A district court has upheld the Department of Labor's position that a third-party pension plan administrator violated his fiduciary duties by purchasing non-business related entertainment for trustees and their spouses.
The administrator, James W. Carell of Nashville, purchased airfare, lodging, meals and other entertainment for trustees and their spouses from the Southern Council of Industrial Workers Health and Welfare Fund and the Southern Council of Industrial Workers Pension Fund, both of Nashville, for various meetings in Honolulu and Naples, Fla., between 1983 and 1987, court documents show.
"Anything that's beyond what's necessary to conduct the meetings is unreasonable," said William Scott, a Department of Labor attorney who handled the case.
"Administrators shouldn't be competing for business in terms of who can provide the most freebies."
Richard Braun, the Nashville attorney who defended some of the trustees in the case, said the expenses were paid for by the administrator, did not involve plan assets and should not be considered a fiduciary breach.
"They took such an outrageously narrow position of what constituted a gratuity," Mr. Braun said. "Having the wives of the trustees fly down is not a violation of the law unless it's done as a quid pro quo."
Jack Marco, president of Marco Consulting Group, Chicago, a consultant to union funds, said the case is rare. He said the plan administrator or the fund attorney should have known the extras were violations of the 1974 Employee Retirement Income Security Act.
"Most trustees are in other industries. This isn't full-time work for them and so they don't know what the rules are," Mr. Marco said.
"The administrator or the fund attorney ought to be telling the trustees what the rules are," he added.
