PEOPLE CARE HOLDINGS INC., REACHES $10 MILLION SETTLEMENT WITH LABOR DEPT. IN EMPLOYEE STOCK OWNERSHIP CASE

FROM:  DEPARTMENT OF LABOR 

$10M settlement reached with People Care and US Labor Department
Agreement includes more than $9M to employee stock ownership plan

WASHINGTON — The U.S. Department of Labor today announced a $10 million settlement agreement with People Care Holdings Inc. and former owners Bruce Jacobson and Jerry Lewkowitz, who sold the company to their employees through creation of an employee stock ownership plan. The department contended that they violated the Employee Retirement Income Security Act by permitting the ESOP to purchase People Care stock from them for more than its fair market value.
An investigation by the Employee Benefits Security Administration's New York Regional Office found Jacobson, Lewkowitz and People Care breached their fiduciary duties by failing to correct unrealistically optimistic projections of People Care's future earnings and profitability, even after People Care lost a key municipal contract. The investigation also found that the stock purchase agreement's indemnification provision was invalid because it would require People Care, which is entirely owned by the ESOP, to pay any costs incurred by Jacobson and Lewkowitz in connection with an investigation or litigation.
"Owners who sell their companies to their employees and benefit from ESOP tax treatments are responsible for ensuring that the terms are fair to the plan and its participants," said Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi. "They have a duty to monitor the independent trustees that they appoint to oversee the transaction."

Under the terms of the settlement agreement, Jacobson and Lewkowitz will pay $9,090,910 to the ESOP and a civil penalty of $909,090.

People Care is a home-care agency, based in Manhattan, that provides caregiving services, such as meal preparation, laundry, shopping, housekeeping, companionship and medication assistance. Its ESOP has approximately 4,655 ERISA-covered plan participants. It has facilities in New York and New Jersey.

BANK SUED BY LABOR DEPARTMENT OVER ILLEGAL DIVERSION OF EMPLOYEE ASSETS

FROM:  U.S. LABOR DEPARTMENT 
US Department of Labor sues San Francisco's California Pacific Bank

Nearly $1.4 million in employee stock ownership assets allegedly mismanaged
SAN FRANCISCO — The U.S. Department of Labor has filed a lawsuit against San Francisco's California Pacific Bank and four of its directors. The complaint alleges that the bank, its CEO and three additional fiduciaries of the bank's Employee Stock Ownership Plan mismanaged plan assets resulting in potential plan losses totaling approximately $1.4 million. The suit asks the court to require the fiduciaries to restore all losses they caused to the plan.

The department alleges that after terminating the ESOP in 2010, the fiduciaries violated the Employee Retirement Income Security Act by failing to liquidate and distribute plan assets in cash to plan participants as required. Because the bank is not a publicly traded company, participants were left with shares of the company's stock they could not easily liquidate for cash, if at all.

Agency investigators determined that the participants would have received approximately $1.24 million if the plan's 97,237 shares had been liquidated and distributed in cash at their assessed December 2009 value. The lawsuit also alleges that in 2011, $81,407 was improperly diverted to the bank, and in 2012, the fiduciaries improperly transferred nearly $70,000 in plan assets to the bank. Finally it is alleged that the bank also held plan assets in non-interest bearing accounts, making assets available for bank use without charge and without accruing interest on the funds for the benefit of the plan.

The complaint names California Pacific Bank CEO and board member Richard Chi, who served as the plan administrator and a plan trustee. Also named are board members and trustees Akila Chen, Kent Chen, and William Mo. The suit asks the court to permanently remove all four as plan fiduciaries and to appoint an independent fiduciary with control over the plan and its assets. The independent fiduciary would administer the liquidation and termination of the plan. The complaint also seeks to permanently enjoin the defendants from ever serving, directly or indirectly, as a fiduciary or service provider with respect to any employee benefit plan subject to ERISA, and to require them to disgorge to the plan any financial benefits they realized as a result of their violations.

U.S. DOL SUES TO RECOVER EMPLOYEE LOSSES IN STOCK OWNERSHIP PLAN

FROM: U.S. DEPARTMENT OF LABOR

US Labor Department sues to recover losses to employee stock ownership plan of Rembar Inc.

NEW YORK — The U.S. Department of Labor has filed a lawsuit to recover losses suffered by participants in the Rembar Inc. Employee Stock Ownership Plan after the plan allegedly was allowed to purchase overvalued company stock. The suit names as defendants Rembar owner and CEO Frank Firor and First Bankers Trust Services Inc., which was hired as an independent fiduciary and trustee in connection with the company's newly formed plan. The plan is also a defendant.

"Employee Retirement Income Security Act fiduciary duties are the highest standard of care known to the law and apply to those who manage employee benefit plans," said Jonathan Kay, regional director of the Labor Department's Employee Benefits Security Administration's New York Regional Office. "The department remains committed to ensuring that fiduciaries work solely in the interest of plan participants and beneficiaries."

The suit alleges that, in June 2005, First Bankers Trust Services allowed the plan to purchase 100 percent of the company's stock from Firor and Firor's relatives for $15.5 million. An investigation by EBSA determined that First Bankers Trust Services failed to comply with its duty to understand the valuation report that set the purchase price, identify and question assumptions in the report, and verify that the conclusions in the report were consistent with the company's financial data. As a result of First Bankers Trust Services' failure to comply with its fiduciary duties, the plan overpaid for the stock and suffered losses.

The suit seeks, among other things, to recover jointly from First Bankers Trust Services and Firor all losses suffered by the plan.

Rembar Inc. is engaged in the distribution and manufacturing of precision parts made from refractory metals. The suit was filed in the U.S. Court for the Southern District of New York and is being litigated by the department's Regional Office of the Solicitor in Manhattan. The suit is based on an investigation conducted by EBSA's New York Regional Office.

NATIONAL RURAL ELECTRIC COOPERATIVE ASSOCIATION RESTORES OVER $27 MILLION TO BENEFIT PLANS

FROM:  U.S. DEPARTMENT OF LABOR
National Rural Electric Cooperative Association agrees to restore $27.3 million to benefit plans, settling US Labor Department claims
Association allegedly received excessive compensation in violation of federal law.

ARLINGTON, Va. ? The National Rural Electric Cooperative Association has agreed to restore $27,272,727 to three association-sponsored employee benefit plans covered by the Employee Retirement Income Security Act. This agreement follows an investigation by the U.S. Department of Labor’s Employee Benefits Security Administration that found the association selected itself as a service provider to the plans, determined its own compensation and made payments to itself that exceeded NRECA’s direct expenses in providing services to the plans, in violation of ERISA.

“Workers should be able to have confidence that their hard-earned retirement savings are being properly managed,” said Secretary of Labor Hilda L. Solis. “This settlement benefits tens of thousands of NRECA plan participants by reducing their plan administration costs.”

Under the terms of the agreement, NRECA will not provide administrative services to the NRECA Retirement Security Plan, the NRECA 401(k) Plan and the NRECA Group Benefits Plan without entering into a written contract or agreement with the plans that must be approved by an independent fiduciary. The independent fiduciary must determine whether the use of NRECA to provide administrative services to the plans is prudent and reasonable, determine the categories of direct expenses that NRECA may charge to the plans and the methods of calculating those expenses, and monitor NRECA’s compliance with certain terms of the agreement. The agreement also provides that during a 60-month period following the implementation date, NRECA shall discount the amount of permissible direct expenses for which it seeks reimbursement from all three plans in the amount of $22,727,272. The balance of the settlement payment, $4,545,455, already has been paid directly to the NRECA 401(k) Plan.

“This settlement sends a clear message to plan fiduciaries that they cannot profit from selecting themselves to provide services to plans,” said Phyllis Borzi, assistant secretary of labor for employee benefits security.
In addition to the amounts returned to the plans, NRECA will pay $2,727,276 in civil penalties.

Headquartered in Arlington, NRECA is a nonprofit trade association for electric power cooperatives. The sponsored plans are open to members of the trade association as well as the association’s employees. As of 2010, the latest information available, the NRECA 401(k) Plan had 68,970 participants, the NRECA Retirement Security Plan had 64,286 participants and the NRECA Group Benefits Plan had 73,644 participants.

The settlement follows an investigation by EBSA’s Washington District Office. Employers and workers can contact that office at 202-693-8700 or toll-free at 866-444-3272 for help with problems relating to private sector pension and health plans. Additional information can be found at http://www.dol.gov/ebsa.

ALLEGED PENSION THIEF GETS INJUNCTION FOR SELF AND COMPANY

FROM:  U.S. DEPARTMENT OF LABOR
US Department of Labor obtains preliminary injunction against Matthew D. Hutcheson and Hutcheson Walker Advisors LLC
WASHINGTON — On June 13, the U.S. District Court for the District of Idaho granted the U.S. Department of Labor's motion for preliminary injunction against Matthew D. Hutcheson and Hutcheson Walker Advisors LLC. The court found that the department had "demonstrated the type of immediate and irreparable injury necessitating entry of a preliminary injunction."

On May 15, the department filed a complaint in the same court against Hutcheson and others alleging that Hutcheson had violated the Employee Retirement Income Security Act. The complaint alleged that, toward the end of 2010, Hutcheson used more than $3.2 million in retirement plan savings of workers from multiple employers for his own personal benefit and in an attempt to purchase an interest in the Tamarack Resort, a failed ski and golf resort in Idaho.

Hutcheson's alleged misconduct has left the affected retirement plans without sufficient funds to pay participants all the benefits owed to them. Hutcheson also faces a separate criminal indictment, filed by the U.S. Department of Justice in the same court on April 10, in connection with the same transaction and others. Concurrent with its civil complaint, the department filed a motion for a temporary restraining order and preliminary injunction, seeking removal of defendants Hutcheson and Hutcheson Walker Advisors as fiduciaries of the Retirement Security Plan and Trust, formerly known as the Pension Liquidity Plan and Trust. The secretary of labor also requested the appointment of Jeanne B. Bryant of Receivership Management Inc. as independent fiduciary to the Retirement Security Plan and Trust and the plans. On May 16 the court granted the secretary's motion for a temporary restraining order and took the motion for preliminary injunction under advisement. Today's order is the court's granting of the injunctive relief sought by the department.

In addition to Hutcheson and Hutcheson Walker Advisors LLC, defendants in the secretary's action include Green Valley Holdings LLC and the Retirement Security Plan and Trust.

COURT ORDERS CHICAGO-AREA INVESTMENT SERVICE PROVIDER TO REPLACE $1.2 MILLION TO WORKER RETIREMENT PLAN

Photo:  Justice and Humanity.  Credit:  Wikimedia.
FROM:  U.S. DEPARTMENT OF LABOR
US Labor Department suit results in court order requiring Chicago-area investment service provider to restore $1.2 million to worker retirement plans
CHICAGO — Following an investigation by the U.S. Department of Labor and resulting lawsuit, a federal court has issued a default judgment against the co-founder and director of the now defunct Elmhurst-based investment management company Results One Financial LLC. Steven Salutric has been ordered to restore $1,211,902.25 to four pension plan client accounts from which he allegedly withdrew funds from 2005 through 2009 in violation of the Employee Retirement Income Security Act.

"It is particularly egregious when those entrusted with protecting workers' retirement assets jeopardize them by committing illegal acts for personal gain," said Secretary of Labor Hilda L. Solis. "The Labor Department is committed to taking all necessary actions to ensure that workers' hard-earned income and benefits are protected. America's workers deserve and are entitled to keep what they have rightfully earned for themselves and their families."

The department's suit, filed in federal district court in Chicago, alleged that Salutric misdirected the assets of client plans to entities in which he had an interest, including a film distribution company, a restaurant and a real estate partnership, and to a church where he served as treasurer. Results One Financial LLC was a registered investment advisory company that provided services to a wide range of clients, including ERISA-covered employee benefit plans.

"Worker retirement savings accounts were given special protections by Congress due to the significant role they play in providing a secure retirement," said Phyllis C. Borzi, assistant secretary of labor for employee benefits security. "The Labor Department's Employee Benefits Security Administration will continue to help workers understand their rights and fight to protect their assets."

The court order requires Salutric to restore all losses, including lost opportunity costs, to the four pension plan clients and to correct the prohibited transactions involved. The judgment also bars Salutric from serving as a fiduciary or service provider to any employee benefit plan governed by ERISA in the future.

EBSA's Chicago Regional Office investigated the case in coordination with the Chicago Regional Office of the U.S. Securities and Exchange Commission. Employers and workers can contact EBSA's Chicago office at 312-353-0900 or the agency's toll-free number at 866-444-3272 for help with problems related to private sector health and pension plans.

FAILED CONSTRUCTION COMPANY MUST RESTORE EMPLOYEE RETIREMENT PLAN

FROM U.S. DEPARTMENT OF LABOR
Judge orders defunct California construction company to restore nearly $520,000 to employee retirement plan following US Labor Department lawsuit
Explore General failed to remit workers’ fringe benefits
SAN FRANCISCO — Fresno-based Explore General Inc. and Jaime M. Gonzalez have been ordered to restore $519,601 to the company's 401(k) profit-sharing plan, according to the terms of a judgment and order entered in the U.S. District Court for the Eastern District of California.

The judgment and order resolve a lawsuit that was filed by the U.S. Department of Labor based on an investigation by its Employee Benefits Security Administration. The suit alleged that the defendants failed to pay required fringe benefits to the plan and breached their fiduciary duties under the Employee Retirement Income Security Act by not administering the plan solely in the best interests of participants. At the time of the violations, Gonzalez was the owner and president of the company.

Chief Judge Anthony W. Ishii found that the now-defunct construction company was required to pay its workers an hourly prevailing wage rate, including a fringe benefit for each participant in the form of contributions to the retirement plan, when it was contracted to perform work on projects financed by government agencies. The company was paid in full by the agencies for its work, including fringe benefit amounts, and certified that it was sending the fringe benefits to the plan. However, the company failed to remit more than $300,000 to the plan, choosing instead to use the money for general operating expenses. In addition to that amount, the judge's order requires the company to restore lost earnings to the plan.

"Retirement savings are a vital part of ensuring a steady income after we leave the workforce, which is a key reason that Congress chose to give them special protections," said Phyllis C. Borzi, assistant secretary of labor for employee benefits security. "Unfortunately, the individuals entrusted with protecting this plan violated those safeguards."