Media Release

Release Date: 05/04/1998
Release Number: Philadelphia USDL: III 98-015-04-083PHL
Contact Name: Sharon Morrissey
Phone Number: 202.219.8921

Philadelphia Nursing Home Pension Trustees Ordered To Resign Positions And Repay Plan

Philadelphia-based Mercy-Douglass Corp., its subsidiaries and trustees of the company's pension plan have agreed to repay the plan $432,137, including interest, as a result of a consent judgment obtained by the U.S. Labor Department.

In addition, the consent judgment requires that an independent trustee be appointed to manage the plan.

The individual defendants were ordered to resign their positions as plan trustees They were also barred from serving in any capacity to plans governed by federal pension law for three years except defendant James Wilson who was barred for 10 years. In addition, the defendants agreed to participate in comprehensive training regarding the duties and responsibilities of trustees and fiduciaries of any plan governed by the Employee Retirement Income Security Act (ERISA) before re-assuming any fiduciary duties with the plan. Defendants also have been ordered to pay the federal government a civil penalty of $86,424. The consent judgment also required that the defendants obtain an irrevocable letter of credit in the amount owed the plan, guaranteeing that the plan will be paid in the event they default on the required payments.

According to the lawsuit, the defendants misused more than $1.3 million in pension assets as corporate loans and contributions owed by the nursing home operator and its subsidiaries. Mercy-Douglass (MDC) is the parent holding company for four non-profit subsidiaries which serve elderly residents in the Philadelphia area. These services include two nursing homes, provisions of medical services, recreational activities and transportation. MDC and its subsidiaries sponsor the pension plan for as many as 429 participants. In 1994, the plan had approximately $1.2 million in assets.

Named in the lawsuit were MDC and its subsidiaries, Mercy-Douglass Human Service Affiliate, Mercy-Douglass Human Services Corp., Mercy-Douglass Center Inc., and MercyDouglass Inc. II; as well as Wilson and other trustees Elvis Malone, Beryl Fuller, Jeanice Salter, Charlotte Nichols and William Reddish, who are also of ficers of MDC or one of its subsidiaries.

According to the lawsuit, the trustees violated ERISA by:

• pledging more than $500,000 of plan money as collateral on a series of loans to a division of Mercy-Douglass Inc.;

• making a $65,000 loan to Mercy-Douglass Human Services Affiliate which· making a $65,000 loan to Mercy-Douglass Human Services Affiliate which pledged real estate purchased with proceeds as collateral for the loan;

• failing to collect fees owed to the plan as a condition of the collateralized loans;

• making a $53,996 loan to a client of Mercy-Douglass Human Services Affiliate in order to repay debts owed to MDC:

• using plan money to make a $13,800 loan to a MDC consultant; and

• failing to collect more than $600,000 in contributions owed to the plan by the subsidiaries.

As a result of the department's intervention, MDC corrected most of the alleged violations, therefore the remaining monies owed the plan were for the balance of the delinquent contributions plus interest only.

MDC was charged with knowingly participating in the improper actions of the trustees, failing to monitor the trustees' actions and using plan money for its own benefit. The subsidiaries were alleged to have participated with the trustees and MDC in failing to collect contributions owed to the plan and Mercy-Douglass Center allegedly participated in the unlawful pledge of plan money to obtain loans for itself.

The consent judgment was entered May 4 in federal district court in Philadelphia and resulted from an investigation by the Philadelphia Regional Office of the Department's Pension and Welfare Benefits Administration, which conducts investigations into alleged violations of ERISA.

(Herman v. Mercy-Douglass Corp. et al)
Civil Action #97-CV-2152

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