Federal court prevents fiduciary from using bankruptcy to avoid repaying funds owed to South Carolina company’s SIMPLE IRA

Archived News Release — Caution: Information may be out of date.

Atlanta – The U.S. Bankruptcy Court for the District of South Carolina has agreed with U.S. Labor Department that Carl E. Reid may not use bankruptcy to avoid repaying $44,993 plus any lost earnings to the SIMPLE IRA plan of American Fittings Inc.

The bankruptcy court ruled that the defendant is obliged to repay the funds because his conduct constituted fraud while acting as a plan fiduciary. American Fittings manufactured stainless steel tube fittings in Travelers Rest, South Carolina, until it ceased operations in 2004.

Reid petitioned the bankruptcy court to discharge debts owed to the plan under Chapter 7 of the Bankruptcy Code. If granted, the discharge releases individual debtors from personal liability for most debts and prevents the creditors owed those debts from taking any collection actions against the debtor.

In November, a federal district court in South Carolina ordered Reid to make restitution to participants in the company’s SIMPLE IRA plan. The ruling resulted from the court’s finding that the defendant breached his fiduciary responsibilities when he withheld employee plan contributions from August 2003 to December 2004 but never forwarded them to the plan.

“Plan officials should not take false solace in the belief that filing for bankruptcy forgives all prior obligations and debts,” said R.C. Marshall, regional director of the department’s Employee Benefits Security Administration (EBSA) office in Atlanta. “This ruling demonstrates that fiduciaries who misuse pension funds are still liable for their past actions even when they file for bankruptcy.”

This case resulted from an investigation conducted by EBSA’s office in Atlanta. Employers and workers can reach the Atlanta office at 404.302.3900 or toll-free at 866.444.3272 for help with problems relating to private sector retirement and health plans.

In fiscal year 2008, EBSA achieved monetary results of $1.2 billion related to pension, 401(k), health and other benefits for millions of American workers and their families.

Chao v. Carl E. Reid
Civil Action File Number 08-02423-hb

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Archived News Release — Caution: Information may be out of date.