Woburn, Massachusetts, Employers Ordered to Restore Employee 401(k) Plan Funds

Archived News Release — Caution: Information may be out of date.

Boston, Massachusetts - Three owners of a Woburn-based aerospace parts manufacturing company will repay over $100,000 to the company’s 401(k) profit sharing plan to settle a lawsuit filed by the U.S. Department of Labor, according to an April 17, 2001 consent judgement in the U.S. District Court for Massachusetts.

In its suit filed April 12, the Labor Department charged Salvatore Colucciello, Ralph Colucciello and William Nunnelley (a/k/a Edward Nunnelley), owners of LKM Industries of 44 Sixth Rd., Woburn, with violating the Employee Retirement Income Security Act (ERISA). During the period covered by the lawsuit, October 1993 to the present, LKM employed over 200 workers. Most were participants in the 401(k) plan. Currently in bankruptcy, the company now employs fewer than six workers.

The suit alleged the defendants caused the 401(k) plan and a defined-benefit plan also under their control to make $950,000 in unsecured loans in 1993 to Lock Realty Trust, a business in which each of the defendants owned a 25 percent interest. Then, it was alleged, through a series of questionable financial maneuvers involving several other parties, the defendants managed to repay the loans to the plans, but left unpaid $82,000 in accrued interest.

Although LKM was supposed to repay the interest in weekly payments beginning February 24, 1998, no payments were received since October 1999, and on April 13, 2000, LKM filed for Chapter 11 Bankruptcy relief. As of January 23, 2001, the outstanding balance on the interest debt was $76,517.38.

The department’s lawsuit noted the three defendants and LRT were all parties in interest (related parties) with respect to the employee benefit plans. Each owned more than ten percent of LKM and served as a trustee of the company’s 401(k) plan and the Locke Manufacturing Co., Inc. Defined Benefit Plan, an employee benefit plan in which the defendants were the only participants.

The department’s suit further alleged that the defendants caused the 401(k) plan to make unsecured loans to participants, including themselves and their relatives, totaling over $216,000. In June 1999, the defendants also allegedly allowed the transfer of $50,949 from the 401(k) plan to the defined benefit plan.

ERISA requires that employee benefit plan assets be used and invested solely for the benefit of the plan’s participants, according to James Benages, regional director in Boston for the Labor Department’s Pension and Welfare Benefits Administration, which administers ERISA. The law prohibits the use of plan assets for the benefit of any party in interest.

The department’s suit charged that all of the alleged actions by the defendants consisted of the use of plan assets for the benefit of parties in interest with respect to the plans, including dealing with the assets of the plans in their own interest and for their own account.

The consent judgement, signed by U.S. District Judge Douglas P. Woodlock, resolved the Labor Department’s suit, with the defendants’ agreement to entry of the judgment while neither admitting nor denying the allegations. The order permanently enjoins them from future violations of ERISA, and prohibits them serving as fiduciaries to any ERISA-covered plan for 10 years.

No later than May 15, 2001, each of the three defendants must repay to the 401(k) plan $26,033.49, for a total of $78,100.47.  The order also directs the 401(k) plan to deduct from the individual plan accounts of Salvatore Colucciello, Ralph Colucciello, and Mario Colucciello the outstanding amounts due on their respective participant loans. Mario Colucciello is the son of Ralph Colucciello.

Finally, no later than May 15, 2001, the amount of $50,949 (plus interest) which had been transferred into a suspense account by the defendants in June 1999, must be allocated to the accounts of all individuals who were participants of the 401(k) plan as of June 30, 1999.

The Labor Department’s legal action followed an investigation by the Boston Regional Office of the Pension and Welfare Benefits Administration.  That office is located in Room 575 of the John F. Kennedy Federal Building in Boston. The telephone number is 617.565.9600.

(Chao v. Salvatore Colucciello, et al
Civil Action No. 01-CV10614-DPW)

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