New York Pension Fund Trustees Agree To Reimburse Plans

Archived News Release — Caution: Information may be out of date.

The U.S. Department of Labor reached a settlement in three related lawsuits with trustees of three pension fund plans, based in Utica and Massena, which result in $3 million being repaid to the plans.

The defendants in the three separate lawsuits, which were filed concurrently June 12, 1998, in the Federal District Court in Binghamton, and the amounts they agreed to pay the pension plans are:

• trustees Sam Marchio, Gerald Spiridilozzi, Carmen Nicotera, Richard Alexander, Jack Endryck and Tony Korrie, $930,000 to the Laborers Local 35 pension fund;
• trustees Carl Spatol, Edward Morgan, Richard Buck and Harold McElwain, $960,000, to the Carpenters Local 120 pension fund; and
• trustees John Agati, Sam Agati, Robert Ashley, Lanny Miller, Fred Rexford, and Hugh Schickel, $1,110,000, to the Laborers Local 322 pension fund.

In addition, trustees of the pension plans agreed to pay the Labor Department Section 502(1) penalties amounting to $600,000 for their alleged violations of federal pension law.

The settlements also require the trustees to use the funds’ investment managers with full power and discretion to manage all the assets of the trusts held for investment purposes. The funds to which the recoveries will be paid are non-contributory defined benefit plans established through collective bargaining agreements between the three unions and various employer and employer associations.

According to the department’s lawsuits, the pension plan trustees allegedly violated their fiduciary duties when they caused their respective plans to make numerous purchases from the same broker-dealer of a class of collaterialized mortgage obligations (CMOs) and real estate mortgage investment conduit bonds (REMICs), known generally as Z-Bonds and a highly volatile class of CMOs and REMICs with high sensitivity to interest rate changes. By the end of plan year 1994, each plan held a significant number of these financial instruments. Ultimately, the Z-Bonds were sold by each of the plans at a significant loss.

The department’s complaints alleged that the trustees’ purchases of these Z-bonds were imprudent because, when the investments were made, they lacked a sufficient understanding of them and of their inherent risks. The lawsuits also alleged that the trustees failed to adequately investigate the bonds, failed to consider the purpose of these bonds relative to the funding needs of the plans, and failed to adequately monitor the plans’ investments.

The settlements are the result of an investigation carried out by the Boston Regional Office of the Labor Department’s Pension and Welfare Benefits Administration, which enforces the Employee Retirement Income Security Act.

(Herman v. Agati, et al)
Civil Action #98 CV 930
(Herman v. Spatol, et al)
Civil Action #98 CV 931
(Herman v. Marchio, et al)
Civil Action #98 CV 932

Archived News Release — Caution: Information may be out of date.