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.