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Release Date: 09/12/2002
Release Number: 02-533
Contact Name: Gloria Della
Phone Number: 202.693.8666
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Washington, DC - The U.S. Department of Labor today sued
trustees of the Plumbers and Pipefitters National Pension Fund to remove them as
plan trustees and restore losses in connection with the imprudent management of
the plan’s investment in the Diplomat Resort and Country Club in Florida. |
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“This case is about the trustees’ failure to
prudently manage and invest their members’ pension funds through its
involvement in the Diplomat Resort project,” said Ann Combs, Assistant
Secretary for the Department of Labor’s Pension and Welfare Benefits
Administration. “Pension trustees purchased and developed the property
without the slightest due diligence to determine the financial viability of the
project. The Department of Labor even had to require independent
management of the project to bring it to proper completion, but the damage had
already been done by the trustees’ mismanagement.” |
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Named as defendants are pension plan trustees Martin J.
Maddaloni, Thomas Patchell, Patrick Perno, Charles H. Carlson and James A.
House. |
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The suit, filed in federal district court in Ft.
Lauderdale, Florida, alleges that the trustees violated the federal Employee
Retirement Income Security Act (ERISA) by imprudently proceeding with the
Diplomat project without any feasibility studies, market analyses, market-tested
construction budgets, construction schedules, economic models, financing
arrangements or other information with which to make an informed decision.
The suit also alleges that the trustees failed to maintain adequate financial
controls over construction costs and paid excessive fees to service providers on
the project. |
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At a September 1997 board meeting, the pension plan
trustees voted to buy the Diplomat property on behalf of the Plumbers’ pension
plan from Union Labor Life Insurance Company (ULLICO). At that time, the
property was abandoned and in a state of disrepair. The United Association
of Journeymen and Apprentices of the Plumbing and Pipefitting Industry of the
United States and Canada, the pension plan sponsor, purchased the property with
the intention of subsequently selling it to the pension plan. |
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The sale of the real estate from the union to the
pension plan was prohibited under ERISA because of the relationship between the
union and its pension plan, absent an exemption from the Department of Labor.
In their exemption application, the trustees failed to disclose that the
anticipated development would require the further investment of hundreds of
millions of dollars of the plan’s assets. The exemption approved by the
department covered only the terms of the $40 million sale of the property from
the union to the pension plan, not the prudence of the property’s subsequent
redevelopment using union pension funds. The plan invested more than $800
million in the Diplomat project. |
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Under the lawsuit, the department is seeking a court order
to require the defendants to reimburse the plan for losses, remove the trustees
from their positions with the plan and permanently bar them from serving as a
fiduciary or service provider for any employee benefit plan governed by ERISA. |
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(Chao v. Maddaloni
Civil Action No. 02-61289CIV) |
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U.S. Department of Labor
news releases are accessible on the Internet. The information in this news
release will be made available in alternate format upon request (large
print, Braille, audio tape or disc) from the Central Office for Assistive
Services and Technology. Please specify which news release when placing
your request. Call 202.693.7773 or TTY 202.693.7755. |
