Compliance June 12, 2009

DoL Announced $9.6M Settlement in Aloha Airlines Pension Dispute

June 12, 2009 (PLANSPONSOR.com) - The U.S. Department of Labor (DoL) and two Hawaiian banks have worked out a $9.6-million settlement of a lawsuit over funds from Aloha Airlines' pension plans used to buy now-worthless shares of stock in the now-defunct air carrier's parent company.

Reported by

Fred Schneyer

A DoL news release said the money from the suit against Aloha Airlines Inc., Bank of Hawaii and First Hawaiian Bank over plan losses from the stock purchase will be paid to the Pension Benefit Guaranty Corporation, which now runs the four plans from the bankrupt airline (see PBGC To Absorb $117M of Aloha Airlines Pension Shortfall ).

Aloha Airlines Inc. and the two banks, agreed to pay $9,545,454 to the airline’s three pension plans for losses the plans suffered on investments in stock of the airline’s holding company. Both Aloha and its holding company are bankrupt.

Federal regulators alleged in the suit that the three defendants violated the Employee Retirement Income Security Act (ERISA) with their involvement in a deal to have the plans buy newly issued Aloha Airlines stock in September 2000 for more than its fair market value without first making sure the transaction was in participants’ best interests. Specifically, the Labor Department contended that Aloha and Bank of Hawaii, as the plans’ fiduciaries, caused or permitted the plans to the stock without investigating the merits of the purchase and without taking steps to protect the plans as the stock lost all of its value (see Aloha Now Being Investigation for Misuse of Pension Funds ).

DoL also charged that First Hawaiian Bank, which was an investment manager for a portion of the plans’ investments not involved in the company stock purchase, facilitated the transaction and, by doing so, knowingly participated in the fiduciary breaches or violated its duties as a co-fiduciary. DoL claimed the deal was also improper because there was no purchaser independent of Aloha Airlines.

Under separate settlement agreements, Aloha Airlines has agreed to pay a total of $5.5 million, including $500,000 in civil penalties paid to the federal government. The banks each agreed to pay $2.5 million, for a total of $4,545,454 in restitution and $454,546 in civil penalties.

DoL said in an earlier settlement agreement, in September 2008, PriceWaterhouseCoopers LLP agreed to pay $250,000 to the plans and a $50,000 civil penalty. The Labor Department contended that PriceWaterhouseCoopers, the auditor for the plans and the companies, knowingly participated in the fiduciary breaches.