Recently, the U.S. Department of Labor (“DOL”) announced that it had entered into settlement agreements with Aloha Airlines Inc., Bank of Hawaii and First Hawaiian Bank which require them to pay $9,545,454 to the airline’s three pension plans for losses that the plans suffered on investments in stock of the airline’s holding company. In an earlier settlement agreement, PriceWaterhouseCoopers LLP, the auditor for the plans and the companies, agreed to pay $250,000 to the plans and a $50,000 civil penalty for knowingly participating in the fiduciary breaches. The money will be paid to the Pension Benefit Guaranty Corp. (“PBGC”), the trustee of the plans.
The DOL charged that Aloha and Bank of Hawaii, acting in their capacity as plan fiduciaries, breached their fiduciary duties under the Employee Retirement Income Security Act (“ERISA”) by causing or permitting the pension plans to buy newly issued stock in Aloha’s holding company for more than its fair market value without investigating the merits of the purchase for the plans and for failing to take steps to protect the plans as the stock lost all of its value.
Among other requirements, ERISA Section 404(a)(1) requires that a plan fiduciary discharge his or her duties with respect to a plan solely in the interest of the plan participants and beneficiaries and for the exclusive purpose of providing benefits and defraying reasonable costs of administering the plan. Further, an ERISA plan fiduciary must act with the care, skill, prudence and diligence under the prevailing circumstances that a prudent person acting in a like capacity and familiar with such matters would use. In this current economic downturn, it is critical that plan sponsors review their fiduciary selections to ensure the employees acting as fiduciaries are capable of performing their duties to the standard imposed by ERISA. Plan sponsors should regularly meet with their plan vendors and service providers and document all plan meetings and decisions to help reduce fiduciary liability.