Bureau Of National Affairs
Thursday, March 28, 2002
Labor Pension Plan Administrators Charged With Improperly Managing Laborers' Assets
The Labor Department filed suit March 22 against Union Labor Life Insurance Co. (ULLICO ) and its subsidiary, Trust Fund Advisors (TFA), challenging the propriety of their investment of $10 million of pension plan assets in a Nevada real estate project (Chao v. Trust Fund Advisors,D. D.C., No. 02-00559, filed 3/22/02).
In investing the funds from two Laborers' International Union of North America pension plans, ULLICO and TFA breached their fiduciary duties in violation of the Employee Retirement Income Security Act, the Labor Department charged. The suit arose after the two asset management groups purchased 120 acres of property in the City of North Las Vegas in 1995 with a plan to sell it in lots for private homes.
The purchase was paid for with assets from two Laborers' pension funds managed by ULLICO and TFA, according to the suit. ULLICO and TFA, incorporated as LF Las Vegas Realty Corp., paid close to $6 million for the property and spent more than $4 million to develop it. They sold the property in 1999, receiving less than they had invested, the Labor Department suit said.
According to the suit filed in the U.S. District Court for the District of Columbia, ULLICO and TFA failed to obtain an appraisal of the Nevada property before the purchase. Had they done so, "the appraisal would have disclosed that the land was not worth the purchase price," the suit charged. It also faulted ULLICO and TFA for failing to properly investigate the merits of the project, mismanaging development of the property, and abandoning the project without selling any lots.
The Labor Department is asking the court to order ULLICO and TFA to restore all losses, plus interest, that the plans incurred because of the ERISA violations, enjoin the two fund managers from further ERISA violations, and award any other equitable relief as it sees fit.
ULLICO was founded in 1925 and provides financial services, including a range of insurance, managed care, investment, and fund administration products. ULLICO is headed by Robert A. Georgine, former president of the AFL-CIO's Building and Construction Trades Department.
One of ULLICO 's principal functions has been to invest and manage the approximately $6 billion of largely building trade union pension fund assets and provide health insurance benefits for some 3.5 million members. TFA, one of six ULLICO subsidiaries, is an investment advisor that provides individual portfolio management services to pension funds.
Ian D. Lanoff of the Groom Law Group in Washington, D.C. attorney for ULLICO and TFA, said both "acted appropriately and prudently as fiduciaries to the investment in this case."
Lanoff argued that the two "will be completely vindicated at the end of the process," observing that the Labor Department is alleging that the loss associated with the transaction amounted to $1 million. The Labor Department "is breaking new ground regarding its theory on both the nature of the violation and on the computation of interest," he said in a statement.
Copyright © 2002 by The Bureau of National Affairs, Inc., Washington D.C.