Compliance February 4, 2022

DOL Announces Enforcement Actions for Abandoned Plan and Missed Contributions

The Department of Labor announced judgments against a pair of plan sponsors to restore employees’ retirement plan contributions after ERISA fiduciary breaches.   

Reported by

A pair of investigations by the Department of Labor (DOL)’s Employee Benefits Security Administration (EBSA) have led courts to order plan sponsors to restore retirement contributions for workers at a Michigan electronics repair store and a now-defunct California construction company.

The U.S. District Court for the Northern District of California has issued a default judgment against Clawson Construction Inc. following an investigation by EBSA that found the company failed to name a successor trustee, and plan participants had no one to administer the plan and authorize distribution of their funds when the company closed after the 2018 death of its owner and sole trustee.

Get more!  Sign up for PLANSPONSOR newsletters.

Sixteen retirement plan participants will receive almost $1 million in assets as a result of fiduciary breaches under the Employee Retirement Income Security Act (ERISA), says EBSA San Francisco Regional Director Klaus Placke.  

“The U.S. Department of Labor acted to get these employees access to their hard-earned retirement funds,” Placke says. “Employees place their trust in, and count on, employer-sponsored benefit plans to fund their retirements.”

After EBSA investigators determined that the company’s owner failed to name a successor trustee, the EBSA regional solicitor of labor filed a complaint alleging the company abandoned the plan.

Separately, the DOL announced a judgment under ERISA against Gibson Television Service Inc., as the company failed to forward employees’ 401(k) retirement plan contributions to their accounts.

U.S. District Court Judge Laurie J. Michelson for the Eastern District of Michigan signed a consent order and judgment appointing AMI Administrators Inc. as an independent fiduciary to the plan and authorized AMI to reallocate $50,764 from the defendants’ individual plan accounts for the unremitted funds and lost opportunity costs to the accounts of the remaining participants and plan beneficiaries to ensure that participants’ accounts will be made whole, the DOL states.

The court order also authorized AMI to reallocate $3,570 from the defendants’ individual accounts to cover plan expense, and it bars the defendants from serving as fiduciaries to ERISA-covered plans in the future.

The court action follows an EBSA investigation that found the president and the director of Gibson Television Services Inc. failed to remit and/or forward employee contributions “in a timely manner” to the company retirement plan from January 2016 through August 2019, the DOL states.  

“When fiduciaries fail to act with integrity in their obligations to the hard-earned retirement savings of participants, it puts the future savings of hard-working employees and the viability of their retirement plan in jeopardy,” says EBSA Cincinnati Regional Director L. Joe Rivers. “[EBSA] is committed to ensuring the integrity of employee benefit programs and holding those who violate the law accountable.”

Clawson Construction Inc. and Gibson Television Service Inc. have not yet responded to requests for comment about the judgments.

Earlier this month, DOL Secretary Marty Walsh filed a lawsuit in the District Court for the Southern District of New York against Velo Corp. of America, its plan administrator and its plan trustee alleging breaches of fiduciary duty under ERISA. The lawsuit alleges that the New York City courier failed to remit employee contributions to its 401(k) profit-sharing plan.

Benefits February 4, 2022

San Diego to Retroactively Replace Thousands of Employees’ DC Plans With Pensions

A law that moved all city employees except police officers to defined contribution plans was found to have been illegally placed on the public ballot.

Reported by

The city of San Diego will be offering retroactive defined benefit (DB) pension benefits to thousands of city employees who were previously only offered defined contribution (DC) plans.

The decision comes after the California Supreme Court overturned 2012’s Proposition B, a law that was passed after being voted on by the public. Proposition B shifted all city employees except police officers away from pensions to DC plans. The law was in effect from July 2012 through July 2021.

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

Proposition B was controversial and was ultimately deemed to have been illegally placed on the public ballot. The total amount of funds owed to city employees will be approximately $73 million in retroactive pension accruements. The payments will go to approximately 3,850 workers who began working for the city after July 2012.

The city will also be required to pay an additional $8 million in court-ordered penalties.

San Diego is one of a growing number of public organizations debating between the generous offerings of a pension program and the financial security of a DC program. Nevertheless, the subject remains controversial. Some studies have suggested that DB programs can be more cost efficient. DB programs often benefit from economies of scale, which bring lower fees and higher investment returns.

But defined benefit programs remain risky for poorly funded public programs. In the worst-case scenarios, mismanaged DB programs have even contributed to government bankruptcy, as seen in Puerto Rico’s recent pension crisis.

San Diego’s move calls to mind similar events regarding West Virginia’s Teachers’ Retirement System (TRS). Chronic funding problems prompted lawmakers to close the pension plan and create a DC plan in 1991.

However, several years of poor stock market returns spurred numerous complaints about the newer plan, prompting closure of the state’s DC program for teachers and reopening the long-closed TRS.

A version of this article was originally published by CIO, PLANSPONSOR’s sister publication.

«