The Department of Labor’s Pension and Welfare Benefits Administration (PWBA) announced that it has filed a US District Court lawsuit and named as defendants trustees Martin J. Maddaloni, Thomas Patchell, Patrick Perno, Charles H. Carlson and James A. House.
Filed in Ft. Lauderdale, Florida., the suit charges that the trustees violated ERISA by imprudently moving forward with redeveloping the Diplomat Resort and Country Club. The PWBA claimed the union officials did no feasibility studies, market analyses, market-tested construction budgets, construction schedules, economic models or gathered other information with which to make an informed decision.
The suit also alleges that the trustees failed to maintain adequate financial controls over construction costs and paid excessive fees to service providers on the project.
The lawsuit asks for a court order to:
- require the defendants to reimburse the union’s pension plan for losses
- remove the trustees from their positions with the plan
- permanently bar them from serving as a fiduciary or service provider for any employee benefit plan governed by ERISA.
According to the PWBA, the pension plan trustees voted in September 1997 to buy the Diplomat property on behalf of the Plumbers’ pension plan from Union Labor Life Insurance Company (ULLICO).
At that time, the property was abandoned and in a state of disrepair. The United Association of Journeymen and Apprentices of the Plumbing and Pipefitting Industry of the United States and Canada, the pension plan sponsor, purchased the property with the intention of then selling it to the pension plan, according to the government.
The suit alleged that the sale of the real estate from the union to the pension plan was prohibited under ERISA because of the relationship between the union and its pension plan, without special DoL permission. In their DoL exemption application, the suit charged that the trustees failed to disclose that the anticipated development would require the further investment of hundreds of millions of dollars of the plan’s assets.
The exemption approved by the department covered only the terms of the $40 million sale of the property from the union to the pension plan, not the prudence of the property’s subsequent redevelopment using union pension funds, the government said The plan invested more than $800 million in the Diplomat project.
For background about the Diplomat case, see a special three-part series first appearing on PLANSPONSOR.com, The Union and its Hotel – a PLANSPONSOR.com Feature