Trustees consent to correcting loans
CHICAGO (Legal Newsline) - A federal judge has signed a consent order between the United Employee Benefit Fund and the Secretary of Labor amending the UEBF's governing documents.
The amendments will allow the documents to comply with requirements of the Employee Retirement Income Security Act and the Internal Revenue Code.
An investigation by DOL's Employee Benefits Security Administration revealed that UEBF trustees made improper, unsecured loans to participants that later became delinquent. According to the DOL, the amount of the improper loans - totaling more than $1.7 million- will be subject to corrected loan documentation, repaid by plan participants or treated as taxable distributions.
"Plan fiduciaries have a special obligation to maintain the integrity of the plan for the purpose of ensuring future retirement income. Allowing participants to withdraw plan assets without regard to ERISA's safeguards violates that basic principle," Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi said. "Our legal action underscores the Labor Department's commitment to hold accountable those who are entrusted with the assets of employee benefit plans."
Two trustees, David Fensler and Anthony Monaco, allegedly approved at least 194 loans from the fund to individual participants between January 1997 and Dec. 31, 2009. None of the approved loans had been paid back to the fund in full.
Only six received any payments at all. Fensler and Monaco allegedly made no effort to enforce the terms of the loans or collect payments. This violates the plan's governing documents and ERISA.
The trustees are now committed to correcting all prohibited transactions in which they engaged since August 2008. They will ensure that all loans meet all ERISA and IRC requirements.
The plan will be amended so that a participant must demonstrate and document an emergency need before he or she can receive a loan from the fund. The fund will also be required to issue an Internal Revenue Service Form 1099 at the end of the plan year for the full unpaid loan, in the event a loan is delinquent for more than 120 days. This means the loans will then be considered income.
UEBF will issue a notification to the participant within 45 days that the individual will receive a Form 1099 for plan year 2012 for the outstanding loan balance plus any outstanding interest in accordance with IRC rules for all loans issued after Aug. 30, 2008.