Weekend DOL Blotter - 11/23/2008

Once again, the DOL failed to disappoint us this week, announcing two new enforcement actions:
"Owner of defunct North Carolina sign company pleads guilty to embezzlement of 401(k) and health plan assets."

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

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 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)

Weekend DOL Blotter - 10/5/2008

The EBSA/DOL was busy at work again last week, and this time the enforcement action was in teh Northeast: "U.S. Labor Department sues to appoint independent fiduciary for 401(k) plan abandoned by Kennebunk, Maine, company."

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.

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)

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.

Here's a snapshot of the "case file" inset box on the website:

Well, so much for Mr. Schofield. He is now incarcerated in the "Tihar Jail" in New Delhi. Now getting back to the DOL report:

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.

Weekend DOL Blotter - 9/28/2008

Whew! Last week must've been a busy one at the EBSA. There were recordbreaking 5 announcements of enforcement actions or lawsuits brought about by the EBSA last week:

#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

Weekend DOL Blotter - 7/27/2008

Once again, the EBSA was hard at work last week protecting America's pensions. Two new cases were announced: One case involved North Valley Precision Products of Reno, Nevada, where the alleged misuse of the plan's assets resulted in 12 former employees being unable to access their retirement plan accounts.

The suit, filed in the U.S. District Court for the District of Nevada, alleges that the company violated the Employee Retirement Income Security Act (ERISA) when $26,506 in plan assets were transferred to a corporate account and used for non-plan expenses. The company also failed to appoint a successor to administer the plan after it ceased doing business in 2006.

The suit seeks to restore any losses to the plan that resulted from the misuse of the plan assets. The suit also seeks to remove the company as a fiduciary and appoint an independent fiduciary to administer the plan. The independent fiduciary will be responsible for terminating the plan and distributing the assets to eligible employees and beneficiaries.

“This case demonstrates the department’s commitment to taking action to protect the benefits promised to workers,” said Billy Beaver, regional director of the Labor Department’s Employee Benefits Security Administration (EBSA) office in San Francisco. “Plan participants have been unable to access their funds – money they’ve counted on for their retirement. We hope that, through this action, these workers and their families will have access to their retirement savings.”

North Valley Precision Products manufactured sheet metal boxes used for gaming machines and medical devices.

The second case, where a court order had been obtained by the DOL in which two officers of defunct New York City and Santa Monica, California-based textile companies American Fabrics Co. and Beverly Trimming Co. agreed to restore $111,260 to the companies’ 401(k) plan to resolve a Labor Department lawsuit.

The suit, filed in the U.S. District Court for the Southern District of New York in December 2006, alleged that the companies, along with plan trustees Richard Haik and Mitchell Ostrover, violated ERISA by failing to remit to the plan contributions and loan repayments deducted from employees’ paychecks between January 2002 and December 2003.

“Trustees of a 401(k) plan have a responsibility to ensure that the assets of the plan are used solely to benefit participants. One of the most important responsibilities is putting money from workers’ wages into their 401(k) accounts on time,” said Bradford P. Campbell, assistant secretary of the Labor Department’s Employee Benefits Security Administration (EBSA).

American Fabrics, which also had operations in Bridgeport, Connecticut, and Bogalusa, Louisiana, ceased operations in the summer of 2006. Beverly Trimming ceased operations in 2004. The American Fabrics Co. 401(k) Savings Plan covered approximately 106 participants from both companies and held $821,139 in assets as of June 30, 2006.

A consent judgment obtained by the Labor Department orders Haik and Ostrover to restore to the plan $111,260 plus lost opportunity costs owed to the plan. The defendants also are ordered to appoint Jacqueline Carmichael of JM Pension Advisory Inc. as the plan’s independent fiduciary responsible for plan management, termination of the plan and distribution of its assets to eligible participants and beneficiaries. In addition, the defendants are permanently barred from serving as fiduciaries to any ERISA-covered plan.

Weekend - DOL Blotter - Enron Flashback

It was a slow news week at the Department of Labor's EBSA enforcement division - so this time we will take this opportunity to review some Enron-related goings on in February and March 2008 which actually related to Hewitt, the behemoth HR outsourcer. This issue has largely stayed out of the mainstream media news coverage.

On February 7, 2008, the DOL posted a news release on it's website: "U.S. Labor Department seeks contempt order against Hewitt over improper distribution of assets from Enron litigation settlement fund." The news release claimed:

The U.S. Department of Labor today announced that it has asked a federal district court in Houston, Texas, to hold Hewitt Associates LLC in civil contempt for failing to comply with an allocation formula approved by the court when it disbursed court-supervised settlement funds to Enron employees at the end of 2006. The proposed motion for civil contempt must be approved by the U.S. District Court for the Southern District of Texas.

Hewitt caused the settlement fund to have insufficient cash to pay Enron workers, retirees and beneficiaries all amounts due them. The fund holds recoveries obtained by the department and class-action plaintiffs in related lawsuits regarding Enron's pension plans. Even with other corrective action being undertaken by parties to fix the misallocation, there will be a $9.15 million shortfall in the settlement fund as a result of Hewitt's noncompliance with the court-approved allocation formula. Hewitt served as the administrator for the settlement fund.

"This department has been relentless in seeking to protect the retirement security of America's workers and their families," said U.S. Secretary of Labor Elaine L. Chao. "With this legal action we are seeking to ensure that the pension plan participants receive all the funds they are entitled to."

Hewitt did not perform the allocation correctly and some participants received too much in settlement proceeds at the expense of the remaining participants — amounting to $22 million being overpaid. The settlement fund now has insufficient funds to pay the correct amounts to participants who were underpaid.

The Labor Department asks the court to require Hewitt to provide funds sufficient to permit the allocation of settlement funds in accordance with the allocation formula approved by the court. The department also asks the court to prohibit Hewitt from collection, repayment and other actions against participants who received overpayments without the court's permission. The department's motion is in addition to a separate motion filed by Enron to hold Hewitt 100 percent responsible for an interest-free loan to Enron's pension plan for the full amount needed to make whole the underpaid participants.

Then, inside of one month, the DOL posted this news release: "Hewitt and Enron to restore $11.2 million to Enron litigation settlement fund"

Thus bringing an end to the sordid pension drama (just kidding). The news release quoted Secretary Chao stating that this settlement will result in "...all pension plan participants will receive all the funds to which they are entitled."

What was left unaddressed was what about the participants who were overpaid?

Weekend DOL Blotter - 7/5/2008

Happy Independence Day to all!

Continuing our weekly series of looking into DOL enforcement actions, it appears that the agency has netted a big fish this time: "U.S. Labor Department obtains court approval of settlement restoring $2.2 million to Delphi Corp. retirement plan."

"The U.S. Department of Labor and Troy, Mich.-based Delphi Corp. have obtained approval of settlement by the U.S. bankruptcy court in New York that allows the government to recover more than $2.2 million in retirement plan assets owed to the Delphi Personal Savings Plan for Hourly Employees in the United States."

A little "Oops!"

The claim and settlement resulted from an investigation by the department's Employee Benefits Security Administration (EBSA) into improperly invested dividends the company failed to properly disclose or correct. Between 2000 and 2003, dividends were improperly invested in General Motors Corp. stock, rather than in an income fund as required by Delphi's savings plan.

Weekend DOL Blotter - 6/28/2008

Another busy week at the DOL's EBSA enforcement desk.

"Trouble in Music City"

On June 23rd the DOL reported on its website: "U.S. Department of Labor sues president of Nashville music entertainment company to recover employee benefit contributions":

"The lawsuit alleges that, over the course of a year, the company withheld employee contributions owed to the plan, failed to segregate the contributions from the company’s assets, and did not forward the assets to the plan in accordance with ERISA and the plan’s governing documents. Instead, the defendant co-mingled the funds with the general assets of the company.

“Employees intended these contributions to pay for their future retired years, not to benefit the company,” said Rebecca Marshall, director of the Atlanta Regional Office of the department’s Employee Benefits Security Administration (EBSA), which investigated this case.

...the suit seeks to remove Taylor as fiduciary of the plan, appoint a successor trustee to distribute restored assets to the nine participants, and bar Taylor from serving as a fiduciary of any ERISA-covered plan in the future."

Serious stuff...

On other news:

"'Fine Line' Fiduciary"

"Former president of Fine Line Drywall, Keene, New Hampshire pleads guilty to theft of employee IRA funds"

"In 2006, Blanchard was indicted and charged with theft by recklessly failing to make specified payments to the Fine Line Drywall Inc. Simple IRA Plan from February through December 2004, when the company went out of business. Specifically, the alleged theft involved employee contributions totaling nearly $30,000 and employer matching contributions of more than $18,000."

"He was alleged to have stolen these funds for his own personal expenses."

After pleading guilty, Blanchard was sentenced to a prison term of two to five years in the New Hampshire State Prison and suspension of two years provided the defendant meets certain conditions. Blanchard was ordered to make full restitution within two years, perform 200 hours of community service and be subject to random testing for controlled substances.

Weekend DOL Blotter

We are introducing a new feature this week - The Weekend DOL Blotter. Via regular news releases on its website, the DOL releases information on indictments of plan sponsors for various offenses.

Today's feature is hot off the press - The DOL announced on June 19th that it has secured the 401(k) plan assets for Merchants Publishing Co. employees in Kalamazoo, Michigan:

A federal district court in Grand Rapids, Michigan has granted a consent judgment to the U.S. Department of Labor that allows more than $170,000 in 401(k) assets recovered in a criminal action to be distributed to former workers of Merchants Publishing Co. Inc. in Kalamazoo.

The court action resolves the department’s lawsuit against the company and plan trustees M. Jack Fleming and Carol Fleming. The suit alleged that the Flemings failed to remit employee contributions and loan repayments deducted from workers’ paychecks to the 401(k) plan from June 2000 to March 2006, in violation of the Employee Retirement Income Security Act (ERISA). The suit also alleged that the Flemings improperly received transfers of plan assets.

The court appointed an independent fiduciary to distribute plan assets to participants and beneficiaries. Including the $170,000 recovered as a result of a prosecution by the U.S. Attorney’s office in Grand Rapids, the total 401(k) assets to be distributed to eligible participants and beneficiaries exceed $650,000.

“The hardworking men and women of Merchant Publishing relied on the plan trustees to protect their 401(k) benefits,” said Bradford P. Campbell, assistant secretary of the Labor Department’s Employee Benefits Security Administration (EBSA). “Our legal action sends a clear message that plan fiduciaries will be held accountable when they fail to protect the retirement plan assets held on behalf of participants.”

The suit resulted from an investigation conducted by the Detroit district of EBSA’s Cincinnati Regional Office. Employers and workers can reach the regional 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. FlemingCivil Action Number: 4:06cv0117