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PWBA News Release: [09/12/2002]
Contact Name: Gloria
Della
Phone Number: (202) 693-8666
Labor Department Sues
Plumbers’ Pension Trustees over Florida Investment
WASHINGTON, D.C.—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.
“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.”
Named as defendants are pension plan trustees Martin J. Maddaloni,
Thomas Patchell, Patrick Perno, Charles H. Carlson and James A. House.
The suit, filed in federal district court in Ft. Lauderdale, Fla.,
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.
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.
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.
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.
(Chao v. Maddaloni) Civil Action No. 02-61289CIV
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