U.S. Labor Department obtains $20 million settlement with Union Labor Life over retirement plan fees

Archived News Release — Caution: Information may be out of date.

Washington — The U.S. Department of Labor today announced a settlement requiring Union Labor Life Insurance Co. (ULLICO) of Washington, D.C., to pay back nearly $16.7 million in fees and compensation to benefit plans that invested in Separate Account J (J for Jobs), a pooled separate account holding plan assets for the benefit of employee benefit plan investors. In addition, the insurer must pay $3.3 million to an escrow account to cover additional civil penalties and excise taxes resulting from alleged violations of federal employee benefits law.

“Self-dealing by pension fiduciaries at the expense of workers’ retirement plans cannot be tolerated,” said Secretary of Labor Elaine L. Chao. “This $20 million settlement is a loud and clear message to all plan fiduciaries that they will be held accountable when their actions are detrimental to workers’ benefit plans.”

The settlement, if approved by the court, successfully resolves a department investigation concluding that Union Labor Life had used its authority over the separate account to unilaterally set its own compensation in violation of the Employee Retirement Income Security Act (ERISA).

In addition to the monetary recovery, the settlement permanently bars Union Labor Life from retaining compensation from any source in connection with Separate Account J without advance disclosure of the compensation and approval by appropriate independent plan fiduciaries. The order broadly prohibits the insurer from exercising any unilateral discretionary authority over the compensation it receives as a fiduciary or service provider to ERISA-covered benefit plans.

The Labor Department filed the lawsuit simultaneously with the settlement, which is subject to court approval. The lawsuit alleges that Union Labor Life violated ERISA when it failed to properly disclose its compensation and receive approval from plan fiduciaries independent of Union Labor Life for funds taken directly from the investment account, as well as payments received from third-party borrowers, such as loan commitment fees, construction administration fees and lender inspection fees. The insurer allegedly kept, among other fees, millions of dollars from loan applicants who failed to go forward with loans even though the plans assumed virtually all the risk of funding those loans.

Separate Account J invests in secured mortgages on real estate development projects constructed with union labor. The sole investors are ERISA-covered plans.

The Labor Department’s legal action resulted from a comprehensive investigation conducted by the Philadelphia Regional Office of the department’s Employee Benefits Security Administration and the department’s Office of the Solicitor.

Chao v. ULLICO
Civil Action Number 1:07-cv-02089

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