The fiduciaries of a company retirement plan were ordered to pay more than $2 million to settle litigation and Department of Labor charges that it mismanaged plan assets.
The Labor Department 's Employee Benefits Security Administration determined that international design firm InterArch Inc., and Shirley and Vernon Hill, fiduciaries of the InterArch Inc. Profit Sharing Plan, violated their fiduciary duties under the Employee Retirement Income Security Act.
The EBSA investigation found that from at least August 2016 through the plan's termination in June 2020, the fiduciaries invested the plan's assets in an undiversified manner in two companies to which the fiduciaries had significant ties, according to a news release. The plan's position in the stock of one of the companies reached almost 70% of the plan's portfolio before it fell drastically in value, resulting in millions of dollars in losses to the plan, the Labor Department noted.
"The law requires fiduciaries to discharge their duties solely in the interests of plan participants and beneficiaries in a prudent manner, and to diversify plan investments so the risk of large losses is minimized," said Cristina O'Brien, EBSA acting regional director in Philadelphia, in the news release. "Fiduciaries are also prohibited from using plan assets for their own interests."
In August, following the EBSA investigation, the department's office of the solicitor in New York filed a complaint in U.S. District Court in Newark, N.J., alleging that InterArch and the two individual fiduciaries engaged in self-dealing and violated their duties of loyalty and prudence.
The court entered a consent judgment and order on Sept. 23, requiring InterArch and the individual fiduciaries to pay $1.8 million to plan participants and $183,685, in penalties to resolve the allegations. The judgment also barred the Hills from serving as fiduciaries of any ERISA-covered employee benefit plans in the future.
Moreover, InterArch and the Hills will additionally pay about $1.1 million to the retirement plan to resolve a separate but related private class-action lawsuit filed by a former employee in 2020. A proposed settlement was reached in the private class-action lawsuit, which alleged similar ERISA violations as the department's complaint, according to the Labor Department.
A representative from InterArch could not immediately be reached for comment.