ERISA Consulting Group

Here are a few samples of complex voluntary compliance settlements and lawsuits in which members of ERISA Consulting Group have been involved.

Imprudent purchase of stock and failure to exercise due diligence

A lawsuit was filed against a major financial institution for a $3.3 million investment made as trustee on behalf of two pension plans covering over 3,000 participants. The lawsuit alleged that the trustee negligently failed to investigate the relationship between parties and allowed the plans to use plan assets to imprudently buy stock. The case was settled, the plan recovered all losses, and the violators were enjoined from violating ERISA in the future.

Excessive fees to service providers and imprudent plan administration

The Department of Labor filed two lawsuits in 1995 and 1996 against an industry coalition and trustees of its health and welfare plan. The suits alleged that ERISA violations occurred by: i) failing to secure actuarial services to determine the amount of contributions needed to pay claims; ii) failing to establish an adequate financial reserve; and, iii) paying excessive fees to the plan administrator. The government sought and obtained a court order appointing a special master to take over the daily operations of the plan and a directed trustee to hold plan assets in trust. In addition, the court ordered the defendants to pay over $625,000 to ensure that all participant medical claims were paid.

Imprudent fiduciary conduct and failure to operate plan in sole interest of participants

A lawsuit was filed against a bankrupt plan sponsor and its president and vice president alleging the failure to act in the best interest of health plan participants, in violation of ERISA. The complaint alleged the defendants' imprudent conduct resulted in losses of approximately $217,000 in approved and unpaid participant medical and dental claims. A consent judgment issued by the U.S. District Court required the appointment of an independent trustee to supervise the actions of plan fiduciaries. The fiduciaries were required to seek payment of all unpaid claims diligently and actively, including pursuing claims against the corporation in bankruptcy proceedings.

Imprudent administrative fees and failure to pay participant benefits

The Department of Labor sued fiduciaries and service providers to health plans after more than $1 million in health benefit assets were diverted to them through a complex scheme. The program covered over 300 individual trusts in at least 15 states, and involved insurance agents, consultants, leasing companies, health provider associations and other professional organizations that marketed the program to employers nationwide. The complaint alleged numerous ERISA violations, including that over 45% of plan assets were used to pay administrative fees, marketing fees and commissions, and other non-benefit expenses. After an expert witness retained by the government determined that the program (the scheme) was not financially viable, the court issued a restraining order freezing the assets of the program, appointed an independent fiduciary to oversee the program operations, and removed key defendants from their plan positions. One key defendant was later charged in a 64-count indictment alleging the sale of fraudulent health plans and using plan premiums to benefit himself.

Imprudent underwriting of plan construction loans

Parties entered into a negotiated settlement with a corporation after alleged ERISA violations relating to the investment manager's past lending practices. The allegations asserted that the corporation imprudently underwrote a series of loans. The investment manager had investment authority over some or all of the assets of pension plans covering over 123,000 participants. As part of the settlement, the corporation paid more than $13.7 million, including interest, to 10 pension plans. In addition, the corporation agreed to new underwriting guidelines to follow in future loan financing involving ERISA covered plans. The settlement was achieved after the complainant and the investment manager agreed to voluntary mediation of ERISA claims.

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