Labor Department Sues Owner of Defunct Minnesota Firm To Protect 401(k) Employee Contributions

Archived News Release — Caution: Information may be out of date.

Minneapolis, Minnesota - The U.S. Department of Labor has filed an adversary complaint against Donald O. Sachs, president and sole owner of The Stitchery Studio Inc., Burnsville, Minnesota. The suit seeks to prevent Sachs from discharging a debt of $1,218.62 owed to the company’s 401(k) plan.

“The Labor Department filed suit so that the plan participants will not be barred from seeking money they are owed,” said Steven R. Eischen, director of the Kansas City regional office of the department’s Employee Benefits Security Administration (EBSA), which investigated the case. “Even when a plan fiduciary declares personal bankruptcy, we act to ensure that the money owed to the plan participants is not lost.”

The complaint, filed in bankruptcy court in Minneapolis, alleges that Sachs violated his fiduciary duties under the Employee Retirement Income Security Act by allowing employee contributions owed to the plan to be used for the benefit of The Stitchery Studio. On June 17, 2004, Sachs allegedly failed to forward $1,218 in voluntary employee contributions to the plan, and did not timely forward employees’ repayment of participant loans in November 2001. He also failed to segregate employees’ contributions from the company’s general assets.

The department’s complaint asks the court to declare as non-dischargeable in the bankruptcy action the debt created by Sachs’ failure to timely forward employee salary deferrals to the plan plus lost earnings on those deferrals. The Stitchery Studio was in the business of embroidering company logos on various products. As of March 2004, the plan held $298,152 and had 15 participants.

Employers with similar problems, who are not yet the subject of an investigation by EBSA, may be eligible to participate in the department’s Voluntary Fiduciary Correction Program (VFCP). Participation in the VFCP requires employers to correct any violations, but allows them to avoid EBSA enforcement actions and civil penalties as well as applicable excise taxes. For more information about the VFCP, see www.dol.gov/ebsa.

Employers and workers can reach EBSA’s Kansas City regional office at 816.426.5131 or through EBSA’s toll-free number, 1.866.444.EBSA (3272), for help with problems relating to private-sector retirement and health plans.

(Chao v. Donald O. Sachs)
Civil Action No. 05-35809 (bankruptcy proceeding)

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

Contact Name: Brad Mitchell
Phone Number: 312.353.6976