Weekend DOL Blotter - 9/7/08

The DOL was hard at work last week as they announced three cases:

First, a trip down to San-tone, TX: "U.S. Labor Department sues fiduciary of Adtech Systems in San Antonio to recover 401(k) assets."

San Antonio – The U.S. Department of Labor has sued the owner of defunct Adtech Systems Inc. in San Antonio for improperly using 401(k) assets withheld from employees’ pay to benefit the company in violation of the Employee Retirement Income Security Act.

The department’s lawsuit alleges that from April through November 2005, Eilert Richard Weitzel II, president and owner of Adtech Systems, failed to forward to the company’s 401(k) plan employee contributions deducted from their paychecks. The Labor Department seeks to recover all assets plus interest owed to the plan, correct any prohibited transactions and terminate the plan after all assets are disbursed to eligible participants.
...

Chao v. Eilert Richard Weitzel II
Civil Action Number: 5:08-cv-719

Next, we head up to Fishers, Ind. for the next report: "U.S. Labor Department obtains default judgment against Fishers, Indiana business leading to recovery of 401(k) profit-sharing funds."

Fishers, Indiana – The U.S. Department of Labor has obtained a default judgment against defunct Technengineering Services Inc. to appoint an independent fiduciary to manage and terminate the company’s 401(k) profit-sharing plan and distribute $20,599 in assets to eligible participants and beneficiaries.

“Workers and their families counted on these benefit plans to help fund their retirement,” said acting Regional Director Paul Baumann of the Employee Benefits Services Administration’s (EBSA) Cincinnati Regional Office, which investigated this case. “The department will take whatever steps are necessary to recover retirement funds for America’s working people.”

The department’s lawsuit resolved by this judgment alleged that, as plan administrator, the company failed to take responsibility for terminating the 401(k) profit-sharing plan and distributing the assets to participants and beneficiaries after the company ceased operations.
...
Chao v. Technengineering
Civil Action Number 1:08-cv-0709

The next report is from Elgin, Ill.: "U.S. Labor Department obtains settlement with Elgin, Illinois business owner to restore 401(k) profit-sharing funds."

Elgin, Illinois – The U.S. Department of Labor has obtained a settlement restoring $14,033 owed to the Airtronics Gage & Machine Co. 401(k) Profit-Sharing Plans as restitution for losses resulting from violations of the Employee Retirement Income Security Act (ERISA). The 401(k) plan was sponsored by the Air Gage Co. and Airtronics Gage & Machine Co. in Elgin.

The companies and Jeffrey Danner, a fiduciary of the plan, agreed to restore the assets. The department sued the defendants for allegedly failing to remit to the plan contributions and loan repayments deducted from employees’ paychecks at various times between 2007 and February 2008. They also allegedly remitted employee contributions late during the period from 2001 through 2006. Those assets were retained in the general assets of the two companies.
“The department will act when plan fiduciaries fail to carry out their duty to protect the retirement plan assets held on behalf of participants,” said Steve Haugen, director of the department’s Chicago Regional Office of the Employee Benefits Security Administration (EBSA).

Employers with similar problems, who are not yet the subject of an investigation by EBSA, may be eligible to participate in the department’s Voluntary Fiduciary Correction Program (VFCP). Participation in the VFCP requires employers to make workers whole but allows them to avoid EBSA enforcement actions and civil penalties as well as any applicable excise taxes. For more information about the VFCP, see www.dol.gov/ebsa.

401(k) Day is Almost Here

Yes, it's real, this is not a hoax. There is really a 401(k) day! The website is www.401kday.org. From the website:

What is 401(k) Day?

401(k) Day is an annual celebration spotlighting the importance of employer-sponsored profit sharing and 401(k) plans. As retirement follows work, 401(k) Day follows Labor Day. In 2008, 401(k) Day is officially September 5, 2008, the Friday after Labor Day.

The website offers great tools to plan sponsors that help increase awareness of retirement savings. The website appears to be managed by PSCA - Profit Sharing/401(k) Council of America and has the support of several corporate sponsors such as, ADP, Fidelity, The Hartford, Lincoln Financial Group, Principal Financial Group, The Standard, T. Rowe Price, TransAmerica, and Charles Schwab. Keep up the good work!

U.S. Labor Department proposes rules on investment advice exemption for 401(k) plans and IRAs

While I was out last week, the DOL proposed a rule on investment advice exemption for 401(k) Plans and IRAs. Here's the news release. More to follow as I review the August 22nd Federal Register.

Washington – The U.S. Department of Labor today announced publication of two proposed rules under the Pension Protection Act (PPA) to make investment advice more accessible for millions of Americans in 401(k) type plans and individual retirement accounts (IRAs). The proposed regulation and class exemption are to be published in the August 22, 2008 Federal Register.

“These proposals would give workers greater access to investment advice so that they are better equipped to manage and monitor their 401(k) plans and Individual Retirement Accounts,” said U.S. Secretary of Labor Elaine L. Chao.

The PPA amended the Employee Retirement Income Security Act (ERISA) by adding a new prohibited transaction exemption that allows greater flexibility for participants of 401(k) plans and IRAs to obtain investment advice. One of the ways in which investment advice may be given under the exemption is through the use of a computer model certified as unbiased, the other is through an adviser compensated on a “level-fee” basis. Several other requirements also must be satisfied, including disclosure of fees the adviser is to receive.

In December 2006, the department solicited public comments to determine what expertise and procedures may be needed to certify a computer model under the exemption, and to assist in developing a model form for the exemption’s disclosure of adviser fees.

The proposed regulation provides general guidance on the exemption’s requirements, including computer model certification, and includes a non-mandatory model form that advisers may use to satisfy the exemption’s fee disclosure requirement. In addition, to further the availability of quality, professional investment advice, the department is proposing a class exemption that permits advisors to provide individualized advice to a worker after giving advice generated by use of a computer model.

Separately, the department also released its determination relating to the feasibility of using computer models for providing investment advice to participants of IRAs.

[emphasis added]

Weekend DOL Blotter - Labor Day Special

U.S. Labor Department settlement provides $5 million in restitution for Pennsylvania builders health plan and reforms plan operations:

Philadelphia – The U.S. Department of Labor has obtained a consent judgment in which the Pennsylvania Builders Association (PBA), its wholly-owned subsidiary and its trustees agree to restore $5 million to the fund and pay a civil penalty of $500,000. The judgment also permanently bars the trustees from using plan assets to pay royalties and/or licensing fees to the association, prevents the trustees from contracting with the subsidiary for administrative services in exchange for fees, and prohibits the use of trust assets for lobbying purposes. In addition, current and future trustees must receive eight hours of fiduciary training annually over the next five years.

“This $5 million judgment protects the benefits plan’s participants by restoring the funds and taking steps to make sure the plan is managed properly in the future,” said Secretary of Labor Elaine L. Chao.

The lawsuit being resolved alleged that PBA of Lemoyne, Pennsylvania; its wholly-owned subsidiary Builders Services Inc. (BSI); and trustees Robert Basile, Patrick Brewer, Dennis Brislin, Scott Cannon, James Conner, Brad Elliott, Charles Farrell, Chuck Hamilton, David Knipe, Gene Kreitzer, Gary Naeser, Michael Rodino, Toni Rogan, Mack Smith, Chauncey Wirsing, Clarence Yeagley, Jack Zimmer and Roger Zimmer violated their fiduciary duties to the Pennsylvania Builders Association Benefits Trust. PBA sponsored the trust, and BSI was administrator of the trust.

The suit alleges that PBA received royalty payments and BSI received administrative fees under arrangements with BSI and the trust’s third party administrators. The royalties paid to PBA represented a percentage of the administrative fees paid by contributing employers. The department alleged that these royalty payments were prohibited because the sponsor had provided its name and endorsement to the trust when it created and named the trust. The trustees allegedly misused plan assets to pay royalties to PBA from 2000 to 2007, administrative fees to BSI from 2000 to 2007 and for political lobbying from 2002 through 2004.

The trust provided health, life insurance, dental, vision and temporary disability benefits to 12,616 participants as of 2006.

The court action, filed in the U.S. District Court for the Middle District of Pennsylvania, resulted from an investigation conducted by the Washington District Office of the Labor Department’s Employee Benefits Security Administration (EBSA). Employers and workers may contact the Washington District Office of the EBSA at 202.693.8700 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.

Chao v. Pennsylvania Builders Association
Civil Action Number 1:08-cv-01564-SHR

The restitution and penalty aside, it looks like the board of trustees got off easily with barely a slap on the wrist with only 8 hours of annual fiduciary training. Now if only the training sessions were offered at the Armitage G.C.
[emphasis added]

Vanguard Managers Invested in Web Gambling, Suit Says

Andrew Harris of Bloomberg News is reporting, "Vanguard Managers Invested in Web Gambling, Suit Says."

Executives of Vanguard Group Inc., the second-biggest U.S. manager of stock and bond mutual funds, illegally invested client assets in companies running Internet gambling businesses banned in the U.S., according to a lawsuit.

Chief Investment Officer George Sauter, portfolio manager Duane Kelly and eight trustees violated U.S. racketeering laws and breached their fiduciary duties to investors by acquiring stock in the Web-based businesses, investors in two Vanguard- managed funds said in a complaint filed today in U.S. District Court in New York.

``Defendants caused the funds to become owners of illegal gambling businesses,'' according to the complaint. The plaintiffs seek class-action, or group, status on behalf of all similarly situated investors, plus unspecified compensatory and punitive damages.

...

The case is McBrearty v. The Vanguard Group, 08cv7650, U.S. District Court, Southern District of New York (Manhattan).

WSJ: Fidelity Snared in Auction Rate Securities Inquiry

Jennifer Levitz of the Wall Street Journal [subscription required] writes, "Inquiry Looks at Fidelity-Goldman Ties."

The New York attorney general's office is probing the relationship between Fidelity Investments and Goldman Sachs Group Inc. as part of its investigation into Fidelity's sale of auction-rate securities to individual investors, according to a person familiar with the investigation.

Investigators are looking at whether Fidelity's relationship with Goldman may have given Fidelity an incentive to sell the instruments, also called ARS's, this person said. The attorney general started focusing on the relationship after it learned that most of the auction-rate securities sold by Fidelity were underwritten by Goldman, this person said.

...

Regulators have been forcing Wall Street firms to repay customers. So far, a variety of firms have agreed to buy back $50 billion of the securities, and to pay $525 million in penalties. Last week, in a settlement with regulators representing 49 states, Goldman agreed to a $1.5 billion buyback from retail investors, and to pay a $22.5 million penalty to states. No firms have admitted wrongdoing in the settlements.

Goldman's agreement does not cover customers who bought auction-rate securities from Fidelity. Massachusetts's top regulator, William F. Galvin, has called on Fidelity to buy back all the securities it sold.

In a response to Mr. Galvin, Fidelity President Rodger Lawson said companies that underwrote the securities and oversaw the auction process should be "held responsible to provide liquidity for all purchasers of auction-rate securities, not just their own customers." The letter did not mention Goldman. Goldman declined to comment on the letter. Mr. Lawson's letter said that only a "very small percentage of investors bought auction-rate securities from Fidelity."

I have immense admiration for Fidelity as a company, and I am sure Fidelity will try not to let this tarnish its great reputation in the industry.

[emphasis added]

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