Recently, the U.S. Department of Labor (“DOL”) filed a lawsuit against the United Employee Benefit Fund (the “Fund”) and its two trustees for ERISA violations with respect to improper loans from the Fund. The Fund, established by the Professional Workers Master Contract Group (“MCG”) and the National Production Workers Union Local 707 (“Union”), was established to provide welfare benefits (medical, dental, disability and child care) to 550 union and non-union employees of MCG’s employer members.
According to the complaint, over a 12-year period, the two trustees allegedly approved 194 “loans” from the fund to individual participants. However, in violation of the plan terms and ERISA, 42 of the loans had no supporting documentation while other loans were unsecured, exceeded the allowable amount and/or were allowed to become delinquent. Moreover, through December 31, 2009, none of the loans approved by the trustees had been paid back in full and only six participants had ever made payments on the loans issued to them. As of December 31, 2009, the Fund identified over $7 million in outstanding loans owed to the Fund. The DOL alleges that the trustees never intended to collect the loans and that the loans from the Fund were instead a method of distributing plan assets to participants prior to their death. (Solis v. Fensler et al, Case No.: 1:11-cv-06031, N.D. Ill. August 30, 2011).
The trustees’ actions, if true, violated the ERISA Fiduciary Duty requirements. More specifically, the trustees’ actions violate (1) ERISA §404 (a)(1)(A) which requires that plan fiduciaries discharge their duties with respect to a plan solely in the interest of the participants and beneficiaries and (2) ERISA §404 (a)(1)(D) which requires plan fiduciaries to discharge their duties in accordance with the documents and instruments governing the plan. As plan fiduciaries, ERISA §409(a) makes the trustees personally liable to restore to the Fund any plan losses resulting from each breach and for any other equitable or remedial relief as the court deems appropriate.
All plan fiduciaries (welfare and qualified plan) should periodically audit their plan documents and conduct an audit of their administrative procedures to ensure compliance with ERISA’s fiduciary requirements. Moreover, because ERISA imposes personal liability, all plan sponsors, benefit committees, investment committees and human resource managers responsible for employee benefits should consider asking the company to purchase fiduciary liability insurance for their protection. Should you have any questions, please consult your relationship attorney.