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Union to Repay $3.5 in Pension Funds

January 28th, 2008 Posted by Amelia

The U.S. Department of Labor’s quarterly Labor Advocate Newsletter reports an important judicial decision that affects many employers with benefit plans.
This settlement is unusual because it involves the very labor union that is entrusted with protecting employees and their benefit plans.
A consent order resolving a U.S. Department of Labor lawsuit places control of five employee benefit plans sponsored by Local 38 of the United Association of Plumbers, Pipefitters and Journeymen of San Francisco with independent, court-appointed fiduciaries.

The order replaced all but two of the plans’ trustees, and permanently bars them and the former plan administrator from serving as fiduciaries or service providers to any such plans. It also requires payment of $3.5 million to the union’s pension plan from the defendants’ fiduciary liability insurer, and additional money may be paid from the expected sale of the Konocti Harbor Resort and Spa on Clear Lake in Kelseyville, CA. The order resolves the Department’s suit against the defendants for allegedly diverting plan assets to renovate and operate Konocti Harbor.

“Workers’ retirement dreams, health and other benefits were jeopardized by the gross mismanagement of their benefit plans,” said Secretary of Labor Elaine L. Chao. “This legal action puts the benefit plans under new, independent management and restores at least $3.5 million to the pension plan.”

The Department’s 2004 suit alleged violations of the Employee Retirement Income Security Act (ERISA) by current and former trustees Lawrence J. Mazzola Sr. (the business manager and financial secretary-treasurer of Local 38), Lawrence Mazzola Jr., William B. Fazande, Larry Lee, James R. Shugrue, Vohon J. Kazarian, Tom Irvine, Robert E. Buckley, Robert Buckley Jr., Art Rud, Ron Fahy and Robert Nurisso, former plan administrator Frank Sullivan, and Local 38.

Filed in Federal district court in San Francisco, the suit alleged that the defendants maintained inadequate financial controls, violated plan documents, engaged in self-dealing and imprudently spent millions to build and maintain facilities at Konocti despite the resort’s continuing financial losses. Local 38 also allegedly profited from the interest on a $6 million loan.

Under the settlement, a court-appointed independent administrator will oversee the plans and implement financial controls to prevent future misuse of the plans’ assets.

The retirement, health, scholarship, apprenticeship and vacation and holiday funds cover more than 2,000 participants employed throughout Northern California.

This suit is just the most recent in a series of embezzlements of employee benefit accounts in the past 12 months.

In July 2007, a New Britain, Connecticut firm was ordered to repay more than $2.1 million in funds that it had misappropriated from the employee retirement fund. According to sources at the Department of Labor, the company tried to solve its cash-flow problems by stealing from its employees.

That caper sparked unusually vitriolic words from the normally sedate Secretary of Labor, Elaine Chao. “Workers’ retirement plans are not piggy banks for company executives.” She added, “This legal action restores $2.1 million to these workers’ retirement plan and prohibits the company’s president from ever again serving as a fiduciary of an ERISA-covered employee benefits plan.”

While a number of companies have tried to raid retirement funds in recent years, the U.S. Department of Labor prevents such conduct, and punishes the wrongdoers.

The ERISA, Employee Retirement Income Security Act of 1974, sets minimum standards that employers must abide by for employee retirement accounts. The law was later amended to include other types of employee benefit accounts, including healthcare and profit-sharing accounts.

The Employee Benefits Security Administration (EBSA) is committed to educating and assisting the 150 million Americans covered by more than 700,000 private retirement plans. In addition, this busy agency also assists Americans covered by more than 2.5 million healthcare plans, and a similar numbers of other welfare benefit plans. The agency, originally founded as the PWBA also assists plan sponsors and answers questions from members of the employee benefits community. EBSA promotes voluntary compliance and facilitates self-regulation, working diligently to provide quality assistance to plan participants and beneficiaries.