Fiduciaries Removed from Kentucky Pension Plans
On July 26, the U.S. District Court for the Eastern District of Kentucky granted in part the U.S. Department of Labor’s (DOL) motion for a preliminary injunction against George S. Hofmeister and Bernard Tew, former fiduciaries of four Lexington-based pension plans: the Hillsdale Salaried, Hillsdale Hourly, Revstone Casting Fairfield GMP Local 359, and Fourslides Inc.
The DOL had previously filed lawsuits in the same court that named Hofmeister and Tew, among others. Hofmeister was the trustee of the four pension plans, and Tew was managing director of their investment service provider, Bluegrass Investment Management LLC. The court’s order removes Hofmeister as a fiduciary of the plans and prohibits him from taking any actions with respect to the pensions plans or their assets. Tew resigned as fiduciary of the plans a few days before a hearing regarding the DOL’s motion.
The lawsuits alleged that the defendants engaged in a series of prohibited transactions resulting in the misuse of approximately $12.1 million from the Hillsdale Salaried pension plan, approximately $22.5 million from the Hillsdale Hourly pension plan, approximately $4.4 million from the Revstone Casting Fairfield GMP Local 359 pension plan (see “DOL Sues Auto Supplier for Diverting Retirement Assets”), and approximately $500,000 from the Fourslides Inc. pension plan (see “DOL Sues to Recover Misused Pension Funds”). The four plan sponsors are closely affiliated with Lexington-based Revstone Industries LLC and Spara LLC.
The lawsuits follow an investigation by the DOL’s Employee Benefits Security Administration (EBSA) that found violations of the Employee Retirement Income Security Act (ERISA), including prohibited loans to related companies, prohibited use of plan assets for the purchase and lease of employer property, prohibited purchase of customer notes from affiliated companies, prohibited transfer of assets in favor of parties-in-interest, payment of excessive fees to services providers and payment of fees on behalf of the companies.
According to the brief filed on behalf of the DOL by the Cleveland Regional Solicitor’s Office, Hofmeister, Tew and Bluegrass have repeatedly violated ERISA, using nearly $40 million in pension plan assets to benefit themselves or related parties. The DOL/EBSA investigation of these pension plans revealed a pattern of prohibited transactions involving the use of these plans’ assets by Hofmeister, Tew and investment adviser firms. Alleged improper use of the plans’ assets began within days or months of Hofmeister assuming control of the pension plans. The department contends that Hofmeister has placed millions of dollars in pension plan assets at risk and has consistently failed to act to protect these assets when required.
The court has appointed Fiduciary Counselors Inc. to administer the four pension plans. Fiduciary Counselors is an investment adviser firm in Washington, D.C., that has extensive experience acting as an independent fiduciary for employee benefit plans.