DOL PROPOSES RULE TO HAVE PENSION PLAN PROVIDERS FURNISH GUIDE TO FEE DISCLOSURE DOCUMENTS

FROM:  U.S. LABOR DEPARTMENT 
US Labor Department proposes that service providers give employers a guide for 401(k) fee disclosures

WASHINGTON — The U.S. Department of Labor requested public comments on a proposed rule that would require pension plan service providers to furnish employers and other plan fiduciaries with a guide to assist them in navigating fee disclosure documents.

"The department’s recent fee disclosure rules were a good first step in bringing transparency to the 401(k) industry and disclosing potential conflicts of interest. However, some employers, particularly small businesses, may be having a hard time locating the required fee disclosures when they are embedded in lengthy or complex documents," said Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi. "Much like a roadmap, a guide can help employers locate fee information, which will help them better understand what they are being charged by financial services providers."

In 2012, the department published a final rule requiring that companies that provide certain services to employer-sponsored 401(k) plans by furnishing detailed information about their services and the compensation they will receive, including payments from third parties. The rule allows such companies to use existing contracts and other documents to provide this information to plan fiduciaries. The department has found that the fee information is often contained in lengthy contract documents, or spread out among multiple documents.

The proposal announced today would amend the 2012 rule to require that covered service providers furnish a guide if disclosures are made using multiple or lengthy documents. The guide must specifically identify the document, page or other specific locator, such as section, that enables the employer to quickly and easily find fee information.

The notice of proposed rulemaking is open for public comment. The notice also references an announcement by the department to conduct focus group sessions with fiduciaries to pension plans with fewer than 100 participants. The purpose of the focus group testing approach is to explore current practices and effects of the 2012 fee disclosure rule. The focus groups may provide additional information about the need for today’s proposal and what disclosure formats may be most useful to plan fiduciaries.

LABOR DEPARTMENT OBTAINS INJUNCTION AGAINST PENSION PLAN FIDUCIARIES

FROM:  U.S. DEPARTMENT OF LABOR 
US Labor Department obtains preliminary injunction against Kentucky-based plan fiduciaries, alleging improper use of retirement funds

LEXINGTON, Ky. — The U.S. District Court for the Eastern District of Kentucky on July 26 granted in part the U.S. Department of Labor's motion for a preliminary injunction against George S. Hofmeister and Bernard Tew, former fiduciaries of four Lexington-based pension plans: the Hillsdale Salaried, Hillsdale Hourly, Revstone Casting Fairfield GMP Local 359, and Fourslides Inc.

The department previously filed lawsuits in the same court that named Hofmeister and Tew, among others. Hofmeister was the trustee of the four pension plans, and Tew was managing director of their investment service provider, Bluegrass Investment Management LLC. The court's order removes Hofmeister as a fiduciary of the plans and prohibits him from taking any actions with respect to the pensions plans or their assets. Tew resigned as fiduciary of the plans a few days before a hearing regarding the department's motion.

The lawsuits alleged that the defendants engaged in a series of prohibited transactions resulting in the misuse of approximately $12.1 million from the Hillsdale Salaried pension plan, approximately $22.5 million from the Hillsdale Hourly pension plan, approximately $4.4 million from the Revstone Casting Fairfield GMP Local 359 pension plan, and approximately $500,000 from the Fourslides Inc. pension plan. The four plan sponsors are closely affiliated with Lexington-based Revstone Industries LLC and Spara LLC.

"Those entrusted with managing these pension funds have shown an utter disregard for the workers, who are relying on the money for their retirement," said Phyllis C. Borzi, the assistant secretary of labor who heads the Employee Benefits Security Administration. "Our aim is to make this right for those workers."
The suits follow an EBSA investigation that found violations of the Employee Retirement Income Security Act, including prohibited loans to related companies, prohibited use of plan assets for the purchase and lease of employer property, prohibited purchase of customer notes from affiliated companies, prohibited transfer of assets in favor of parties-in-interest, payment of excessive fees to services providers, and payment of fees on behalf of the companies.

According to the brief filed on behalf of the department by the Cleveland Regional Solicitor's Office, Hofmeister, Tew and Bluegrass have repeatedly violated ERISA, using nearly $40 million in pension plan assets to benefit themselves or related parties.

The department's investigation of these pension plans revealed a pattern of prohibited transactions involving the use of these plans' assets by Hofmeister, Tew and investment adviser firms. Alleged improper use of the plans' assets began within days or months of Hofmeister assuming control of the pension plans. The department contends that Hofmeister has placed millions of dollars in pension plan assets at risk and has consistently failed to act to protect these assets when required.

The court has appointed Fiduciary Counselors Inc. to administer the four pension plans. Fiduciary Counselors is an investment adviser firm in Washington, D.C., that has extensive experience acting as an independent fiduciary for employee benefit plans.

PENSION PLAN TRUSTEE AGREES TO RESTORE ASSET SHORTFALLS

FROM:  U.S. DEPARTMENT OF LABOR 

Trustee of defunct New York City garment companies’ pension plans settles US Labor Department suit alleging misuse of more than $4.2 million in plan assets

Colette Mordo agrees to restore asset shortfalls; is permanently barred as fiduciary

NEW YORK — The U.S. Department of Labor has obtained a consent judgment in federal court in which the trustee of two defined benefit pension plans admits to entering into $4,232,915 in alleged unlawful plan transactions between 2002 and 2010. Colette Mordo, trustee and fiduciary to the pension plans of the Manhattan-based Sadimara Knitwear Inc. and the Stallion Knits Ltd. pension plans also agrees to restore, up to that amount, any shortfall in assets owed to the plans' participants and beneficiaries.

The judgment resolves a lawsuit filed in the U.S. District Court for the Southern District of New York alleging that Mordo violated her fiduciary duties under ERISA. The lawsuit alleged that Mordo authorized the pension plans to make improper loans and transfers of plan assets over several years to multiple recipients, including members of the Mordo family and International Design Concepts LLC and Apparel Group International LLC, two companies in which Mordo had an ownership interest.

"If you've been entrusted with the assets of an employee benefit plan, it's illegal to enrich yourself or your family at the plan's expense," said Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi. "That's not just common sense; it's the law, and the Labor Department will not hesitate to investigate and pursue appropriate legal remedies whenever fiduciaries fail to meet this standard."

The judgment removes Mordo from any and all fiduciary positions with respect to the plans and permanently bars her from serving as a fiduciary to any ERISA-covered plan. It also appoints David M. Lipkin of Metro Benefits Inc. as the independent fiduciary who will administer the plans, determine and pay out benefits to participants, and terminate the plans. The Labor Department is authorized to seek a contempt order should Mordo violate any terms of the judgment.


Sadimara Knitwear Inc. and Stallion Knits Ltd. were garment companies headquartered in Manhattan. The companies, which are no longer in operation, sponsored the plans to provide pension benefits to their employees.