Fiduciaries Failed to Follow Plan Document for ESOP Termination
The U.S. Department of Labor (DOL) has secured a judgment against San Francisco-based California Pacific Bank and four individual fiduciaries, requiring them to pay $866,840 in retirement benefits, plus interest, to employees who participated in the company’s stock ownership benefits plan.
After a trial, the U.S. District Court for the Northern District of California found the defendants acted “in blatant disregard of the express terms of the plan document and of their fiduciary duties” under the Employee Retirement Income Security Act (ERISA), according to a DOL news release. The court ordered Richard Chi, the bank’s chairman, president and CEO and his fellow trustees Akila Chen, Kent Chen and William Mo to pay the employees cash, plus interest, into their retirement accounts.
The court also found that the defendants diverted $81,407 of an account receivable that belonged to the plan to the bank improperly, and wrongfully transferred $69,745 from the plan’s account to the bank. The court ordered the defendants to repay these amounts too, with interest.
According to the lawsuit filed in 2013, an investigation by the DOL’s Employee Benefits Security Administration (EBSA) determined that, after California Pacific Bank terminated its employee stock ownership plan in December 2010, the plan’s fiduciaries were required by the plan document to sell the plan’s bank stock and pay the participants, in cash, into their retirement accounts. The EBSA found the fiduciaries failed to do what the plan required, and did not follow their fiduciary duties to act in the best interest of the participants. Instead of liquidating the bank stock and paying cash into the retirement accounts of the plan’s participants, they divided up the plan’s stock and put stock, rather than cash, into IRAs for plan participants. The bank is not a publicly traded company, making it difficult if not impossible for the plan participants to sell the bank shares they received.
The EBSA also determined that the participants would have received approximately $1.24 million if the plan’s 97,237 shares had been liquidated and distributed in cash at their assessed December 2009 value.