DoL Loses Effort to Recoup Plan's 'Lost Opportunity Costs'

July 11, 2007 ( - A federal judge in Michigan has blocked regulators' efforts to force the former trustee of a profit-sharing plan to pay $257,435 in "lost opportunity costs" incurred when the trustee dipped into the plan for collateral for a corporate loan.

U.S. District Judge Gordon J. Quist of the U.S. District Court for the Western District of Michigan ruled that lawyers for the U.S. Department of Labor (DoL) had no proof ex-trustee Roger Kropf would have reallocated the plan assets to avoid the eventual decline in the plan portfolio from $687,218 to $412,000 between 1999 and 2001.

The suggestion that Kropf’s withdrawing of the plan assets robbed the plan of the chance for a reallocation ahead of the decline is why the DoL lawyers had asked Quist to order Kropf to pay the additional prejudgment interest, according to Quist’s ruling. The government’s demand also came despite Kropf’s having eventually paid the plan back about $500,000 from life insurance proceeds after his brother’s 2001 death.  

Kropf was charged with using the plan assets as collateral for a $570,000 loan for the company Kropf Orchards and Storage.

“(DoL) speculates that had the assets not been transferred out of the Plan, Roger Kropf, as the trustee, would have transferred the assets to a more profitable investment to prevent the diminution in value,” Quist wrote in the ruling. “At a minimum, (DoL) is claiming that the Plan lost the opportunity to reallocate or reinvest its assets to minimize its losses from the drop in value of the securities. However, the question of whether the Plan would have done so is speculative.”

Kropf had also paid the plan $275,218 as part of plea bargain agreement in which he pleaded guilty to a criminal charge of one count of filing a false pension statement. The money represented the difference between the value of the securities in the plan at the time the securities were transferred in 1999 for Kropf’s corporate loan and the value of the securities when returned to the plan in 2001, according to Quist.

Quist granted DoL’s motion for a permanent injunction barring Kropf from serving as a fiduciary to any Employee Retirement Income Security Act (ERISA) benefit plan.

Kropf had argued to Quist that he should not be ordered to pay the prejudgment interest to the plan because he had already paid the difference in the value of the securities as part of the criminal case plea bargain.

Kropf also contended that the plan repayment not only returned the plan to the position it was in prior to the fiduciary breach, but possibly placed it in a better position because the securities had diminished in value, according to the ruling.

The case is Chao v. Kropf, W.D. Mich., No. 1:05-CV-845, 7/9/07.