Compliance August 14, 2009

DoL Sues Plan Trustees for Misuse of Plans' Assets

The U.S. Department of Labor has sued defunct Vinyl-Mark Products Inc. of Hueytown, Alabama, and the company's pension and profit-sharing plan trustees for allegedly misusing plan assets to pay the operating expenses of the company.

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A DoL press release said the lawsuit alleges that the company, formerly known as First Alabama Supply Co. Inc., and trustees Willard D. Bailey Jr. and Jessie Mae Bailey violated the Employee Retirement Income Security Act (ERISA) by allegedly making a series of transfers totaling $898,259.69 from the plans to the operating accounts of the company at various times between October 2004 and February 2007.

The suit seeks a court order to require that all defendants restore all losses incurred by the plans and disgorge any profits or illegal gains, and that the trustees’ retirement accounts be offset to repay losses and lost opportunity costs owed to the plans. Money offset will be re-distributed to the accounts of the remaining participants covered by the plans, according to the announcement.

The DoL also asks that the court appoint an independent fiduciary to oversee the plans, and that the trustees be permanently barred from serving in a fiduciary capacity to any plan governed by ERISA.

The company was a wholesale distributor of vinyl siding, accessories, and windows, and sponsored a defined benefit plan for 59 participants and a profit-sharing plan covering 29 participants. As of December 31, 2005, the plans held cumulative assets of $701,361.

Products August 14, 2009

Vanguard Clamps Down on PRIMECAP Asset Growth

The Vanguard Group has shuttered its PRIMECAP Core Fund to advisers and institutional clients such as defined benefit plans, endowments, and foundations.

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The  investment management company said in a news release, however, that the $3.8-billion fund (VPCCX) remains opens without purchase limits to defined contribution plan participants.

The Core Fund will not accept new accounts from most retail clients and Vanguard has limited additional share purchases by existing shareholders to $25,000 annually. The company has also placed a $25,000 annual limit on additional share purchases of Vanguard PRIMECAP Fund and Vanguard Capital Opportunity Fund by Flagship clients.

“Despite the market volatility, Vanguard investors are continuing to commit assets to our stock and bond funds and ETFs,” said Vanguard CEO Bill McNabb, who noted that net cash inflows into Vanguard’s long-term funds totaled nearly $60 billion in the first half of 2009. “We are taking preemptive steps to limit the growth of PRIMECAP Core Fund and its sister funds, with the goal of enabling the team at PRIMECAP Management to continue to implement their investment strategy in an effective manner.”

Based in Pasadena, California, PRIMECAP Management currently manages $37 billion in Vanguard investment products.

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