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US Labor Department sues Florida outsource company, fiduciaries, service providers to restore $1.5M to health, welfare arrangement
Date of Action: Aug. 11, 2016
Type of Action: Complaint
Name of Defendants: Direct HR Services Inc.
Commerce Benefits Group Agency Inc.
HealthSmart Benefit Solutions Inc.
Background: On Jan. 1, 2011, Direct HR Services Inc., a professional employer organization located originally in Adrian, Michigan and later moved to Holmes Beach, Florida in April 2011, established the Direct HR Services Inc. Employee Health and Welfare Plan. Commerce Benefits Group Agency Inc., headquartered in Avon Lake, Ohio, provided administrative services to the plan. HealthSmart Benefit Solutions Inc. of Irving, Texas acquired the Commerce Benefits Group Agency Inc. in April 2014. Suzanne Burrow, an owner of Direct HR Services, and Jason Syrek were the plan’s fiduciaries.
Allegations: An investigation by the U.S. Department of Labor’s Employee Benefit Security Administration, found the plan to be a self-insured, multiple-employer welfare arrangement operating unlawfully in the State of Florida. In the complaint, the secretary of labor alleges the defendants:
- Operated and administered the plan knowing that it was underfunded.
- Concealed the plan’s funding problems from plan participants.
- Failed to timely pay medical claims.
- Failed to disclose to participants that the plan was self-insured.
- Failed to hold the plan’s assets in trust.
- Diverted funds from the plan bank accounts for non-plan purposes or for their own benefit.
- Commerce Benefits Group Agency Inc. diverted $25,000 from the plan.
- Direct HR, Syrek and Burrow diverted approximately $1,230,905 from the plan for non-plan purposes.
- Direct HR, Syrek and Burrow used $40,356 in plan assets to pay the company’s federal tax liability.
On Sept. 1, 2014, the defendants terminated the plan, and on Sept. 30, 2014, the company ceased operations. At the time of the company closure, the plan participants had approximately $3,654,690 in unprocessed, unfunded, and improperly denied claims that remained unpaid.
Resolution: The department has asked the court to:
- Order defendants Direct HR Services Inc., Commerce Benefits Group Agency Inc., HealthSmart Benefit Solutions Inc., Suzanne Burrow and Jason Syrek to restore to the plan all losses caused by their breaches of their fiduciary obligations.
- Appoint an independent fiduciary – at defendants’ expense – to determine amounts owed to participants.
- Order defendants to pay all unpaid medical claims that resulted from defendants’ failure to process claims, fund approved claims, or improper denial of claims.
- Enjoin all defendants from violating the Employee Retirement Income Security Act.
- Permanently enjoin defendants from serving as a fiduciary or service provider having control over the assets of any employee benefit plan subject to ERISA.
Court: U.S. District Court Middle District of Florida, Tampa Division
Docket Number: 8:16-cv-02300
Additional background: Syrek is currently in incarceration in Ashland, Kentucky after pleading guilty to health care fraud and filing a false tax return in May 2013 pertaining to his actions related to another multi-employer welfare arrangement that is also referenced in the complaint.
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.