Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...
Dec. 1 — The fiduciaries of a multiple employer welfare arrangement must restore nearly $4.7 million to the fund after they improperly diverted fund assets for their own use, the U.S. District Court for the District of New Jersey held.
The lawsuit, filed by the Department of Labor in 2005, accused the fiduciaries of the Professional Industrial Trade Workers Union (PITWU) Health & Welfare Fund of violating their duties by impermissibly retaining employer contributions to the fund as compensation for their services.
The district court initially ruled against the DOL, but the U.S. Court of Appeals for the Third Circuit vacated this decision in 2012, explaining that the district court failed to determine whether payments by various employers to the entities who sold and marketed the fund were plan assets governed by the Employee Retirement Income Security Act. In particular, the Third Circuit found it significant that the insurance commissioners of seven states had issued cease-and-desist letters against entities and individuals associated with the MEWA.
On remand, the district court concluded in a Nov. 28 decision that the payments collected by the fund-related entities qualified as ERISA plan assets, making the individual defendants fiduciaries.
In considering whether the payments collected by the fund-affiliated entities were plan assets, the district court relied on the DOL's directive that plan assets should be defined consistently with “ordinary notions of property rights.”
With this in mind, the court found that the documents executed in connection with the MEWA “establish the Fund's property interest in all of the money which employers forwarded” to the relevant marketing company, Privileged Care Marketing Group (PCMG).
This made PCMG's owner, defendant James Doyle, an ERISA fiduciary, the court said, because he “received all employer contributions and decided how they should be disbursed, including deciding how much money PCMG would take in commission.”
Having established Doyle's fiduciary status, the court next found that he violated his duty of loyalty by causing PCMG to retain more than $1.7 million in payments made to PCMG and related entities.
Doyle also violated his duty of prudence by allowing more than 60 percent of the fund's assets to be used as payments for commissions, fees and dues, the court concluded.
Finally, the court found that the fund's former trustee, defendant Cynthia Holloway, committed fiduciary breach by failing to investigate various suspicious circumstances surrounding the fund, particularly those involving faulty collective bargaining agreements and the cease-and-desist letters issued by state insurance commissioners.
Holloway's 2002 resignation as fund trustee didn't absolve her of her duties, the court said, explaining that “an ERISA fiduciary's obligations to a plan are extinguished only when adequate provision has been made for the continued prudent management of plan assets.”
Given this, the court found Doyle jointly liable for restoring $3.9 million to the fund and Holloway jointly liable for restoring $4.7 million.
The DOL and Doyle represented themselves.
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