PBI Bank Inc. will pay $1 million to restore alleged losses to the Miller's Health Systems Inc. employee stock ownership plan, under an agreement with the Department of Labor approved in U.S. District Court in South Bend, Ind.
The judgment resolves a 2013 DOL lawsuit alleging that PBI Bank, based in Louisville, Ky., authorized a 2007 company stock purchase in excess of the stock's fair-market value and charged the ESOP an excessive 12% interest rate to finance it.
PBI Bank, a subsidiary of Porter Bancorp, also agreed to be permanently barred from serving as a fiduciary or service provider to ERISA-covered plans except its own.
PBI also will pay $83,750 to Miller's Health and penalties of $113,636 to the DOL.
Miller's Health, based in Warsaw, Ind., manages long-term care and assisted-living facilities. The civil lawsuit argued that PBI breached its fiduciary duties in the design of the transaction, which was based on a “flawed and unreliable” valuation that did not benefit participants and did not promote employee ownership in the plan, which had assets of $15.8 million as of Sept. 30, 2012, the latest available data.
PBI President and CEO John Taylor said in a statement that the bank was pleased to resolve the matter out of court. “Neither Miller's Health Systems Inc. nor PBI Bank has acknowledged any wrongdoing in the matter,” Mr. Taylor said.
Phyllis C. Borzi, assistant secretary of labor for employee benefits security, said in a DOL release that while ESOPs can be good ways for workers to save and to have a stake in a company's success, “too often, we see purchase price manipulation and other schemes that benefit leadership at the expense of employees.”
