In addition, the announcement said, ULLICO must pay $3.3 million to an escrow account to cover additional civil penalties and excise taxes resulting from alleged violations of federal employee benefits law.
The settlement, subject to court approval, will resolve a department investigation that found ULLICO had used its authority over Separate Account J to unilaterally set its own compensation in violation of the Employee Retirement Income Security Act (ERISA). Separate Account J invests in secured mortgages on real estate development projects constructed with union labor. The sole investors are ERISA-covered plans.
The settlement also permanently bars Union Labor Life from retaining compensation from any source in connection with Separate Account J without advance disclosure of the compensation and approval by appropriate independent plan fiduciaries. The order broadly prohibits the company from exercising any unilateral discretionary authority over the compensation it receives as a fiduciary or service provider to ERISA-covered benefit plans.
The Labor Department lawsuit, filed simultaneously with the settlement, alleges that ULLICO violated ERISA when it failed to properly disclose its compensation and receive approval from plan fiduciaries independent of Union Labor Life for funds taken directly from the investment account, as well as payments received from third-party borrowers, such as loan commitment fees, construction administration fees, and lender inspection fees.
The insurer allegedly kept, among other fees, millions of dollars from loan applicants who failed to go forward with loans even though the plans assumed virtually all the risk of funding those loans.
In a statement, ULLICO said the DOL did not allege that it collected unreasonable or excessive fees, but complained that even reasonable fees can violate ERISA if they are not adequately disclosed to investors. “This settlement is about a good faith disagreement over whether legitimate, reasonable and customary fees were sufficiently disclosed. We think they were; the Department disagreed,” said President and CEO Mark Singleton, in the statement.
The company said it agreed to the settlement “to avoid lengthy, expensive litigation, and to eliminate any ambiguity about whether the company’s reasonable compensation arrangements were adequately and consistently disclosed under ERISA.” ULLICO did not admit that any of the compensation arrangements examined by the DOL were unlawful or that the company has acted in any way in violation of law, the statement said.