Worker Benefits in California and Mississippi

August 24th, 2007 Posted by Amelia

The U.S. Department of Labor recently announced two actions to recover benefits for workers in Mississippi and California, under federal law.

Most employees never think twice about employee benefit plans, but they should. In 2006, the U.S. Department of Labor recovered more than $2.6 billion in employee benefit funds that had been misappropriated by employers. These included funds for employee pension plans, healthcare funds and profit-sharing accounts.

In the most recent case, the DOL recovered $3.5 million in five union employee pension funds that had been misappropriated by the plan trustees. The retirement, health, scholarship, apprenticeship, and vacation and holiday funds cover more than 2,000 participants employed throughout northern California.

The settlement also orders the sale of the Konocti Harbor Resort and Spa on Clear Lake. The Kelseyville, California resort hotel was apparently renovated and operated with funds diverted from the union pension plans.  The DOL charges that the union “imprudently spent millions” to build and maintain facilities at Konocti, despite the resort’s continued losses. In addition, the union profited from the interest of a $6 million loan that it made to itself.

“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 plan administrators were removed from five employee benefit plans sponsored by Local 38 of the United Association of Plumbers, Pipefitters and Journeymen of San Francisco. The trustees were permanently barred from serving as fiduciaries or service providers on any employee benefit account, ever again.

 The suit filed by the DOL alleges violations of the Employee Retirement Income Security Act (ERISA) by current and former trustees. The trustees include Lawrence J. Mazzola, Sr., the business manager and financial secretary-treasurer of Local 38. Other trustees who were removed include, William Fazande, Larry Lee, James Shugrue, Bohon Kazarian, Tom Irvine, Robert E. Buckley, Art Rud, Ron Fahy, and Robert Nurisso.  Frank Sullivan, plan administrator, was also banned for life from controlling any more employee benefit accounts.

In a surprise move, the court retained Lawrence J. Mazzola Jr. and Robert E. Buckley Jr., two trustees who have been on the board for less time.

Under the settlement, a court-appointed independent administrator will oversee the union employee benefit plans and implement financial controls to prevent future misuse of the assets. A second court-appointed trustee has independent and exclusive authority over the resort sale and, until it is sold, management and operation of the property.

In the future, all assets of the pension plan must be managed by professional investment managers under the oversight of an investment monitor.

In a second case, the DOL obtained a settlement requiring the Mississippi State Medical Association, or MSMA of Ridgeland, Mississippi, to reimburse participants and beneficiaries for unpaid health claims. The claims resulted from the termination of the MSMA Benefit Plan and Trust.

Ironically, MSMA was established in the 1980s to provide healthcare for physicians, their employees and families. Prior to its collapse in January 2004, the plan had more than 1,800 participants.

“The mismanagement of this benefits plan left workers and their families on the hook for unpaid medical bills,” said U.S. Secretary of Labor Elaine L. Chao. “The department’s legal action will ensure that the plan sponsor meets its responsibility by paying the medical bills of these workers and their families.”

The judgment appoints Receivership Management Inc. as an independent fiduciary to manage the distribution of plan assets. The judgment also removes MSMA as a fiduciary to the health plan and protects participants from creditors’ claims by medical providers. Finally, MSMA is enjoined from providing health, disability or other welfare benefits through any self-funded arrangement in the future and may be liable for a civil penalty.

The Labor Department’s lawsuit alleged that MSMA knew the plan was under funded, did not take steps to remedy the situation and failed to inform participants of the unsound financial condition. As a result, the plan had more than $5 million in outstanding claims when it was terminated.

 

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