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Release Date: November 16, 2007
Release Number: 07-1801-NAT
Contact Name: Gloria Della/Richard Manning
Phone Number: 202.693.8664/202.693.4676
Washington — The U.S. Department of Labor
today announced a settlement requiring Union Labor Life Insurance Co. (ULLICO)
of Washington, D.C., to pay back nearly $16.7 million in fees and
compensation to benefit plans that invested in Separate Account J (J for
Jobs), a pooled separate account holding plan assets for the benefit of
employee benefit plan investors. In addition, the insurer must pay $3.3
million to an escrow account to cover additional civil penalties and
excise taxes resulting from alleged violations of federal employee
benefits law.
“Self-dealing by pension fiduciaries at the expense
of workers’ retirement plans cannot be tolerated,” said Secretary of
Labor Elaine L. Chao. “This $20 million settlement is a loud and clear
message to all plan fiduciaries that they will be held accountable when
their actions are detrimental to workers’ benefit plans.”
The settlement, if approved by the court,
successfully resolves a department investigation concluding that Union
Labor Life had used its authority over the separate account to
unilaterally set its own compensation in violation of the Employee
Retirement Income Security Act (ERISA).
In addition to the monetary recovery, the settlement
permanently bars Union Labor Life from retaining compensation from any
source in connection with Separate Account J without advance disclosure
of the compensation and approval by appropriate independent plan
fiduciaries. The order broadly prohibits the insurer from exercising any
unilateral discretionary authority over the compensation it receives as
a fiduciary or service provider to ERISA-covered benefit plans.
The Labor Department filed the lawsuit simultaneously
with the settlement, which is subject to court approval. The lawsuit
alleges that Union Labor Life violated ERISA when it failed to properly
disclose its compensation and receive approval from plan fiduciaries
independent of Union Labor Life for funds taken directly from the
investment account, as well as payments received from third-party
borrowers, such as loan commitment fees, construction administration
fees and lender inspection fees. The insurer allegedly kept, among other
fees, millions of dollars from loan applicants who failed to go forward
with loans even though the plans assumed virtually all the risk of
funding those loans.
Separate Account J invests in secured mortgages on
real estate development projects constructed with union labor. The sole
investors are ERISA-covered plans.
The Labor Department’s legal action resulted from a
comprehensive investigation conducted by the Philadelphia Regional
Office of the department’s Employee Benefits Security Administration
and the department’s Office of the Solicitor.
Chao v. ULLICO
Civil Action Number 1:07-cv-02089
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