DOL Sues Nursing Home for Mismanaging Retirement Plan Assets

The U.S. Department of Labor (DOL) has sued a Bridgeport nursing home and its chief officer alleging that they diverted millions of dollars from the company’s retirement plan improperly to a religious corporation and to themselves.

The Bridgeport Health Care Center Inc. Retirement Plan was established to provide retirement benefits for the employees and beneficiaries of two Bridgeport nursing homes, Bridgeport Health Care Center and Bridgeport Manor. Bridgeport Health Care Center, Inc. sponsors the plan; Chaim Stern is the plan’s trustee and acts on behalf of Bridgeport Health Care Center, Inc. as the plan administrator. Stern, who also serves as chief financial officer, chief operating officer and nursing home administrator for Bridgeport Health, is the plan’s sole decision maker with check-signing and fund transfer authority. Stern and the company are responsible for receiving and collecting all monies due to the plan and for managing its assets properly.

An investigation by the department’s Employee Benefits Security Administration (EBSA) found the defendants have been violating their fiduciary duties since at least January 2011, and have continued to do so. During that time, they allegedly diverted at least $4 million in plan assets, directly or indirectly, to Bridgeport Health, to Stern and to Em Kol Chai, a New York religious corporation that lists Stern as its president and trustee on its certificate of incorporation. It appears some portion of this amount was transferred back to the plan. A full accounting will be required to determine the precise extent of the diversions.

In October 2011, a promissory note worth $3.8 million, made payable to the plan, was executed on behalf of Em Kol Chai. The note provides for payment of minimal interest, and no collateral was offered to secure the payment. The obligation to pay the note, the amount of which has represented more than 75% of the retirement plan’s assets, has been extended to September 30, 2016, without consideration. 

Filed in the U.S. District Court for the District of Connecticut, the lawsuit asks the court to:

• Remove Stern as plan fiduciary and appoint an independent fiduciary;
• Permanently enjoin Stern from serving as a fiduciary to any ERISA-covered plan;
• Require the defendants to undo the prohibited transactions and restore to the plan any losses incurred as a result of their fiduciary breaches, including lost earnings and appropriate interest;
• Require the defendants to perform an accounting of all plan transactions from January 3, 2011, to the present; and
• Permanently enjoin Stern and Bridgeport Health from future Employee Retirement Income Security Act (ERISA) violations.