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US Labor Department obtains default judgment against former fiduciary of Sommet Group Employee Benefit Plan in Tennessee
Date of Action: July 15, 2016
Type of Action: Default judgment
Name of Defendant(s): Sommet Group LLC
L. Brian Whitfield
D. Edwin Todd
Sommet Group LLC Employee Benefit Plan
Allegations: An investigation by the U.S. Department of Labor’s Employee Benefits and Security Administration found Sommet Group LLC, a professional employer organization that operated in Franklin, Tennessee, solicited and entered into contracts to provide benefits for injury or illness to employees and eligible dependents through a group health plan. The plan functioned as a multiple employer welfare arrangement.
L. Brian Whitfield was the chief executive officer and majority owner of Sommet. He was responsible for the overall design of the Sommet MEWA and for its financial operations and obligations. D. Edwin Todd was the managing partner and was involved with its financial operations and marketing.
Before 2008, Sommet offered a fully insured health plan through BlueCross BlueShield of Tennessee, but the organization terminated the agreement in January 2008 due to Sommet’s failure to disclose its PEO status. As a result, Sommet switched its administrator to HealthFirst. The PEO failed to disclose this change to participating employers, participants and beneficiaries. Sommet altered its model to a self-insured arrangement, but kept the contribution rates at the same level as the fully insured plan, without conducting an analysis to determine if the rates were sufficient to cover outstanding and expected claims.
Sommet began to struggle to pay its claims in October 2009 and HealthFirst terminated its contract on January 7, 2010, after Sommet attempted to restrict HealthFirst’s ability to process claims. The defendants falsely informed certain clients that HealthFirst terminated its contract because it believed Sommet was searching for a new third-party administrator. Sommet then hired HCH Administration Inc. to take over as the Sommet MEWA’s contract claims administrator in January 2010, but continued to fail to fund claims. HCH then terminated its contract with Sommet in June 2010 due to failure to fund claims. In total, the Sommet MEWA had approximately $3.8 million in unpaid medical claims when HCH’s contract was terminated.
On July 5, 2013, the department filed a civil complaint in the U.S. District Court for the Middle District of Tennessee, in Nashville. The action alleged the defendants failed to act in the best interest of participants and beneficiaries, caused the plan to engage in prohibited transactions and failed to hold assets of the plan in trust.
Resolution: To resolve the civil complaint, Todd entered into a consent judgment on Sept. 3, 2015. The judgment enjoins him permanently from violating the Employee Retirement Income Security Act in the future and bars him from serving as a fiduciary, trustee, agent or representative in any capacity to any employee benefit plan in the future. The department also attempted to reach a settlement with Whitfield, but he failed to answer the complaint. In response, the department filed a motion for a default judgment requesting Whitfield be enjoined permanently from future violations of the ERISA and also be barred permanently from serving as a fiduciary, trustee, agent or representative in any capacity to any employee benefit plan in the future. The court granted the department’s motion for default on July 14, 2016.
Court: U.S. District Court for the Middle District of Tennessee, Nashville, Division
Docket Number: 3:13-cv-00664
Background: Professional employer organizations provide human resource services for their clients, typically small businesses. They pay wages and taxes, and often assist businesses with complying with state and federal rules and regulations. PEOs may also provide workers with access to 401(k) plans, health, dental and life insurance, dependent care, and other benefits not typically provided by small businesses.