DoL Ousts Union Plan Trustees in Diplomat Hotel Investment

August 3, 2004 ( - The Department of Labor (DoL) has removed four trustees from the board of the Plumbers and Pipefitters National Pension Fund in a long running suit against investments the fund made in the Hollywood, Florida Diplomat Resort and Country Club.

>In a consent order filed on August 2, the DoL required the four trustees to step down and pay $10.98 million in restitution and civil penalties in connection with the imprudent management of the fund’s country club investment.   The settlement brings to an end a dispute over the investment that began in 1997 (See  The Union and its Hotel – a Feature ).

>In September 19997, the pension plan trustees voted to buy the Diplomat property on behalf of the Plumbers’ pension plan from Union Labor Life Insurance Company (ULLICO).    At that time, the property was abandoned and in a state of disrepair. The United Association of Journeymen and Apprentices of the Plumbing and Pipefitting Industry of the United States and Canada, the pension plan sponsor, purchased the property with the intention of then selling it to the pension plan, according to the government.

>Following the investment made into the country club in 1997, t he Labor Department sued the trustees in September 2002 for violating the Employee Retirement Income Security Act (ERISA) for imprudently moving forward with redeveloping the Diplomat Resort and Country Club. In the original suit, the DoL claimed the union officials did no feasibility studies, market analyses, market-tested construction budgets, construction schedules, economic models or gathered other information with which to make an informed decision.   The suit also alleged that the trustees failed to maintain adequate financial controls over construction costs and paid excessive fees to service providers on the project.

>The suit alleged that the sale of the real estate from the union to the pension plan was prohibited under ERISA because of the relationship between the union and its pension plan, without special DoL permission.  In their DoL exemption application, the suit charged that the trustees failed to disclose that the anticipated development would require the further investment of hundreds of millions of dollars of the plan’s assets.   The exemption approved by the department covered only the terms of the $40 million sale of the property from the union to the pension plan, not the prudence of the property’s subsequent redevelopment using union pension funds, the government said the plan invested more than $800 million in the Diplomat project.

The settlement resolves allegations against pension trustees Martin Maddaloni, President of the United Association of Journeymen and Apprentices of the Plumbing and Pipefitters Industry of the United States and Canada; Thomas Patchell, General Secretary-Treasurer of the Plumbers union; Charles Carlson, former Chairman of Industrial Piping Company; James House, part owner of, J. A. House, Inc., a bankrupt refrigerant manufacturing corporation; and Patrick Perno, administrative assistant to the general president of the Plumbers union.   A federal judge in Ft. Lauderdale, Florida must still approve the settlement.

“The Plumbers trustees mismanaged the investment and placed the retirement benefits of thousands of union workers at risk,” said Secretary of Labor Elaine Chao.  “Our legal action recovered nearly $10 million for workers in the Plumbers pension plan.”