Trustee and Counsel for Union Found Guilty of Retaliation

The case stemmed from the activities of workers who reported on the trustee’s interference with collections and contributions from unionized employers.

The U.S. District Court for the Central District of California found that the trustee for the Cement Masons Southern California Trust Funds Scott Brain and trust counsel Melissa Cook violated sections 510 and 404 of the Employee Retirement Income Security Act (ERISA) when they caused the firing of Cheryle Robbins and Cory Rice. Robbins and Rice, both of whom served the trust funds, filed an internal complaint regarding wrongdoing by Brain as a trustee and cooperated with a federal criminal investigation. 

A Department of Labor (DOL) news release says that after a five-day trial, the court ruled that Brain, Cook and her firm violated ERISA by suspending and then discharging Robbins, and discharging Rice, because they participated in a complaint against Brain’s unlawful conduct to the General President of the Operative Plasterers’ and Cement Masons’ International Association, and because Robbins cooperated in a federal criminal investigation of Brain.

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The court ordered the permanent removal of Brain as a trustee. It also ordered the permanent barring of Brain, Cook and her law firm from serving the Cement Masons Southern California Trust Funds. In addition, the court ordered Cook and her law firm to repay all attorneys’ fees she billed the trust funds for the actions she took in retaliating against whistleblowers Robbins and Rice.

The decision follows the DOL’s August 2015 success in obtaining $630,000 in lost wages and damages for Robbins, Rice and another worker victimized by Brain and Cook.

NEXT: The case

The case stemmed from the activities of workers who reported on Brain’s interference with collections and contributions from unionized employers. In 2011, Robbins, director of the trust funds’ audit and collections department, responded to a federal criminal investigation into Brain’s activities with contractors. The same year, she and Rice, who worked for a third-party administrator to the trust funds (American Benefit Plan Administrators, now, Zenith American Solutions), participated in an effort to complain about Brain’s interference with efforts to collect delinquent contributions from contractors. Within weeks of this conduct, Robbins was suspended. Less than six months later, both Robbins and Rice were fired.

The court said Brain and Cook “used their positions and influence to cause the other trustees to vote in favor of” suspending Robbins. Months earlier, the court found, Brain and Cook pressured Zenith into firing Rice for his involvement in efforts to make an internal complaint about Brain. 

Dismissing Cook’s argument that she was somehow immunized from her unlawful conduct because she was an attorney to the trust funds, the court noted the “apparent conflict of interest” Cook had in representing the trust funds while being in an undisclosed “romantic relationship” with Brain, which existed as defendants carried out their retaliatory actions. Reminding lawyers of their ethical duties in California, the court cited California Rule of Professional Conduct 3-310(B), which the court explained “requires that an attorney disclose to a client any personal relationship or interest that he or she knows, or with the exercise of reasonable diligence should know, could substantially affect his or her professional judgment in advising the client.”

(b)lines Ask the Experts – 457(f) Plans and Proposed Regulations

“Our 403(b) plan recordkeeper informed us that the Internal Revenue Service (IRS) recently released proposed regulations regarding 457(f) plans.”

“What is a 457(f) plan? Is it something we should consider sponsoring? I work in the benefits office of a large 501(c)(3) health care organization.” 

Michael A. Webb, vice president, Cammack Retirement Group, answered: 

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All good questions! A 457(f) plan is an unfunded, nonqualified deferred compensation (as opposed to a funded, qualified retirement) plan.  Except in the case of governmental or some church employers, it can only be used to provide a tax-deferred benefit to a “select group of management and highly compensated employees.” That is not a term that has a bright line test, but generally, C-Suite and other senior executives of 501(c)(3) and other nonprofit organizations are included.                       

The Department of Labor (DOL) in an early opinion referred to the group as “individuals, [who] by reason of their position or compensation level, have the ability to affect or substantially influence, through negotiation or otherwise, the design and operation of their deferred compensation plan, taking into consideration any risks attendant thereto, and, therefore, would not need the substantive rights and protections of Title I [of ERISA].” It is important that plans subject to this limitation avoid letting in employees who do not qualify, as the plan may is likely then to violate numerous provisions of the Employee Retirement Income Security Act (ERISA), and there have been a number of cases in which the courts have ruled on various facts over the years.

Unlike a 457(b) plan, which is subject to contribution limits, 457(f) plans allow for unlimited compensation deferrals, not taxed so long as the amounts remain subject to a “substantial risk of forfeiture” (generally, that the employee must continue to perform substantial services for a period of time and will forfeit the amount if they do not do so to the end of the period).

NEXT: Regulations

However, as with all good things there is a catch—or, in this case, many catches. There are a number of restrictions that such plans must follow, including having to worry about compliance with two major sections of the Code (409A and 457). In fact, since the enactment of Code Section 409A in 2005, there had been a marked decline in the number of active 457(f) plans due to regulatory concerns.

However it is possible that the proposed 457 regulations that were recently released, as well as related 409A regulations, may stem the decline in the number of such plans. The reason for this is that, at first glance, the proposed 457 regulations provided much-needed clarity in the design of 457(f) plans, including allowing for extensions of the date deferred compensation becomes taxable under certain circumstances (the so-called “rolling risk of forfeiture”) as well as identifying specific provisions under which taxation of compensation can be deferred (what constitutes what is known as a “substantial risk of forfeiture” that would trigger current taxation if such a risk did not otherwise exist).

Though 457(f) plans still contain significant disadvantages (because unfunded, assets are subject to creditor claims in the event the plan sponsor becomes insolvent, for example), if the proposed regulations are finalized in their present form, such plans may become more attractive as a tool to attract and retain senior executives. Thus, you may wish to track the progress of the proposed regulations and consult with counsel well-versed in such plans should there be a need to provide such executive compensation within your organization.

Thank you for your questions!

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.  

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to rmoore@assetinternational.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.
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