Compliance July 15, 2015

DOL Gets Final Judgment in Misuse of Pension Funds Cases

The latest court order culminates six years of investigations and three years of legal battle.
Reported by

A consent judgement issued by a Kentucky federal court will recover nearly $300,000 for a pension plan in Michigan, and ban the defendants from serving as plan fiduciaries or service providers again.

The U.S. District Court for Kentucky’s Eastern District has entered a consent judgment against Bernard Tew, investment service provider Bluegrass Investment Management LLC, and investment service provider Tew Enterprises LLC, fiduciaries and service providers to the Metavation LLC of Southfield, Michigan, and Fairfield Castings LLC of Fairfield, Iowa, pension plans. 

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

The judgment requires the defendants to repay $299,166.67 to the Hillsdale Hourly Pension Plan and the Hillsdale Salaried Pension Plan, and to refrain from violating the provisions of Title I of the Employee Retirement Income Security Act (ERISA). The court also banned them from being a fiduciary or service provider to employee benefit plans under ERISA. 

The judgment follows and adds to other judgments obtained in nearly three years of legal actions. These actions have led to bans against numerous fiduciaries and service providers, and the collection of more than $12 million on behalf of the Hillsdale Hourly Pension Plan, the Hillsdale Salaried Pension Plan, the Revstone Casting Fairfield GMP Local 359 Pension Plan, and the Fourslides Inc. Pension Plan.

NEXT: The cases.

The U.S. Department of Labor’s (DOL) Employee Benefits Security Administration observed a pattern of prohibited transactions involving the use of these plans’ assets by one-time business leader George Hofmeister, Tew, and Bluegrass Investment Management. Investigators found improper use of plan assets for the purchase and lease of company property, the prohibited purchase of customer notes from affiliated companies, the prohibited transfer of assets in favor of a party-in-interest, the payment of excessive fees to service providers. Other violations are also alleged.

The DOL obtained a corrective action worth nearly $30 million in 2010 with respect to the Hillsdale Salaried Pension Plan and the Hillsdale Hourly Pension Plan. They then discovered Hofmeister, Tew, and Bluegrass Investment Management had begun a new series of prohibited transactions to redistribute these funds to companies owned by trusts of Hofmeister’s children. The department found that Hofmeister and Tew placed millions of dollars in pension plan assets at risk and consistently failed to act to protect these assets when required, while attempting to hide behind laws they believed exempted such behavior.

Investigations into each of the pension plans led the DOL to file several lawsuits between August 2012 and May 2013 against, among others, Hofmeister and the Tew Defendants. The four plan sponsors are closely affiliated with Lexington-based Revstone Industries LLC and Spara LLC. These 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, and
  • approximately $500,000 from the Fourslides Inc. Pension Plan.

Since July 2013, the department has obtained 10 consent judgments against the various defendants, including Hofmeister and the Tew Defendants. These actions collectively have restored more than $12 million to the affected plans, and prohibited these fiduciaries and service providers from violating ERISA or serving as fiduciaries or service providers to ERISA-covered plans. 

In addition, the Pension Benefit Guaranty Corporation (PBGC) became the trustee of the Hillsdale and Fairfield Castings pension plans in June 2014. It is now administering benefits for those plans directly. The PBGC reached an arrangement with the debtor in possession with respect to the Revstone and Metavation bankruptcies in which a total of approximately $75 million will be paid to the PBGC to resolve its claims against the plans’ sponsors.

Data & Research July 15, 2015

Auto Enrollment Boosts Participation for Workers 55 to 69

But because defaults are so low, their contributions are lower than those who voluntarily opt in.
Reported by

Automatic enrollment succeeds in boosting participation by older workers age 55 to 69 in defined contribution (DC) plans, the Center for Retirement Research at Boston College found. Auto enrollment raises participation to 92.7% for older workers, compared with 84.9% in plans where participants must enroll voluntarily.

Auto enrollment of older workers also boosts participation for long-tenure workers (95.3%) compared with voluntary enrollment for this group (90.5%). The difference is even greater for short-tenure workers, with only 68.2% of this group freely joining the DC plan on their own, compared to 80.8% of those automatically enrolled staying invested in the plan.

Differences in participation are also pronounced, depending on salary. In the bottom earnings quartile, 91% remain in the plan if automatically enrolled, but only 51.6% of the bottom-earnings-quartile older workers voluntarily join the plan. Older workers in the top earnings quartile are more likely to voluntarily join the plan (96.1%), with automatic enrollment for this group lifting participation only slightly, to 97.4%.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

“The results show that automatic enrollment is associated with a higher proportion of older workers included in a DC plans—particularly short-tenure workers and the lowest earners,” the Center for Retirement Research says.

NEXT: Contribution amounts

The problem with automatic enrollment of older workers: because deferral rates are set so low, those who are automatically enrolled in a plan contribute less than those who willingly join the plan on their own, the Center for Retirement Research says.

Because some DC plans are nonparticipatory plans that have the employer make a contribution instead of requiring workers to defer a portion of their salary, the Center finds “that automatic enrollment is associated with a lower likelihood that older workers will contribute to their DC plans. As a result, employee contribution amounts are lower among those who have been automatically enrolled, compared to those who were given a choice to enroll."

While it is true that employers of older workers contribute a higher match to automatically enrolled participants than they do for voluntary participants, the matches “are not high enough to offset the lower employee contributions.” This results in automatically enrolled older workers contributing significantly less than those who are voluntarily enrolled.

Automatically enrolled older workers contribute an average $1,293, and their employers add another $2,248—for total contributions of $4,800. People who join the plan on their own, on the other hand, contribute an average $3,354, and their employers kick in another $1,608—for total contributions of $6,072.

The Center for Retirement Research concludes that “automatic enrollment could do a better job of boosting overall contribution levels among participants. Possible ways to achieve this might be by offering a more generous employer match and by using auto escalation. Moreover, most employers set the default employee contribution in their 401(k) plan at a rate that does not take full advantage of the employer match, [and] participants remain at the lower default contribution rates.” The Center says that default rates need to rise, not just for older workers but for all participants.

The study can be downloaded here.

«