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Compliance December 20, 2013
Trustee to Restore Profit-Sharing Assets
The Department of Labor (DOL) has received court authorization to compel the trustee of a profit-sharing plan in Aiea, Hawaii to restore mismanaged plan assets.
Reported by Kevin McGuinness
A consent judgment has been secured for cement construction and contracting company Reef Development of Hawaii Inc. and its president, Samuel Sanchez Aguirre. An investigation by the DOL’s Employee Benefits Security Administration (EBSA) found that Aguirre, who was acting as trustee to the company’s profit-sharing plan, violated the Employee Retirement Income Security Act (ERISA) by mismanaging plan assets, which resulted in more than $700,000 in lost principal, plus approximately $303,000 in lost interest.
EBSA investigators found that Aguirre neglected his fiduciary responsibilities by not acting carefully in the selection and monitoring of investments made on behalf of the plan. This lack of due diligence prior to making investments violates ERISA’s requirements of acting solely in the interest of participants and beneficiaries of the plan.
The investigation revealed that Aguirre directed $550,000 to shares of a Texas-based company that later filed for bankruptcy and was exposed as a Ponzi scheme. The plan also suffered a loss of $950,000 in debt instruments invested in a hotel restoration project that was foreclosed upon.
The EBSA investigation, which began in April 2011, surveyed plan activity between 2006 and 2011. It found that 50 plan participants were affected by Aguirre’s investment choices.
The consent judgment and order obtained by the DOL requires Aguirre to restore $463,236 in losses to the plan attributable to nonfiduciary participants within 30 days of the judgment’s filing. Once the funds have been restored, Aguirre and the fiduciaries will terminate the plan and disburse the funds.
Once the plan is terminated, Aguirre is permanently banned from serving as a fiduciary or service provider to any employee benefit plan that is subject to ERISA. He has been assessed a penalty that is equal to 20% of the recovery amount, or $92,647.
According to the DOL, Reef Development of Hawaii specializes in cement work, restoration and additions to property, and commercial developments.