Human Capital & Careers

Pension Annuity Fund Hit for Setting Its Own Fees

ULLICO pays $20 million to settle a Labor Department claim that it didn't disclose its fees to investors.
Stephen Taub and David McCannNovember 16, 2007

Union Labor Life Insurance Co. has agreed to pay $20 million in a settlement with the U.S. Department of Labor for allegedly setting its own compensation for managing a pension-fund account in violation of the Employee Retirement Income Security Act.

At issue in the case was “Separate Account J” (better known as “J for Jobs”), a ULLICO annuity that funds loans to construction projects that use unionized labor. All investors in the account are ERISA-covered pension plans, and under the federal law, the plans must establish the fees paid to investment managers.

ULLICO failed to properly disclose its compensation and receive approval from plan fiduciaries for funds taken directly from the investment account, the Labor Department charged. But a DoL spokesman told the linchpin of the case was that the company allegedly kept millions of dollars in fees from third-party loan applicants who failed to go forward with loans, even though the plans that invested in the annuity assumed virtually all the risk of funding those loans. The money consisted of loan-commitment fees, construction-administration fees, and lender-inspection fees.

Under the settlement, ULLICO will pay back nearly $16.7 million to benefit plans that invested in J for Jobs. It also must pay $3.3 million to an escrow account to cover additional civil penalties and excise taxes resulting from the alleged ERISA violations.

In addition to handling plan investments in J for Jobs, ULLICO was a fiduciary of the fund. “Self-dealing by pension fiduciaries at the expense of workers’ retirement plans cannot be tolerated,” says Secretary of Labor Elaine Chao. “This $20 million settlement is a loud and clear message to all plan fiduciaries that they will be held accountable when their actions are detrimental to workers’ benefit plans.”

ULLICO settled the case without admitting any wrongdoing, a stance it reinforced in a press release. “This settlement is about a good faith disagreement over whether legitimate, reasonable and customary fees were sufficiently disclosed. We think they were; the Department disagreed,” the company’s CEO, Mark Singleton, said in the release.

The settlement permanently bars ULLICO from retaining compensation from any source in connection with Separate Account J without advance disclosure of the compensation and approval by appropriate independent plan fiduciaries. The order also broadly bars the company from exercising any unilateral discretionary authority over the compensation it receives as a fiduciary or service provider to ERISA-covered benefit plans, according to the DoL.