Pension Fund Ordered to Change Provider Selection Process

The U.S. Department of Labor (DOL) has settled a lawsuit over provider selection procedures against the International Association of Machinists National Pension Fund (IAM National Pension Fund).

According to the DOL, an investigation by its Employee Benefits Security Administration (EBSA) found that the IAM National Pension Fund trustees breached their fiduciary duties under the Employee Retirement Income Security Act (ERISA) by:

• Failing to loyally and prudently select fund service providers, including consultants and fund investment managers;
• Regularly ignoring required procedures included in the fund’s governing plan documents;
• Creating conflicts of interest for the fund;
• Unlawfully soliciting and accepting gratuities from plan service providers; and
• Spending and permitting others to spend fund assets lavishly on unnecessary trips, parties and extravagant food, wine, and accommodations.

However, it a statement, the IAM National Pension Fund says it believes the lawsuit was unfounded.

“The central focus of the Department’s lawsuit questioned the manner in which the Fund hired certain investment managers and consultants—but never suggested that those consultants were unqualified, lost money for the Fund, or performed poorly.  Instead, the Department raised questions as to the process the Trustees employed when selecting these advisers,” the fund said in its statement. It noted that the fund is nearly 100% funded.

However, the fund determined that the settlement was in the best interest of participants.  “The Trustees’ decision to accept the settlement agreement likely has saved the Fund many times the settlement amount in attorneys’ fees and litigation costs,” says Ryk Tierney, director of the IAM National Pension Fund. 

The settlement agreement orders the defendants to repay $200,000 to the fund and pay $40,000 in civil money penalties. The order also requires the plan trustees to take the following actions to protect fund participants from future violations of ERISA:

• Within 30 days of entry of the order, adopt the new manager and consultant selection policy, which mandates that the plan trustees use a three-part search process for selecting an investment consultant or investment manager.;
• Engage in a new search process for a new general investment consultant for the fund, and hire an independent search consultant to conduct a comprehensive and objective request for proposal process for this search;
• Amend the fund’s code of conduct and ethics to prohibit the same person from acting as both an investment consultant and investment manager for the fund; and
• Amend the fund’s record retention policy to hold records relating to the hiring or firing of any investment consultant or manager for six years.