DOL Sues Multiple Employer Plan Administrator

A group 401(k) plan for mining industry workers is alleged to have not transferred employees’ salary deferrals to their accounts.  

Department of Labor Secretary Marty Walsh has filed a lawsuit in the District Court for the Eastern District of Kentucky, Southern Division, against the administrator of the multiple employer defined contribution retirement plan. Among the named defendants are the Coal Exclusive Company and the Coal Exclusive Benefits 401(k) Retirement Plan.

The lawsuit alleges that, from January 2018 through April 2021, CEB received nearly $2 million in salary deferral contributions from employees’ pay. According to the lawsuit, however, CEB “failed to timely remit the amounts withheld to the plan.” In some cases, the lawsuit alleges, the plan fiduciaries took up to 482 days to make the required contributions.

“As a direct and proximate result of defendants’ fiduciary breaches, the plan suffered injury and losses for which they are subject to appropriate equitable relief,” the complaint states.

Under the Employee Retirement Security Act, retirement plan fiduciaries are required to always operate defined contribution plans in the best interests of participants. The DOL alleges that the leadership of the CEB 401(k) plan violated several provisions of ERISA, including the requirement that all assets of an employee benefit plan be held in trust and “never inure to the benefit of the employer,” the lawsuit states.

Regulations require participant contributions to be remitted to participants individual accounts as of the earliest date these can be segregated from the employer’s general assets or no later than the 15th business day of the month following the month in which the participant contrition amounts are received by the employer. 

The text of the lawsuit specifically alleges that the organization’s chief financial officer caused CEB to fail to timely remit employee withholdings, resulting in CEB retaining assets of the plan in its own corporate bank account for its own use.

From January 5, 2018, through April 10, 2020, “CEB retained the withheld employee salary deferral contributions and commingled such assets with the general corporate assets in its corporate bank account until they were remitted to the plan,” the complaint states. “During such time CEB used the corporate bank account for non-plan purposes.”

The lawsuit alleges that the officer and CEB collectively failed to operate the plan appropriately as required by ERISA because the defendants failed to act solely in the interest of the participants and beneficiaries of the plan. In addition, according to the complaint, the defendants have failed to discharge their duties with care, skill, prudence and diligence. The suit further suggests they caused the plan to engage in prohibited transactions and to act on behalf of a party whose interests were adverse to the interests of the plan participants and beneficiaries.

In February, after the DOL concluded a pair of investigations by the agency’s Employee Benefits Security Administration, courts ordered plan sponsors to restore retirement contributions for workers at a Michigan electronics repair store and a now-defunct California construction company. The regulator filed a lawsuit that alleged an ERISA breach for failure to remit retirement contributions against Velo Corp., the owner operator of Quik Trak, a New York City area courier and bike messenger service, earlier this year.

A call for comment to Coal Exclusive Benefits 401(k) Retirement Plan on the lawsuit was not returned.