciary training. The defendants also agreed to pay a civil penalty of $859,000 plus interest to the Labor Department.
“This $8.6 million recovery is a victory for the workers whose retirement savings were grossly mismanaged,” said Secretary of Labor Elaine L. Chao.
The department’s lawsuit resolved by this settlement alleged that 47 members of the investment committee, administration committee and the Agway board of directors violated the Employee Retirement Income Security Act (ERISA) by allowing the 401(k) plan and its participants to invest in overpriced securities of Agway. The investment committee allegedly failed to investigate the prudence of investing in Agway securities, to determine the fair market value of securities acquired by the plan (which was set by Agway), and to monitor and divest the plan’s holdings in the securities.
In addition, the administration committee allegedly allowed Agway and the plan to give false and misleading information to participants about the investments in Agway securities, while the board of directors failed to oversee the activities of plan fiduciaries. Some of the defendants included a company attorney, the director of trust investments and the chief executive officer of Agway.
Agway Inc. filed for Chapter 11 bankruptcy in October 2002. The 401(k) plan covered 4,080 participants as of June 30, 2002. The plan held approximately $48 million in Agway securities and $2 million in cash reserves. An independent fiduciary, Fiduciary Counselors Inc., was appointed in 2004 to manage the plan and brought its own separate lawsuit.
The settlement, entered in the U.S. District Court for the Northern District of New York, was investigated by the Boston Regional Office of the Labor Department’s Employee Benefits Security Administration (EBSA).
The case is:
Chao v. Agway Inc. Employees’ 401(k) Thrift Plan ERISA Litigation - formerly Chao v. Magnuson
Civil Action Number 5:06-CV-1199
The last one is an interesting lawsuit filed by the EBSA against a California-based RIA, Zenith Captal:
"U.S. Labor Department sues California investment advisor and executives to recover losses and hidden fees charged to employee benefit plans"
San Francisco – The U.S. Department of Labor has sued Zenith Capital LLC of Santa Rosa, California, and its executives for allegedly investing the assets of 13 retirement plan clients in the hedge fund Global Money Management LP while receiving undisclosed incentive fees from the hedge fund’s sponsor and manager.
The lawsuit alleges that Zenith Capital and executives Rick Lane Tasker, Michael Gregory Smith and Martel Jed Cooper violated their fiduciary obligations under the Employee Retirement Income Security Act (ERISA). The defendants allegedly made investment decisions for their ERISA plan clients. From April 1999 to September 2003, the defendants caused the plans to invest in Global Money Management and received undisclosed incentive fees from LF Global Investments LLC, the general partner and manager of Global Money Management.
In 2004, Zenith Capital LLC was a registered investment advisor with 1,214 clients and approximately $538 million in assets under management. In addition to paying Zenith incentive fees not disclosed to the 13 ERISA plan clients, LF Global held an ownership interest in Zenith. The U.S. Securities and Exchange Commission has frozen the remaining assets of Global Money Management and secured the appointment of a receiver.
The Labor Department’s suit seeks a court order requiring the defendants to restore all losses owed to the plans, requiring them to undo any transactions prohibited by law and permanently barring them from serving in a fiduciary or service provider capacity to any employee benefit plan governed by ERISA. The suit was filed in the U.S. District Court for the Northern District of California.
“We will vigorously pursue investment advisors who try to line their own pockets by illegally steering pension investments. Fiduciaries must invest solely in the interests of the workers to whom these funds ultimately belong,” said Bradford P. Campbell, assistant secretary for the Labor Department’s Employee Benefits Security Administration (EBSA).
The suit resulted from an investigation conducted by the San Francisco Regional Office of EBSA as part of EBSA’s Consultant Adviser Project. Employers and workers may contact EBSA’s San Francisco office at 415.625.2481 or toll-free at 866.444.3272 for help with problems relating to private sector pension and health plans. In fiscal year 2007, EBSA achieved monetary results of $1.5 billion related to pension, 401(k), health and other benefits for millions of American workers and their families.
Zenith Capital LLC, Civil Action Number C-08-4854 (EMC)
Thursday, October 23, 2008
Credit Crisis Affecting 401(k) Plans
More 401(k) plan participants are using their own plans as a source of income—either by requesting a hardship withdrawal, taking a loan, or just lowering or eliminating their contributions, according to a new study by Anne Lester, managing director and senior portfolio manager of JPMorgan Funds.
There are some sobering thoughts presented here. The impact of loans and hardship withdrawals is taking on a special significance:
The perils of buying high and selling low are revisited:Nearly 20% of companies across the country have reported increases in loans and hardship withdrawals from their 401(k) accounts in the past quarter; 43% of these companies noted these loans and withdrawals were used to make mortgage payments, she notes. Other reasons cited included the need to cover personal bankruptcy, supplement normal spending or cover a family emergency. The correlation between market volatility and erratic savings behavior is most compelling in areas with high foreclosure rates, she adds.As home sales plummeted in 2006 and particularly during the last half of 2007, these locations—particularly the South Atlantic, Midwest, and Southwest—not only experienced double the number of foreclosures since 2006, but 50% to 60% of plans in these areas also saw an increase in loans and withdrawals. As foreclosure rates rose to more than 2.5% in the state of Georgia, for example, one plan observed a 15% increase in loans. That same plan reported that 29% of participants had outstanding loans in the second half of 2007.But the impact of loans and withdrawals on retirement plans was not limited to just those areas with high foreclosure rates. “During the height of the housing boom, all plans in our sample reported a 15% decline in outstanding loans. But when real estate values plummeted and the mortgage crisis began in 2007, these plans reported a 6% increase in the number of participants taking loans and a 6% increase in hardship withdrawals, with 74% of plans reporting an increase in the number of loans and/or withdrawals,” she says.
The impact of participants’ loans and withdrawals during this period of market volatility is expected to become even more significant over time, she says. “For example, participants now borrowing from plans during the current market downturn are selling assets at depressed values to fund the withdrawals. As a result, when the markets begin to rally at some point, participants are likely to be partially out of the market during the most crucial years for building capital, and will be forced to save more than they removed to get back to where they started in the first place,” she says.Some pointers for advisors on how to deal with clients:
Lester offers several steps to help clients address negative behavioral patterns affected by the current market volatility. For the short term, she suggests selecting highly diversified target-date funds that are well positioned to overcome negative behavioral influences and deliver downside protection. For the long term, she says, advisors need to educate and communicate with clients on an ongoing basis.
[Emphasis added]
Wednesday, October 22, 2008
Defined Contribution Plan Distribution Choices at Retirement
This exhaustive 92 page survey looks at plan distribution choices made by participants who retired between 2002 - 2007.
Tuesday, October 21, 2008
Weekend DOL Blotter - 10/19/08
Fenton, Michigan – The U.S. Department of Labor has obtained a consent judgment against the president of Control Pak International in Fenton, providing restoration of $19,165 to the company’s 401(k) savings plan as restitution for misuse of 401(k) assets in violation of the Employee Retirement Income Security Act (ERISA).The department’s lawsuit resolved by this judgment alleged that, from January through November 2001, Timothy Glinke, president and owner of Control Pak International, failed to timely remit employee contributions to their 401(k) plan. From December 2001 through July 2003, Glinke also failed to remit the employee contributions, instead using those contributions for the company’s general operating expenses.
Chao v. Timothy Glinke
Civil Action Number: 2:08-cv-11528
Tuesday, October 14, 2008
Weekend DOL Blotter - 10/12/2008
Atlanta – The U.S. Department of Labor has sued People Unlimited Consulting Inc. and two executives of the Charlotte, North Carolina, employee staffing company for violating the Employee Retirement Income Security Act (ERISA) when they failed to distribute $115,589 in 401(k) assets to eligible plan participants.
The lawsuit against defunct People Unlimited was filed in the U.S. District Court for the Western District of North Carolina. As a result of the violation, plan participants were unable to gain access to their 401(k) funds and were harmed when the company abandoned the plan.
“These workers and their families are counting on their 401(k) plan to help fund their retirement. Our legal action will ensure that these employees regain control over their funds,” said Bradford P. Campbell, assistant secretary for the department’s Employee Benefits Security Administration (EBSA).
In addition to the company, the suit seeks to remove Janice Love, the company’s owner, and Linda Marler, a senior administrator, as plan fiduciaries. The suit asks the court to bar the defendants from serving as fiduciaries of any ERISA-covered plan and to appoint a successor fiduciary to terminate the plan and distribute the proceeds to five plan participants.
People Unlimited Consulting Inc. was an employee staffing firm specializing in the health care industry.
This case was investigated by EBSA’s Atlanta Regional Office. Employers and workers can reach the office at 404.302.3900 or toll-free at 866.444.3272 for help with problems relating to private sector retirement and health plans. In fiscal year 2007, EBSA achieved monetary results of $1.5 billion related to pension, 401(k), health and other benefits for millions of American workers and their families.
Chao v. People Unlimited Consulting Inc.Civil Action File Number: 3.08-cv-0043-MR
Tuesday, October 7, 2008
Retirement accounts have lost $2 trillion so far
Teresa Ghilarducci (who we have blogged on a couple of times before) of the New School is quoted on her critique of 401(k) plans in general:Americans' retirement plans have lost as much as $2 trillion in the past 15 months -- about 20 percent of their value -- Congress' top budget analyst estimated Tuesday as lawmakers began investigating how turmoil in the financial industry is whittling away workers' nest eggs.
The upheaval that has engulfed financial firms and sent the stock market plummeting is also devastating people's savings, forcing families to hold off on major purchases and even delay retirement, Peter Orszag, the head of the Congressional Budget Office, told the House Education and Labor Committee.
As Congress investigates the causes and effects of the meltdown, the panel pressed economists and other analysts on how the housing, credit and other financial troubles have battered pensions and other retirement funds, which are among the most common forms of savings in the United States.
"Unlike Wall Street executives, America's families don't have a golden parachute to fall back on," said Rep. George Miller, D-Calif., the panel chairman. "It's clear that their retirement security may be one of the greatest casualties of this financial crisis."
"They are fatally flawed," Teresa Ghilarducci, an economist at the New School for Social Research, said of the tax-advantaged plans. "They're too risky, and it's not good policy to have workers run their own retirement plan. They want government help."
Monday, October 6, 2008
Weekend DOL Blotter - 10/5/2008
First, a quick word about this business of incarceration in India. I had to struggle a bit to find more information about this, but what turned up was very interesting. The Telegraph is newspaper based in Kolkata, India that carried the only news article I could find that helps shed some light on this. From The Telegraph, B.R. Srikanth reports: "Fraud Alarm Rings in Call Centres" (a bit colorfully written)
Portland, Maine – The U.S. Department of Labor has filed a lawsuit in the U.S. District Court for the District of Maine seeking appointment of an independent fiduciary to oversee the abandoned 401(k) plan of TRITECH Information Strategies Inc., formerly of Kennebunk, Maine.
The company sponsored the plan for the benefit of its employees beginning on January 1, 2000, and ceased operations in 2002. The suit alleges that in June 2004, John E. Schofield, president and owner of TRITECH, was incarcerated in India on fraud charges. He and his wife, Linda A. Schofield, were trustees of the plan. After ceasing TRITECH's operations, the Schofields failed to take any steps to prudently administer the plan, thereby abandoning it.
Here's a snapshot of the "case file" inset box on the website:Bangalore, Sept. 22: Heaven help if you are a budding BPO or call-centre entrepreneur out to grab every which overseas contract that comes your way and have unwittingly fallen into the clutches of John Schofield.
Suave, sophisticated, American and employed with Tritech Information Strategies of the US, he'd first size you up. Then he"d invite you to his luxury hotel suite, tote his snazzy mobile and flash his sleek thinkpad that he claims is stashed with impressive client lists and business projections.
Your desperation index measured, he'd turn on his charm. And before you realised it, he'd have sweet-talked you into believing you would land the most lucrative of contracts ahead of your rivals if you trusted him.
Only, you'd have to pay him a few lakhs upfront so that your name tops his overseas clients? list. Your money and you parted, you wouldn't be able to track him again. Not to worry, you'd be told, he'd get back after an urgent overseas business trip. Subsequently, if you tried to catch him on his mobile, a taped voice would keep telling you negotiations were still under way.
The Employee Retirement Income Security Act requires employee benefit plans to be managed by named fiduciaries. Without a fiduciary, plan participants and beneficiaries cannot obtain plan information or access accounts to make investments or collect retirement benefits.
Six of the plan's seven participants have received distributions of their plan accounts, but one has not. Blackrock Funds of Pittsburgh, Pennsylvania, is the custodian of the plan's assets. Following requests by the Labor Department, Blackrock has declined to exercise its option under the department's regulations to release the remaining assets to the sole remaining plan participant. As a result, this last individual cannot obtain his appropriate plan distribution without the intervention of the federal court.
The Labor Department's suit asks the court to appoint an independent fiduciary to administer the plan, distribute the remaining assets to the remaining plan participant and oversee the plan's termination. The plan currently has approximately $21,000 in assets being held by Blackrock Funds.
"This suit demonstrates that the Labor Department will act to protect the rights of even a single plan participant by initiating litigation when necessary," said James Benages, regional director in Boston for the Labor Department's Employee Benefits Security Administration (EBSA). "We hope the court will help ensure that this individual receives the retirement benefits he is due."
The suit resulted from an investigation conducted by EBSA's regional office in Boston. Employers and workers can contact that office at 617.565.9600 or toll free at 866.444.3272 for help with problems relating to private sector pension and health plans. In fiscal year 2006, EBSA achieved monetary results of $1.4 billion related to pension, 401(k), health and other benefits for millions of American workers and their families. Additional information can be found at www.dol.gov/ebsa.
Chao v TRITECH Information Strategies Inc.
Civil Action Number: 2:08-CV-00321-DBH
All this for one participant with an account worth $21,000.
Wednesday, October 1, 2008
Reserve Fund Update
We discussed the news item of The Reserve Primary Fund "breaking the buck" over two weeks ago. Today's WSJ report leads us to believe that the fund appears to be making good with it's investors.
By way of background, here's what happened two weeks ago:
The whole imbroglio started when the Reserve Primary Fund, flagship of Reserve Management Corp., announced Sept. 16 that its $1 net asset value had fallen three cents. That was partly due to its investments in Lehman Brothers Holdings Inc., which had filed for bankruptcy protection a day earlier. No money fund had "broken the buck" since 1994, and the news set off a firestorm.
The fund got massive redemption requests Sept. 15 and 16, and finally received an exemption from the Securities and Exchange Commission to suspend payments. Investors have asked to redeem almost the entire $62 billion that was in the fund before the problem hit. Only about $10 billion has been redeemed, said the Reserve spokeswoman.
Here's new information as of today:
The fund said it would redeem $20 billion to investors in the fund as of Sept. 15. As part of a liquidation of Reserve Primary, this move would reimburse investors for 30% to 40% of their original investments. The reason the outlay is $20 billion, a Reserve spokeswoman said, is that this sum is what is "currently available at the fund at this time."
The partial distribution is expected to occur on or about Oct. 13, and will be made pro rata in proportion to the number of shares each investor held as of the close of business Sept. 15. Shares that were tendered for redemption Sept. 15 but weren't paid off will be included in determining shares held by an investor. The fund will repay shareholders in cash, not in its underlying assets, short-term debt holdings.
It isn't clear, however, how much money they will get back for the remaining two-thirds portion -- or how the parent company will pay for this. The reimbursement for the rest may be 97% of the unpaid balance, or less.
Here are some "victims":
The latest casualty from the fund's problems emerged Tuesday with the liquidation of a small Florida health-maintenance organization with 16,000 members. The HMO's money was frozen inside Reserve Primary.
Retail clients were apparently not spared:
Many of those left in the fund are retail clients, including elderly investors in nursing homes, according to a person familiar with the matter. But other bigger institutional or corporate clients are stuck, too.
Finally, there is the inevitable shareholder lawsuit:
Meanwhile, Reserve Primary Fund investors who are stuck in the fund or were cashed out at less than $1 net asset value are fighting in court to force those who got out whole to pool back their money so everyone may share the fund's loss equally.
This is not over yet - stay tuned...
Sunday, September 28, 2008
Weekend DOL Blotter - 9/28/2008
#1 "Sammy be nimble, Sammy be Quick! Another casualty of the housing crisis?
U.S. Labor Department sues First Primary Mortgage Inc. and its trustee for failure to administer employee 401(k) plan
Middleburg Heights, Ohio – The U.S. Department of Labor has sued First Primary Mortgage Inc. of Middleburg Heights, and its owner and the trustee of the First Primary Mortgage Inc. 401(k) Plan, for failure to properly administer the company plan in violation of the Employee Retirement Income Security Act (ERISA).
The lawsuit, filed in federal district court in Cleveland, Ohio, alleges that the defendants have failed to take fiduciary responsibility for the operation and administration of the plan since January 2007. As relief, the suit asks the court to remove the company from its position as a fiduciary and permanently bar Sammy D. Quick, who served as the plan’s trustee, from acting as a fiduciary to any ERISA-covered employee benefit plan. Finally, the suit asks the court to appoint an independent fiduciary to terminate the plan and distribute its assets to eligible participants and beneficiaries.
“The Labor Department is committed to protecting workers’ benefits when plan assets are either misused or the plans are abandoned,” said Paul Baumann, acting director of the department’s Employee Benefits Security Administration (EBSA) Cincinnati Regional Office.
The suit resulted from an investigation conducted by EBSA’s Cincinnati Regional Office. Employers and workers can reach the office at 859.578.4680 or toll-free at 866.444.3272 for help with problems relating to private sector retirement and health plans. In fiscal year 2007, EBSA achieved monetary results of $1.5 billion related to pension, 401(k), health and other benefits for millions of American workers and their families.
Chao v. Quick
Civil Action Number 1:08-cv-02245
#2 Trouble in Fairfield:
U.S. Labor Department sues Fairfield, Connecticut employer to restore funds to company 401(k) plan(This link appeared to be broken)
#3: It's going to be a cold winter in Minneapolis:
U.S. Department of Labor sues executive of defunct Minneapolis company to protect participants of abandoned plan
Minneapolis – The U.S. Department of Labor has sued to appoint an independent fiduciary to administer and terminate the 401(k) plan of KSM Holding Corp., a defunct Minneapolis company.
“We filed this case to ensure that the plan participants are able to recoup the money they entrusted to the plan for their retirement savings,” said Steven Eischen, regional director of the department’s Employee Benefits Security Administration (EBSA) in Kansas City, Missouri.
The company established the plan in 1995 and managed it until 2002 when the company ceased operations. Since that time, the plan’s fiduciary has failed to distribute the remaining assets of the plan and to appoint a fiduciary to assume the responsibility for administering the plan. As a result, some plan participants and beneficiaries have been unable to access their individual account balances.
The lawsuit, filed in the U.S. District Court for the District of Minnesota, seeks to remove Daniel Larson, chief financial officer of KSM and a plan fiduciary, from his position as fiduciary, and appoint an independent fiduciary to terminate the plan and distribute its assets to participants and beneficiaries.
Chao v. KSM Holding Corp.
Civil Action Number xxxxxx
#4: Mr. Conway is in trouble in Boston:
Boston company and officers ordered to restore nearly $73,000 in misused funds to company 401(k) plan to resolve U.S. Labor Department lawsuit
Boston – A federal judge has ordered G. Conway Inc. of Boston and corporate officers Gerard D. Conway and Robert Conway to repay $72,803 to the company’s 401(k) plan to resolve a lawsuit filed by the U.S. Department of Labor that alleged violations of the Employee Retirement Income Security Act (ERISA).
The suit, filed in the U.S. District Court for the District of Massachusetts, alleged that the defendants failed to forward to the plan employee contributions withheld from employees’ paychecks between April 23, 2005, and May 12, 2007. Instead, the defendants allegedly used the withheld employee contributions to satisfy the obligations of the company.
The G. Conway Inc. 401(k) and Profit Sharing Plan provides retirement benefits for company employees. The company is no longer in business. The Labor Department’s Employee Benefits Security Administration’s (EBSA) Boston Regional Office investigated the case.
James Benages, regional director for EBSA’s Boston office, said, “These defendants failed to discharge their fiduciary duties to the plan and its participants. The assets of employee benefit plans are to be used for the sole benefit of plan participants and beneficiaries, not for the benefit of the company that sponsors the plan.”
The consent judgment obtained by the Labor Department orders the defendants to pay the restitution, properly distribute the assets of the plan to plan participants and beneficiaries, and terminate the plan. Gerard D. Conway also is permanently prohibited from serving as a fiduciary to any ERISA-covered plan.
Chao v. Gerard D. Conway
Civil Action Number 1:08-CV-10646-GAO
#5: No surplus cash at Prozy's Army Navy Store:
U.S. Department of Labor sues defunct Wyckoff, N.J., company to protect participants of employee profit-sharing plan
Wyckoff, N.J. — The U.S. Labor Department has sued to obtain appointment of an independent fiduciary to oversee the employee profit-sharing plan of Jules Prosnitz & Sons Inc., formerly doing business as “Prozy’s Army-Navy Store,” a defunct company located in Wyckoff.
“We filed this case to protect the participants who entrusted their savings to the trustees of the plan,” said Jonathan Kay, regional administrator of the department’s Employee Benefits Security Administration (EBSA) in New York.
The company ceased operations in February 2005. Since that time, Jules Prosnitz & Sons has not taken fiduciary responsibility for the operation and administration of the plan and its assets; nor has it appointed anyone to assume that responsibility. As a result, plan participants and beneficiaries have not been able to access their individual account balances. It is believed that the plan has five participants.
The complaint, filed in the U.S. District Court for the District of New Jersey, seeks to appoint an independent fiduciary to terminate the plan and distribute its assets to participants and beneficiaries.
As of December 2007, the latest data available, the plan had approximately $110,178 in assets.
The suit resulted from an investigation conducted by EBSA’s regional office in New York. Employers and workers can contact the office at 212.607.8600 or toll-free at 866.444.3272 for help with problems relating to private sector pension and health plans.
In fiscal year 2007, EBSA achieved monetary results $1.5 billion related to pension, 401(k), health and other benefits for millions of American workers and their families. Additional information can be found at www.dol.gov/ebsa.
Chao v. Prozy’s Employees Profit Sharing Plan
Docket Number: 08-cv-4616
Monday, September 22, 2008
WSJ Report: Investors Pull Money Out of Their 401(k)s
With stocks falling, credit tightening and unemployment rising, small investors have been raiding their 401(k) accounts or slashing contributions to the popular retirement plans, according to the latest tallies of plan administrators. Others, eager to shield their portfolios from further damage, are reducing their exposure to stock mutual funds to near record lows.
...
The behavior -- described by some market watchers as panicky in the past week -- has led to worries that the retirement prospects are dimming further for Americans, most of whom no longer have private-sector pensions to rely on.
Recent 401(k) winnowing is coming in the form of "hardship withdrawals" -- removing cash from the fund, with a 10% tax penalty, for exigencies such as job loss, the prospect of losing your home to foreclosure or a big medical expense.
T. Rowe Price Group Inc. in Baltimore saw a 14% increase in hardship withdrawals in the first eight months of this year, compared with the same time last year. Boston-based Fidelity Investments says the number of workers with hardship withdrawals rose 7% from April through June, compared with the same time period a year earlier. Principal Financial Group Inc., in Des Moines, Iowa, says that requests for hardship withdrawals are up 5% this year through Sept. 18, over last year, and that the withdrawal amounts are larger.
...
Jim Wharton, a 65-year-old retired Sears Holding Corp. manager in Queen Creek, Ariz., says he moved his entire 401(k) balance of $357,000 to certificates of deposits insured by the Federal Deposit Insurance Corp. recently. The money had been invested in a "stable-value" fund, typically a low-risk, low-yield fund that invests in bonds and interest-bearing contracts backed by insurance companies. He says his next move may be "under the mattress."
According to Hewitt Associates Inc., a Lincolnshire, Ill., consulting firm, the total stock allocation among 401(k) participants is at a five-year low, declining to 62% in August from 68% a year earlier. Hewitt attributes the decline to an unusually high number of investors transferring money into fixed-income funds. It said it believes the trend continued into September.
...
Ms. Schlesinger, the Providence investment adviser, says many workers who were too heavy on stock mutual funds going into the crisis have taken hits on their balance and now wonder what to do.
If they are young, she advises them to rotate slowly into more conservative investments -- to avoid selling their investments at a low price.
But, she says, if they are five years or less from retirement she is advising them to immediately protect their portfolio from further decline by moving at least 30% or 40% into fixed-income accounts. For many investors, that will mean "taking a loss," she says. She says, "I tell them, 'I'd like to think that the rescue plan is at the bottom of the market, but what if it's isn't? We can't gamble with that.'"
Sunday, September 21, 2008
Weekend DOL Blotter - 9/21/2008
Greenwood Village, Colorado – The U.S. Department of Labor has sued the trustee of the AE Seven LLC 401(k) plan in Greenwood Village for failure to properly administer the company’s 401(k) plan in violation of the Employee Retirement Income Security Act (ERISA).
The lawsuit, filed in the U.S. District Court for the District of Colorado, alleges that the defendant has failed to take fiduciary responsibility for the operation and administration of the plan since August 2007. As relief, the suit asks the court to remove Tracy Podgorak-Miller from her position as a trustee, and appoint an independent trust company to administer the plan and distribute assets to participants and beneficiaries.
“The Labor Department is committed to protecting workers’ benefits when plan assets are either misused or the plans are abandoned,” said Steve Eischen, director of the department’s Employee Benefits Security Administration (EBSA) Kansas City Regional Office.
Tracy Podgorak-Miller was the majority shareholder of AE Seven LLC and Abiouness, Cross & Bradshaw, architectural engineering firms that ceased operations in August 2007. At that time the plan had approximately $205,739 in assets and 14 participants.
The suit resulted from an investigation conducted by EBSA’s Kansas City office. In fiscal year 2007, the agency achieved monetary results of $1.5 billion related to pension, 401(k), health and other benefits for millions of American workers and their families. Employers and workers can reach the regional office at 816.285.1800 or toll-free at 866.444.3272 for help with problems relating to private sector retirement and health plans.
Chao v. Tracy Podgorak-Miller & AE Seven LLC 401(k) Plan
Civil Action Number 08-cv-01958
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