DOL Gets Final Judgment in Misuse of Pension Funds Cases

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. 

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.

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.