Archived News Release — Caution: Information may be out of date.

The U. S. Department of Labor today sued the trustees and a former third-party administrator of several funds sponsored by the Millwrights Local 1102 over numerous fiduciary violations of the Employee Retirement Income Security Act. The Millwrights’ health and welfare plan and supplemental pension plan, formerly located in Sterling Heights, a Detroit suburb, are now located in Lansing, Mich. The apprenticeship fund is headquartered in Warren, Mich.

The Millwrights’ trustees, Walter R. Mabry, Jerry D. Moore, Ronald M. Krochmalny, Keith R. Scrutton, Milford E. Woodbeck, Sr. and Roy Shields, and the funds’ former third-party administrator Automated Benefit Services, Inc. (ABS) were charged in the lawsuit. ABS has not been a third-party administrator of the funds since September 1996. The health and welfare fund covers 1,246 participants in the eastern half of Michigan and had $13.9 million in assets on April 30, 1998. The supplemental pension plan had 4,407 participants and assets of $107.3 million as of April 30, 1999.

According to the lawsuit, the health plan paid unreasonable compensation to ABS, contrary to plan agreements. When the health fund began to change from a self-insured plan to a substantially fully-insured plan in August 1991, ABS negotiated insurance contracts for the health and welfare fund and received commissions from the insurance companies. The complaint alleges the trustees were aware of the third-party administrator’s commissions but did not require ABS to reduce its fees in accordance with its contract.

In addition, the complaint alleges that excessive and unreasonable fees were paid for the services of a collection coordinator to collect delinquent employer contributions owed to the funds. In paying collection-related invoices from the apprenticeship fund, ABS wrote checks to the apprenticeship fund from the accounts of the health, pension and vacation funds. The labor department contends that allocation of total expenses for the collection coordinator was arbitrary and not tied to actual benefits the funds received. Both the apprenticeship fund and the Carpenter Pension Fund — Detroit and Vicinity — allegedly benefitted from the services of the collection coordinator but paid none of the expenses for this service.

The lawsuit also alleges that ABS, who exercised control over the plans’ accounts including excess cash assets, failed to determine the projected amount of funds needed to pay monthly benefits and invested the cash assets in low interest-bearing checking accounts. The trustees allegedly failed to review and monitor ABS’ investments and did not require ABS to reimburse the plans for lost income.

Finally, although the pension fund allowed for lending of assets to participants from their individual account balances, the department alleges that terms of several mortgage loans proved to be inconsistent with the plan document and that the trustees allegedly failed to monitor these loans and the mortgage program.

The department is seeking to have the individual trustees repay the plan for any losses, including interest, to be permanently barred from serving as fiduciaries or service providers to any ERISA-covered employee benefit plan, and for the apprenticeship fund and ABS to disgorge any profits they received from the prohibited transactions in which they were involved.

The complaint is the result of an investigation conducted by the Labor Department’s Detroit District Office of the Pension and Welfare Benefit Administration into alleged violations of the federal pension law. It was filed in the federal district court in Detroit on Aug. 23.

(Herman v. Walter R. Mabry, et al)
Civil Action # 00-73747

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