Miami Company Forced to Repay Employee Benefit Fund

July 12th, 2007 Posted by Amelia

The U.S. Department of Labor has recovered more than $1.1 million lost by workers when a Miami-based firm raided the employee profit-sharing fund and used the money for operating expenses.

A court judgment provided restitution to the tune of $1,154,848.25 plus interest to the profit-sharing retirement account of X-Ray Equipment Co. The ruling also removed the company as a fiduciary to the plan and appointed an independent overseer.

“These workers’ retirement dreams were threatened by the mismanagement of their retirement plan,” said Secretary of Labor Elaine L. Chao. In unusually heated comments, Secretary Chao added, “This legal action restores nearly $1.2 million to pay these workers retirement benefits and ensures the plan’s future integrity by the appointment of an independent fiduciary.”

According to the suit filed by the U.S. Department of Labor, the company and its president violated the Employee Retirement Income Security Act, or ERISA, by failing to collect loans and interest between September 20, 2000 and the present. Essentially, the company president made unsecured loans from the employee retirement fund, and then failed to repay them. The lawsuit also claims that when the company president did receive loan and interest payments, he deposited the money in company operating accounts, instead of repaying the pension fund. The funds were allegedly used to cover company operating expenses. This resulted in losses to the plan that made it impossible to pay employee benefits as they came due.

Unfortunately, this situation is far from unique. In 2006, the Employee Benefits Security Administration or EBSA collected more than $1.4 billion in misappropriated benefit funds, including 401K accounts, healthcare accounts, retirement accounts and other benefits for American workers and their families.

In a similar incident, Macristy Industries Inc. of New Britain Connecticut was required to repay more than $2 million to the company’s retirement plan earlier this month, under a court order resolving the lawsuit filed by the U.S. Department of Labor.

At that time, Secretary Chao said, “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.”

In the current case, the president of X-Ray Equipment Co., who oversaw the retirement plan, is deceased. In his September 2006 obituary, he is listed as a resident of Miami since 1938 who succumbed to cancer. He was married for 53 years and was survived by 3 sons, 3 daughters, 13 grandchildren and 3 great-grandchildren.  A Korean War-era U.S. Air Force veteran, he chaired many political fundraisers. He was a member of the Miami Shores Community Church where he served as President of the Church Council and on numerous committees.  According to sources at the U.S. Department of Labor, the company president failed to prudently invest plan assets by concentrating a majority of the investments in notes and mortgages without investigating the soundness of such investments. Eventually, these improper investments resulted in losses to the plan of more than $1.5 million, according to court documents.

Under this judgment in the U.S. District Court for the Southern District of Florida in Miami, an independent trustee was appointed to head the fund. Jeanne Barnes Bryant has the authority to collect assets owed to the plan, to evaluate outstanding claims, and to make payments both to plan participants and to creditors. Those creditors include workers who are owed unpaid profit-sharing or retirement benefits.

Normally in such a situation, the plan’s trustee would be permanently enjoined from acting as fiduciary for any benefit plans. In this case, because the company president was already deceased, that condition did not apply.

This judgment resulted from an investigation conducted by the Miami District Office of the Labor Department’s Employee Benefits Security Administration (EBSA). The suit was originally filed in federal court on February 7, 2007, according to Gloria Della, a Labor Department spokesperson.

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Florida Employee Benefits

April 16th, 2007 Posted by Amelia

If you’ve ever wondered what it takes to get US Secretary of Labor Elaine Chao riled up, now you know. The petite, well-dressed Chao is normally described as “ladylike,” but her recent remarks showed that even the normally unflappable Secretary has her limits.

The US Dept. of Labor recently sued a company and its owner to recover over $1.5 million in Florida employee benefits.

In a stinging comment, sedate US Secretary of Labor Elaine Chao said, “Workers’ retirement plans are not to be treated as cash machines for management’s convenience.” She added, “This legal action on behalf of the retirement plan’s participants seeks to recover more than $1.5 million, ensure the plan’s future integrity and prevent the defendants from ever again being in a position to plunder employee benefits.”

The suit was lodged against X-Ray Equipment Co., a firm that sells and services medical equipment including CT scanners, MRIs and PET scanners. The suit alleges that the owner of X-ray misused more than $1.5 million in retirement plan assets to benefit the company.

Misusing retirement funds is a violation of the US Employee Retirement Income Security Act (ERISA). According to the suit, between Sept. 30, 2000 and now the owner of X-ray failed to collect $1,156,800 in loans plus interest owed to the plan. He also kept $427,021 in loan payments made by plan participants and third-party borrowers. In a flagrant violation of trust, the loan repayments were co-mingled with the general assets of the company and used to pay company expenses.

The company owner acted as the plan trustee. In that capacity, he made risky investments with the plan funds resulting in hefty losses. As a result, the plan was unable to pay benefits to retirees who had made contributions.

Under the suit, X-ray and its owner would have to pay back all the lost money, with interest. They would also be barred permanently from service to any plan covered by ERISA. A new plan trustee would be appointed to handle the funds.

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