DoL Sues the Brown Schools for Failure to Forward Employee Contributions

August 1, 2008 ( - The U.S. Department of Labor has sued fiduciaries of the 401(k) plan of The Brown Schools Inc. of Austin, Texas, for failure to forward employee contributions to be invested and misusing those assets to pay the operating expenses of the company.

According to a DoL press release, the suit alleges that plan administrator Rodney Young and corporate officials Robert Naples, president and chief executive officer, and Bryan Havel, assistant controller and treasurer, failed to forward employee contributions owed to the 401(k) plan over a three-month period. The defendants also allegedly failed to segregate 401(k) assets from those of the company, used the assets to benefit a party related to the plan, and failed to properly administer the plan.

The DoL is seeking a court order requiring the individual defendants to restore all losses and profits plus any lost opportunity costs, the news release said. The department is also asking the court to remove Naples and Havel from their positions with the plan and permanently bar Naples from future service to any employee benefit plan governed by the Employee Retirement Income Security Act (ERISA).  

The suit asks the court to retain Young as plan administrator until all assets of the plan are distributed to participants.   Plan losses to approximately 150 participants are estimated at $95,000 plus interest, the DoL said.

The Brown Schools are a group of psychiatric hospitals, boarding schools, residential treatment centers, and community education programs for troubled children and teenagers.   At the time of the alleged ERISA violations the schools operated in Texas, California, Florida, Idaho, and Vermont. All but one of the schools filed for Chapter 7 bankruptcy in March 2005.