EBSA Press Release: Multiple Employer Welfare Officials Sued for Siphoning $2.3 Million in Plan Funds [08/05/1996]

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The U.S. Department of Labor today is seeking a temporary restraining order and preliminary injunction to place an Illinois-based group health and welfare fund under the control of an independent fiduciary. Some 3,000 workers nationwide were left with approximately $2.3 million in unpaid health benefit and worker compensation claims.

The department filed the request because of the financial collapse of the International Professional, Craft & Maintenance Association Trust (IPC Trust). The defendants call the trust a Taft-Hartley plan, but, in fact, the arrangement may be a welfare benefit trust, known as a multiple employer welfare arrangement (MEWA).

IPC Trust officials allegedly misused assets intended to pay health and welfare benefits and failed to ensure that the rate of employer contributions was sufficient to support benefits to be provided by the trust.

Workers covered by the trust, located mostly in small businesses throughout the nation, ranged from ministers to television repairmen who relied on the trust to provide their health and benefit insurance.

Besides freezing the assets of the trust and the defendants pending the court order, the department seeks to have the past and present trustees removed from their positions and barred from providing any services or receiving compensation from any plans governed by federal pension law. The department has recommended that Betty Cordial be named to the position of independent fiduciary.

Individuals cited in the lawsuit are John J. Wolfe, Gerald A. Lee, Richard J. Wesley, Frank L. Sutfin, Ronald D. Lauria, James W. Kennelly and Susan Espisito, all of whom, according to the lawsuit, served as trustees to the IPC Trust.

Named, in addition to IPC Trust, are its sponsoring organizations, the American Service Contractors Association, and the union established by Wesley, Lee and Wolfe, the International Professional Craft and Maintenance Employees Union, and its Locals 1 and 100.

Defendants Wesley, Kennelly and Lee broke from the original group and formed the new Professional and Affiliates Association Trust on July 1. During their dispute with the original group, the "old" Locals 1 and 100 of the International were dissolved and assets transferred to the "new" Locals 1 and 100. At that time, Lee and Wesley began contacting employers to send their contributions to the new "unions" as opposed to the International, leaving the trust with virtually no assets and a minimal stream of income from employer contributions.

Operating since October 1993, the defendants conducted no apparent legitimate union activities but marketed health and welfare benefit plans through approximately 12 service centers, which, in essence, were insurance brokers.

The defendants allegedly repeatedly engaged in transactions prohibited by the Employee Retirement Income Security Act by diverting employer contributions intended for employee benefits to themselves or to entities owned by them, through direct payments or under the guise of "union dues," "association fees," commissions or other charges to the IPC Trust.

In this case, expenses by the trust ranged from a high of almost 56 percent to a low of 21.5 percent. The department considers these expenses to be excessive and egregious. Expenses of legitimate, similar health plans represent at most 15 per cent of employer expenses on plan expenses.

The lawsuit is the result of an investigation of the Chicago office of the department's Pension and Welfare Benefits Administrationinto alleged violations of federal pension law. It was filed in the federal district court in Chicago and a hearing is scheduled for late today in the court room of Judge Suzanne Conlon.

(Reich v. Wolfe, et al)

Civil Action # 96-C-4801 (Coar)