Recently, the U.S. Department of Labor (“DOL”) announced that it had obtained a consent order and judgment requiring the former president of AA Capital Partners Inc. to restore $50 million in losses to five Michigan pension funds as restitution for misuse of plan assets to the benefit of the investment firm and himself. The judgment also bars the defendant from serving as a fiduciary or service provider to any employee benefit plan governed by ERISA. The five union pension funds covered more than 60,000 participants.
According to the press release, the DOL filed a lawsuit on April 10, 2008 against AA Capital Partners, its co-owner and president (John Orecchio), its chief financial officer and AA Liquidity Management, LLC for allegedly misusing plan assets and charging excessive fees on investments. In July 2008, the DOL filed an amended complaint adding an additional count that alleged that plan assets were also imprudently invested in a limited partnership without conducting a prudent investigation regarding this investment. According to the DOL, at various times from 2002 to 2006, the defendants improperly used $25.9 million dollars of plan assets to pay for, among other things, the operating expenses of AA Capital Partners, renovations to a horse farm and a strip club owned by Orecchio. Additionally, the DOL alleged that the defendants caused the pension plans to pay unauthorized fees to AA Capital.
ERISA § 404 requires plan fiduciaries to discharge their duties with respect to the plan solely in the interest of participants and beneficiaries, and for the exclusive purpose of providing benefits to participants and their beneficiaries, to defray the reasonable costs of administering the plan. As in this case, if a fiduciary fails to perform their duties, he or she can be (1) held personally liable to make good to the plan any losses resulting from such breach, (2) required to restore any profits that would have been made through the use of plan assets, and (3) subject to other relief as the court may deem appropriate, including removal of the fiduciary. Although the above case represents an extreme set of facts and deceit, because ERISA makes a plan fiduciary personally liable for breaches, all executives, board members and human resource professionals should review their job duties in relation to any company sponsored welfare or retirement plan to determine if they would be considered an ERISA fiduciary, subject to personal liability.