Department of Labor (DOL) Secretary Marty Walsh has filed a lawsuit in the District Court for the Southern District of New York against Velo Corp. of America, its plan administrator and its plan trustee alleging breaches of fiduciary duty under the Employee Retirement Income Security Act (ERISA) in regard to the Velo Corp. of America 401(k) Profit Sharing Plan.
Velo Corp. is the named owner and operator of Quik Trak, a New York City area courier and bike messenger service, according to the complaint.
Walsh alleges that the defendants breached their fiduciary duties, caused the plan to enter into non-exempt prohibited transitions and engaged in self-dealing. The complaint alleges that the defendants failed to remit all employee contributions to workers’ accounts from January 2016 onward; allowed contributions to remain unsegregated in Velo’s general operating account; and failed to ensure that all employer matching contributions for employees were made to the plan.
“Because of these breaches, the plan and its participants and beneficiaries have suffered significant losses, including lost opportunity costs, for which the defendants are jointly and severally responsible,” the complaint states.
Walsh has included in the complaint seven claims for relief.
Employer-sponsored defined contribution (DC) plans are obligated to always act in the best interests of participants, or company owners and plan fiduciaries can face legal retribution. For example, the defendants are accused failing to administer the plan by not honoring “at least two requests for distributions by participants,” according to the complaint.
The suit notes that ERISA Section 403(c)(1) requires plan assets to be held only for the exclusive purposes of providing benefits to plan participants and defraying reasonable plan administration expenses, and it expressly forbids plan assets inuring to any employer’s benefit.
“[The defendants] were responsible to but failed to remit all employee contributions to the plan after they could have reasonably segregated the employee contributions from Velo’s general assets,” the complaint states. “By their actions and omissions, [the defendants] allowed plan assets to inure to the direct benefit of Velo.”
Additionally, the complaint includes allegations that the defendants engaged in ERISA prohibited transactions for transferring plan assets to a “party in interest”; for failing to promptly segregate and remit all contributions to the plan; for failing to make all required employer matching contributions to the plan; and for dealing with plan assets in their own interest or for their own account.
A lawsuit alleging self-dealing was filed against Bessemer Trust Co. earlier this month.
Some plan sponsors have started to include defensive provisions to manage fiduciary breach claims and litigation risks.
Velo Corp. has not yet responded to a request for comment about the lawsuit.
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