Court Says Trustees Violated Fiduciary Duties

July 17, 2006 ( - The US District Court for the Southern District of Ohio decided three officers of family-run D&K Aviation Inc. breached their fiduciary duties when they used employees' 401(k) contributions to pay business expenses, according to BNA.

Judge Timothy Black considered Lee, Keri and Daniel Webb, the three retirement plan trustees, as fiduciaries because they held control of the plan’s assets. The three officers sponsored the plan in 2001, in which employees could have money taken out of their paychecks and put into a 401(k) plan.

National Bank & Trust became a trustee of the plan in 2003 and later allegedly discovered that the Webbs had used the money withheld from participants’ pay checks to pay company expenses. NB&T then filed a lawsuit against the Webbs, claiming they breached their fiduciary duties and asked that they return $35,000 in contributions to the plan, as well as interest and attorneys’ fees.

The court ruled in favor of NB&T in a summary judgment, citing the ERISA rule that states that any fiduciary who uses plan assets to pay for business expenses is not acting for the exclusive benefit of the plan. 

The case is National Bank & Trust Co. v. Webb, US District Court for the Southern District of Ohio.