Judge: Texas Exec Commingled K Plan Funds

August 10, 2005 (PLANSPONSOR.com) - A Texas federal judge has ruled that the executive of a bankrupt company who had been a K plan fiduciary violated the Employee Retirement Income Security Act (ERISA) by mixing plan contributions with general corporate funds.

US District Judge Nancy Johnson of the US District Court for the Southern District of Texas agreed with claims by an attorney representing the US Department of Labor (DoL) that defendant William Stuart should be held accountable for the nearly $50,000 in participant contributions that was diverted into a corporate bank account, according to a BNA report.

Johnson wrote that the “evidence demonstrates that [the executive] received employee payroll deductions intended for the Plan and used them to fund company business operations and pay corporate debts instead of investing them.”

However, rejecting the DoL’s contention that a permanent injunction should be placed on Stuart, the court said that the executive’s actions did not suggest “a desire to make money ‘at all costs.'” The court also noted that the executive’s breaches of fiduciary duty were derived from one “indiscretion.”

According to court background, Stuart was the chief executive officer of Crescent Services Corp., doing business as HTE8, during 2000. In January 2000, HTE8 adopted the HTE8 Plan Well Live Swell 401(k) Plan.

From September 15, 2000 through November 1, 2000, HTE8 made deductions from employee payrolls but the plan contributions did not go to the plan trust but went into HTE8’s general operating account. On January 8, 2001, HTE8 filed for bankruptcy.

The case is Chao v. Stuart, S.D. Tex., No. H-04-1115, 7/20/05.