DoL Sues Doctor for Loans from Plan

October 7, 2011 (PLANSPONSOR.com) – The U.S. Department of Labor has sued an Alabama medical office and its physician owner for using profit sharing plan assets to fund the business.

The complaint in Solis v. Otorhinolaryngology Associates, P.C. says Dr. Rickey Gene Love, the sole owner and CEO of the company, through a series of transactions between September 6, 2007, and November 10, 2009, transferred $437,939.76 of the company’s profit sharing plan assets to the company as a loan to fund the business. According to the complaint, the company did not execute any loan documents for the loan, and provided no security or promissory note for the loan. The company also has not fully repaid the loan or made interest payments to the plan.  

The Department said as of December 31, 2005, the plan held $472,421 in assets for four participants. As of February, 2010, the plan held $2,635.14 in assets.  

The complaint alleges that in causing or permitting virtually all of the plan’s assets to be loaned back to the sponsoring company in exchange for no security or promissory note, and without adequate record keeping and monitoring, Love and the company failed to discharge their duties with respect to the plan solely in the interests of the plan’s participants and beneficiaries and for the exclusive purpose of providing benefits to participants and beneficiaries and defraying reasonable plan administration expenses as required by section 404(a)(1)(A) of ERISA.  

In addition, Love and the company violated their duty of prudence as imposed by section 404(a)(1)(B) of ERISA; failed to diversify the investments of the plan so as to minimize the risk of large losses as required by section 404(a)(1)(C) of ERISA; caused the plan to engage in a transaction, which they knew or should have known constituted a direct or indirect lending of money or other extension of credit between the plan and a party in interest, in violation of section 406(a)(1)(B) of ERISA; caused the plan to engage in a transaction, which they knew or should have known constituted a direct or indirect transfer to, or use by or for the benefit of a party in interest, of any assets of the plan, in violation of section 406(a)(1)(D) of ERISA; and dealt with the assets of the plan in their own interest or for their own account, in violation of section 406(b)(1) of ERISA.  

The suit asks that the plan set off the individual plan account of defendant Love against the amount of losses, including lost opportunity costs, resulting from his fiduciary breaches. The DoL also asks the court to order Love and the company, jointly and severally, to restore to the plan all losses, including lost opportunity costs and interest, and to disgorge all profits or financial benefit they realized as a result of the prohibited transactions and breaches of their fiduciary obligations.  

The DoL ask the court to remove Love and the company as the plan fiduciaries and appoint an Independent fiduciary to arrange for termination of the plan and distribution of its assets.

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