Compliance January 6, 2022

DOL Recovers Money for ESOP Participants

The Department of Labor ordered the former trustee to restore $8.4 million and plan fiduciaries to restore nearly $1 million to the ESOP.

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The Department of Labor (DOL) has recovered more than $9.3 million for participants of the Kurt Manufacturing Co. Employee Stock Ownership Plan (ESOP) following an Employee Benefits Security Administration (EBSA) investigation into the company plan.

The judgment in the U.S. District Court for the District of Minnesota ordered the ESOP’s previous trustee, Reliance Trust Co., to restore $8,409,090 to the plan to resolve a lawsuit filed by the EBSA. Reliance was also ordered to pay an $840,909 penalty for Employee Retirement Income Security Act (ERISA) violations.

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This action follows an investigation by EBSA and a lawsuit alleging that Reliance caused the ESOP to overpay for company stock when it purchased the remaining shares of Kurt Manufacturing Co. stock for $39 million in 2011.

The lawsuit alleged that the ESOP’s fiduciaries were derelict in monitoring Reliance’s determination of the stock’s value and that they allowed the company to overpay above the actual cost.

“This settlement restores employees’ hard-earned retirement funds of the Kurt Manufacturing Company Inc. Employee Stock Ownership Plan and ensures executives responsible for the overpriced purchase of stock receive no future benefits from their decision,” said EBSA Acting Regional Director Mark Underwood. “Fiduciaries must always work in the best interest of the fund.”

Kurt Manufacturing board members and fiduciaries on the company’s ESOP were ordered to restore $984,042 to the plan. 

Additionally, the court ordered the directors to pay a $215,957 penalty for the ERISA violation. Altogether, the DOL recovered $9,393,132 for the participants in the Kurt Manufacturing Co. ESOP.

Kurt board members also agreed to not participate in the Kurt’s stock appreciation rights plan; to forego, as of July 1, 2021, any future contributions from Kurt to the supplemental executive retirement plan; and to rescind agreements that provided termination severance payments of their contract salaries for two years.

Compliance January 5, 2022

Pacific Life Fined for Unlicensed PRT Business

A penalty was assessed after a New York State Department of Financial Services investigation uncovered violations of state insurance law.  

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The New York State Department of Financial Services (DFS) has assessed a $3 million penalty against Pacific Life Insurance Co. (PLIC) for conducting insurance business in New York without a license.

The penalty was ordered in connection with the company’s pension risk transfer (PRT) business. Pacific Life was served with a consent order from Acting New York State DFS Superintendent Adrienne Harris.  

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“This type of unlicensed insurance activity puts the hard-earned retirement dollars of New Yorkers at risk,” she said. “The department remains committed to safeguarding the retirement assets of New Yorkers and supporting the financial stability of individuals and families, which is even more critical today as we work to revive New York’s economy amid the ongoing pandemic.”  

New York state investigations into PLIC actions found that, in 2016 and 2019, the company bid on and won two large transactions with a New York-based sponsor, in violation of state insurance laws.

“The investigation concluded that PLIC had done insurance business in New York without a New York license in connection with its pension risk transfer business,” the consent order states. “PLIC PRT representatives had exchanged hundreds of email communications and other contacts with businesses (including some located in New York) and communicated with New York individuals in violation of the insurance law.”

This enforcement action is the third penalty from DFS against unlicensed insurance businesses that have solicited and engaged in violations connected to PRT businesses.   

In April 2020, New York state penalized Athene Holding Ltd. with a $45 million fine for New York insurance law violations in connection to subsidiary Athene Annuity & Life Co. and its PRT business. AIG was punished with $12 million in fines for violations related to its subsidiary, American General Life Insurance Co. (AGL), and that company’s PRT business early last year.

As part of the agreement with DFS, PLIC will transfer the handling of transactions to PLIC’s New York subsidiary, Pacific Life & Annuity Co.

New York state insurance law Section 1102 prohibits operating an insurance business unless it is appropriately licensed. 

“Certain acts in New York, effected by mail from outside New York or otherwise, by any person or entity, constitute doing an insurance business in New York,” the consent order states. “Such acts include making, or proposing to make, as insurer, any insurance contract, including either issuance or delivery of a policy or contract of insurance to a resident of New York or to any firm, association, or corporation authorized to do business in New York, or solicitation of applications for any such policies or contracts; in addition to collecting any premium, membership fee, assessment or other consideration for any policy or contract of insurance.”

PLIC says Pacific Life “has taken the necessary steps to resolve the issue with the DFS and has implemented necessary changes to ensure proper pension risk transfer business practices in New York moving forward.”

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