The US Department of Labor (DoL) charged in a suit filed last year that officials of the United Association of Journeymen and Apprentices of the Plumbing, Pipefitting and Sprinkler Fitting Industry of the United States and Canada misused $800 million in pension funds.
The suit, which names both the union and its pension fund, claims that union trustees pursued the Diplomat Resort and Spa project before studies were done on feasibility, market and budget costs. It also alleges trustees failed to investigate properly the project’s service providers, to contain costs and to monitor the work (See PWBA Takes Pipefitters Trustees to Court ). The AFL-CIO executive council is being held at the 998-room Diplomat in Hollywood, Florida near Fort Lauderdale.
The suit also alleges that the trustees failed to maintain adequate financial controls over construction costs and paid excessive fees to service providers on the project. The suit was filed by the DoL’s Pension and Welfare Benefits Administration (PWBA), which was recently renamed the Employee Benefits Security Administration (EBSA).
The lawsuit asks for a court order to:
- require the defendants to reimburse the union’s pension plan for losses
- remove the trustees from their positions with the plan
- permanently bar them from serving as a fiduciary or service provider for any employee benefit plan governed by ERISA.
AFL-CIO spokeswoman Lane Windham said the federation would have lost close to $100,000 had the 2003 meeting not been held at the Diplomat.
In 1999, before the hotel was built, the AFL-CIO booked it for the national convention in the fall of 2001. But construction was behind schedule, and the hotel was not open, so the AFL-CIO had to move that event to Las Vegas. The contract with the Diplomat required another event to be scheduled at the hotel or the money would be lost, Windham said. “If we didn’t use that credit, union members would have lost about $100,000,” Windham told the AP. “So we’re holding our executive council meeting there. It makes sense to do that.”
A Late Opening and a (Much) Higher Price Tag
The pipefitters’ involvement with the Diplomat dates back to 1997 when the union acquired the hotel from Ullico Inc., a union-owned life insurance company itself embroiled in an insider trading scandal. What was supposed to be a $100-million investment ended up with the $800-million price tag when the facility opened in 1992 – 18 months behind schedule.
The 39-story structure at the edge of the Atlantic Ocean has art deco features, a full-service spa, an 18-hole golf course and a tennis center with 10 clay courts. An outdoor pool has a see-through bottom and waterfalls that flow into a 240-foot lagoon pool. The lobby features a 60-foot glass atrium. Although such a transaction would typically be prohibited by a federal law barring large chunks of pension money put into a single investment, the DoL exempted the project in 1999 (See a special PLANSPONSOR.com series on the Diplomat, The Union and its Hotel ).
Several union officials and activists privately expressed distaste for the hotel’s opulence and the message being sent to rank-and-file members and potential recruits, especially during a weak economy and with the labor movement struggling.
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