Labor Law Center Blog » Blog Archive » U.S. DOL Sues Fifth Third Bank Over Employee Benefit Accounts

U.S. DOL Sues Fifth Third Bank Over Employee Benefit Accounts

January 29th, 2008 Posted by Amelia

The U.S. Department of Labor recently filed suit against Fifth Third Bank for mismanagement of the sale of property owned by the Operating Engineers Local 324 Pension Fund in Troy, Michigan.

The pension fund lost money when a property purchased for $28 million was sold for $4.5 million. Fifth Third Bank, a mega-bank based in Ohio, was acting as financial advisor to the union in the case.

“The department’s action protects the workers, retirees and their families who are counting on the Operating Engineers Local 324 Pension Fund for their retirement security,” said Bradford P. Campbell, assistant secretary of the Labor Department’s Employee Benefits Security Administration (EBSA). “In taking this legal action we are seeking to recover, with interest, all the funds that are owed to the pension plan.”

The bank and Carey Milestone Advisors LLC, another Ohio company, managed real estate investments on behalf of the pension plan. Based on the advice of Carey Milestone Advisors, the bank furnished the pension plan with a strategy for development of property located at 1001 Woodward in Detroit, Michigan.

Fifth Third Bank subsequently reversed its development strategy and sold the property to the Cavaliere Group for only $4.5 million in 2004. At the time the sale took place, the pension plan had invested more than $28 million in the property.

The lawsuit, filed in U.S. District Court in Detroit, alleges that during the period from Aug. 25, 2003, to Oct. 1, 2006, the Fifth Third Bank served as an investment manager and fiduciary, bank vice president John Schmitz acted as a fiduciary, and Carey Milestone Advisors acted as an investment advisor and fiduciary to the pension plan.

The Labor Department’s suit seeks to recover any losses owed to the plan, including interest, resulting from fiduciary violations committed by the defendants under the Employee Retirement Income Security Act.

The suit resulted from an investigation conducted by EBSA’s Cincinnati, Ohio office.

This time, the union appears to be the victim in the case, rather than the wrongdoer. By contrast, in another recently reported case, Local 38 of the United Association of Plumbers, Pipefitters and Journeymen of San Francisco actually misappropriated funds from employee benefit accounts in California. In that case, the union was ordered to repay $3.5 million, plus additional proceeds from the sale of a resort.

The U.S. Department of Labor takes misuse of employee benefit funds very seriously, and has prosecuted a number of high-profile cases in the past few months.

In September 2007, the U.S. Department of Labor won two default judgments against Prime Care Services of Southfield, Michigan, recovering more than $1.1 million for workers who participated in the company’s 401k and retirement plans.

“Workers and their families have been counting on these benefit plans to help fund their retirements,” said Secretary of Labor Elaine L. Chao. “Fortunately in this case the department was able to recover all of the money in the benefit plans, more than $1.1 million, and it will be distributed to the participants and beneficiaries.”

Prime Care offered in-home healthcare services for elderly and disabled individuals in Washtenaw County before going out of business.

Most employees trust that their retirement, 401k and other benefit plans are secure. Tragically, this is often untrue. In 2006 alone, the U.S. Department of Labor recovered $2.6 Billion in misappropriated employee benefit funds. That number may be just a fraction of what was stolen by unscrupulous employers.

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.