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US DOL Seeks Motion Against Hewitt Associates LLC

April 15th, 2008 Posted by Amelia

The U.S. Department of Labor recently announced a motion against Hewitt Associates LLC to recover more than $6 million in funds that should have been distributed to Enron employees.

In an unusual move, the department seeks a contempt of court order against the HR behemoth. This action has sparked pundits to note that Enron is the debacle that just won’t go away.

In February, attorneys for the federal government asked the federal district court in Houston, Texas to hold Hewitt Associates in contempt for failing to comply with the allocation formula ordered by the court when it dispersed funds to employees during the Enron settlement at the close of 2006.

The contempt motion must be approved by the U.S. District Court for the Southern District of Texas.

The U.S. Department of Labor charges that Hewitt caused the fund to have insufficient cash to pay Enron workers, retirees and other beneficiaries the amounts due to them under the court order.

Hewitt holds all the funds recovered by the U.S. Department of Labor and class-actions against the Enron pension plans. Hewitt was chosen as administrator for the settlement fund.

Even with corrective actions taken to fix the misallocation, the shortfall is $9.15 million as a result of Hewitt’s non-compliance with the court order.

“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.”

Federal attorneys allege that Hewitt miscalculated the allocation and overpid some participants, which resulted in a lack of funds to pay other employees and retirees. In all, the overpayments totaled $22 million. Although some of the monies have been recovered, the fund is insufficient to cover the amount still owed to other plan participants.

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.

In the moiton, the U.S. requires Hewitt to pony up the shortfall, providing funds to pay the remaining employees and beneficiaries. In addition, the action seeks to prohibit Hewitt from recovering amounts that were overpaid to former Enron employees in error.

A separate motion, filed by Enron would hold Hewitt 100% responsible for an interest-free loan to the Enron pension plan for the full amount necessary to pay all the participants.

On the company website, Hewitt Associates LLC proclaims itself “the world leader” in the Human Resources field. The company has over 2,500 clients worldwide, including more than half of the Fortune 500 and more than one-third of the Fortune Global 500. Hewitt is the largest provider of multi-service HR business processes.

Many prominent firms outsource HR functions to Hewitt. The company also offers HR consulting to help companies “maximize their HR investment and solve important HR issues.”

Hewitt has been in business for more than 65 years and has 24,000 employees in 35 countries around the globe.

Enron, once the darling of the financial markets, became a tragic joke in 2001 when the business collapsed amid charges of corporate wrongdoing in. It was revealed that the company’s huge profits were due primarily to the SEC approving a mark-to-market accounting system, rather than the traditional cost accounting system. In addition, Enron shifted expenses to wholly-owned shell companies, while leaving the associated profits on the Enron books.

The Enron debacle was even more notorious because Ken Lay and other corporate honchos sold off all their company stock, while assuring Enron employees that their pensions were safe.