U.S. Labor Department sues to restore more than $3.4 million to pay unpaid health claims of Texas benefit fund

Archived News Release — Caution: Information may be out of date.

San Francisco — The U.S. Department of Labor has sued a purported employer association, a health fund trustee, and the fund’s consultant over alleged imprudent management of the Manufacturing and Industrial Workers Benefit Fund (MIWU) of Bryan, Texas. The defendants’ actions allegedly resulted in more than $3.4 million in unpaid health claims affecting participants in Arizona, California, Florida, Georgia, Illinois, Texas and other states.

“The mismanagement of this fund has meant that these workers and their families are saddled with $3.4 million in unpaid health claims,” said U.S. Secretary of Labor Elaine L. Chao. “We will be tireless in seeking full restitution, correcting the fund’s operations and barring the defendants from ever again being in a position to harm workers interests in an ERISA benefit plan.”

According to the lawsuit, Raymond Palombo, Mitchel Coneley, Leonard Steinberg, Contractors and Merchants Association (CMA), and the Small and Independent Business Associates Inc. (SIBA) violated the Employee Retirement Income Security Act (ERISA) by causing the insolvency of the MIWU health fund and by their failure to hold the fund assets in trust. The defendants permitted Palombo to transfer the health claim liabilities of members of his sham employer association, CMA, to the MIWU fund. Palombo allegedly diverted plan assets to benefit himself, the defendants and others; improperly set contribution rates for 880 participants of CMA; enrolled ineligible individuals in the health fund; and failed to properly fund the plan.

The MIWU health fund became financially insolvent in 2005 due to the transfer of CMA members to the fund. At the time of the improper actions, Palombo was the president and sole shareholder of CMA, and Steinberg was the president of SIBA and provided consulting services to the MIWU health fund through SIBA. Coneley was the fund’s trustee.

The suit, filed in the U.S. District Court for the Northern District of Georgia in Atlanta, seeks to have the defendants restore to the fund all losses with interest, undo all prohibited transactions, offset any claims for benefits against the MIWU fund, and permanently bar the defendants from serving in a fiduciary capacity to any ERISA-covered plan in the future. In related Labor Department litigation, the court appointed an independent fiduciary to pay health claims of affected participants and beneficiaries and to manage the more than $1.9 million in fund assets recovered by the department and collected by the independent fiduciary as of May 2008.

The Los Angeles Regional Office of the department’s Employee Benefits Security Administration (EBSA) investigated this case. Employers and workers can reach the Los Angeles office at 626.229.1000, or EBSA toll-free at 866.444.3272, for help with problems relating to private sector retirement and health plans.

Copies of the legal documents in the Chao v. Palombo case are available on EBSA’s Web site at www.dol.gov/ebsa. Tips on purchasing health benefits may be found at http://www.dol.gov/ebsa/newsroom/fshlthinstips.html.

Chao v. Palumbo
Civil Action Number 1:08-CV-2017-BBM

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