U.S. Department of Labor Sues Advance Benefits Management Systems and Fiduciaries Alleging Misuse Led To More Than $7,000,000 in Unpaid Claims

ATLANTA, GA – The U.S. Department of Labor has filed suit against Advance Benefits Management Systems USA Inc. (ABMS), its founder and CEO C. Kenneth Johnson, and company President Randy Wright. In the suit, filed in U.S. District Court for the Northern District of Georgia, the department asks the court to appoint an independent fiduciary to employee healthcare plans previously administered by ABMS, direct the independent fiduciary to marshal the plans’ assets, obtain insurance reimbursement and pay over $7,000,000 in unpaid claims. The suit also asks the court to require the defendants to restore all losses caused by their fiduciary breaches to those plans and to disgorge to the plans all profits, fees and other monies earned in connection with their violations.  

The suit follows an investigation by the department’s Employee Benefits Security Administration (EBSA) of an allegation that the company – a privately held South Carolina corporation and third-party administrator of employer-sponsored healthcare plans – along with Johnson and Wright committed these breaches while acting as fiduciaries to approximately 118 self-funded health benefits plans in violation of the Employee Retirement Income Security Act of 1974 (ERISA).   

EBSA investigators found that ABMS, which ceased operations in April 2019, Johnson, and Wright were responsible for more than $7,000,000 in unpaid claims for thousands of plan participants and beneficiaries left without the health coverage and benefits they were promised. The defendants controlled both employer and employee contributions and were responsible for paying eligible medical claims with the participating plans’ assets. EBSA alleges the defendants unlawfully comingled, misappropriated and diverted – for their own use – funds entrusted to them to pay uninsured portions of medical claims.

The suit also alleges the defendants misused funds intended for claims payments by diverting them to other companies that the defendants, or their family members, controlled and misappropriated the participating plans’ assets for non-plan purposes. The defendants also regularly used funds provided by one employer to pay the liabilities of another, and failed to track payments by, and on behalf of, their employer clients.  

In addition, EBSA found ABMS, Johnson, and Wright – contrary to their contractual obligations and fiduciary duties – failed to file timely stop-loss insurance claims and obtain stop-loss reimbursement on employers’ behalf. They also failed to keep adequate records of employer and employee contributions and employer premium payments. As a consequence, insurers of almost half of the ABMS-administered plans refused to pay stop-loss claims. The fiduciaries’ misuse of funds and failure to obtain insurance reimbursement led to the insolvency of both ABMS and the plans it administered, leaving ABMS incapable of paying its claims obligations.

The department has also requested the court to permanently enjoin the defendants from serving as plan fiduciaries and as a service provider to employee benefit plans in the future.

“Companies and individuals that serve as fiduciaries have a steadfast duty to manage all assets in strict adherence to federal laws. Deviating from those laws negatively impacts the hard-working individuals that invest their hard-earned money and trust. The U.S. Department of Labor’s Employee Benefits Security Administration is committed to ensuring the integrity of employee benefit programs,” said Employee Benefits Security Administration Regional Director Isabel Culver, in Atlanta, Georgia.

Employers and workers can reach EBSA toll-free at 866-444-3272 for help with problems related to private sector retirement and health plans. Additional information can be found at http://www.dol.gov/ebsa.

EBSA’s mission is to assure the security of the retirement, health and other workplace related benefits of America's workers and their families. EBSA accomplishes this mission by developing effective regulations; assisting and educating workers, plan sponsors, fiduciaries and service providers; and vigorously enforcing the law.

The mission of the Department of Labor is to foster, promote and develop the welfare of the wage earners, job seekers and retirees of the United States; improve working conditions; advance opportunities for profitable employment; and assure work-related benefits and rights.