Compliance August 16, 2023

DOL Sues SIMPLE IRA, Health Plan Fiduciaries for Misappropriation of Funds

The Department of Labor claims a New Jersey electrical contractor misappropriated employees’ retirement plan contributions and ended employer contributions to the health plan. 

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The Department of Labor on Tuesday sued a New Jersey electrical contractor in federal court, alleging fiduciaries for the Mac Electrical Contractors, Inc. SIMPLE IRA and health plans misappropriated employee retirement contributions, failed to make good on promised employer matching contributions to the plan and stopped employer contributions to the health plan.

The defendants are Mac Electrical Contractors Inc.; company president and sole owner Walter MacAllister; spouse Geraldine MacAllister; Mac Electrical SMPLE IRA PLAN; and Mac Electrical Contractors Health plan, the complaint shows.

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“Beginning in approximately 2016, the company consistently withheld from employee paychecks money intended to fund the Plans, but the Company did not consistently forward this money to the Plans’ accounts,” the DOL wrote in the complaint. “Beginning in approximately 2019, the Company also failed to forward employer contributions to the Plans. Beginning in 2020, the Company failed to make employer contributions to the Health Plan [and] as a result of the failure to fund the Health Plan, health coverage was retroactively terminated, and participants and beneficiaries incurred charges that should have been covered by the Health Plan.”

The unremitted employee contributions to the plans remained in the company’s general operating account and the company used the funds for its day-to-day operations or to pay creditors, the DOL complaint states.

The company operated as an electrical contracting business located in Toms River, New Jersey, according to the complaint.  

Because of the fiduciary breaches, the plans and their participants and beneficiaries suffered losses that included lost opportunity costs and unpaid health claims, for which the company and the MacAllisters are liable, argues the DOL.

The lawsuit is Julie A. Su et al. v. Mac Electrical Contractors, Inc. et al. filed in the U.S. District Court for the District of New Jersey

The DOL brought five fiduciary breach claims in total under the Employee Retirement Income Security against the defendants, the complaint shows.  

The DOL alleged the company and the MacAllisters breached their duties of exclusive purpose, prudence, and loyalty, caused the plans to enter into non-exempt prohibited transactions and engaged in self-dealing.

The DOL is seeking restitution and other appropriate relief for harms suffered by the participants in the Mac Electrical Contractors plans, according to the complaint. The complaint revealed neither how much money is involved in the retirement plans nor how many participants are affected in the retirement and health plans.   

Representatives for the DOL did not immediately respond to request for those numbers.

Representatives for Mac Electrical Contractors, Inc. did not respond to a request for comment by email and a phone number for the company was no longer in service.

The case is part of the DOL’s ongoing efforts to protect plan participants, especially when plan sponsors face financial stress.

“Since [Fiscal Year] 2001, [the Department of Labor’s Employee Benefits Security Administration] has had an enforcement focus on distressed plan sponsors, regardless of the type of plan they sponsor,” says a DOL spokesperson. “This work seeks to protect participant benefits placed at risk by a plan sponsor’s financial distress, including bankruptcy, state court receivership or the company’s poor financial condition. When a plan sponsor faces financial hardship or bankruptcy, it is common to find employers holding assets which belong to or are owed to plans, occasionally intermingling those assets with the employers’ own assets.”

The DOL sued a Minnesota HVAC company SIMPLE IRA plan, alleging fiduciary breaches for misappropriation of funds, in July.

A SIMPLE [Savings Incentive Match Plan for Employees] IRA plan follows the same investment and distribution as traditional IRAs but is regulated under ERISA as an employee benefit plan, according to FAQs posted on the IRS website. The arrangement can provide small businesses with a “simplified method to contribute toward their employees and their own retirement savings,” according to the IRS.

Benefits August 15, 2023

Colorado, Maine Partner on Auto Retirement Savings Program

The partnership on the state-sponsored IRA for private-sector employers is expected to cut costs for participants in both states.

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Maine will partner with Colorado on its already established state-sponsored automatic retirement savings program for private-sector workers to provide the smaller state of Maine with a ready-made plan while reducing costs for both programs, the states announced Tuesday.

The Maine Retirement Investment Trust will join the already existing Colorado Secure Savings Program’s automatic workplace retirement savings program for the first such partnership in the country, according to the announcement. Small plan provider Vestwell is the administrator, in partnership with BNY Mellon, for the savings program that will now serve both states.

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“I’m proud to see Colorado leading the nation on this,” said Colorado Treasurer Dave Young in a statement. “Partnerships increase the number of Americans saving for retirement, while decreasing fees….[and] helping states with smaller populations offer a cost-friendly, state-run retirement program option for workers who don’t have access to one at work.”

Each program will operate independently, but share responsibilities for governance, a Colorado spokesperson wrote in an emailed response.

“Each will benefit from the economies of scale, including lower costs for participants,” she said. “Colorado is the lead state, and developed this framework to ensure smaller population states have a high quality option for savers in their states, while reducing costs for Colorado and Maine savers.”

Colorado’s state legislature mandated retirement plan uptake in 2020, with the state-sponsored program available to employers starting this year. Maine’s legislature passed its retirement plan mandate in 2021, with its state-sponsored plan being available in January 2024. The retirement plan is tied to the employee, not the employer, so it is portable should a worker change jobs.

More than 200,000 Maine workers do not have access to retirement savings through their workplace, according to data from the state. The state’s MERIT program, if provided by an employer, will automatically enroll employees in a Roth IRA account unless they opt out.

“Workers in every state want a free and easy way to save so they can retire with dignity,” said Maine Treasurer Henry Beck in a statement. “Partnering with Colorado we will share costs, create scale, and tailor a retirement savings program to meet the needs of Mainers.”

The Colorado plan currently has 12,000 employers signed up and almost $12 million in assets, with a deadline of December 31 for businesses to decide to either offer an employer-sponsored plan or enroll in the state’s plan. The states did not provide details of how much participants will save from the partnership.

Maine employers with five or more workers must offer a qualified retirement savings plan, including the state’s MERIT program, for their employees beginning in January 2024.

The two states signed the Interstate Adhesion Agreement on August 11, according to the announcement, which they said is the first of its kind in the nation.

In 2021, Colorado announced a multi-state IRA program with New Mexico to share program administration duties and fees, according to an announcement at the time. That program, however, is pending amendments by New Mexico’s legislature ahead of implementation, according to the Colorado spokesperson.

“We will gladly partner with New Mexico once it is,” implemented, the spokesperson wrote via email.

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