The Department of Labor is seeking a civil contempt order against Hewitt Associates LLC for failing to properly distribute more than $9 million in court-supervised settlement funds to Enron employees at the end of 2006. DoL is claiming that Hewitt, which served as the administrator for the settlement fund, is responsible for not having enough money in the cash pool to pay Enron workers, retirees and beneficiaries all amounts due them.
The settlement fund holds money recovered by the department and class-action plaintiffs in related lawsuits regarding Enron’s pension plans. Even with other corrective action being undertaken, there will be a $9.15 million shortfall in the settlement fund as a result of Hewitt’s noncompliance with the court-approved allocation formula, the DOL asserts.
“This department has been relentless in seeking to protect the retirement security of America’s workers and their families, said U.S. Secretary of Labor Elaine L. Chao. “With this legal action we are seeking to ensure that the pension plan participants receive all the funds they are entitled to.”
The DoL explained that because of Hewitt’s mistakes, some participants received too much in settlement proceeds at the expense of the remaining participants. Altogether, $22 million was overpaid. The payment pool was set up after the company collapsed in 2001 to remunerate affected employees.
In July, CFO.com reported that in 2006, former Enron employees received about $89 million in the first payment as part of a lawsuit settlement related to losses suffered by workers who participated in the company’s employee stock ownership and 401(k) plans. At the time, it was estimated that about 7,700 former workers were overpaid while about 12,800 were underpaid.
The Labor Department asked the court to force Hewitt to fund the cash pool so payments could be made using the court-approved allocation formula. The department also asked the court to prohibit Hewitt from taking collection, repayment and other actions against participants who received overpayments without the court’s permission.
The DoL’s motion is in addition to a separate motion filed by Enron to hold Hewitt 100 percent responsible for an interest-free loan to Enron’s pension plan for the full amount needed to make whole the underpaid participants. CFO.com noted in July that Harlan Loeb, spokesman for Enron Creditors Recovery Corp. blamed the shortfall on a software program provided by Hewitt Associates. He said the wrong stock price was used, according to a report at the time.
Enron officials said Hewitt had acknowledged that “virtually none” of the plaintiffs received the right amount in the distribution, noted the Houston Chronicle Hewitt reportedly acknowledged in court filings that the problem was “due to an undetected data error.”
Officials at the consultancy disputed claims it was the fund administrator, and therefore responsible for making sure the payments were correctly distributed. “At all times, Hewitt has conducted itself as a service provider to Enron, with Enron having ultimate responsibility to direct all aspects of the allocation process and to direct Hewitt’s work in that regard,” Gregory Casas, Hewitt’s attorney, wrote in a court filing last June, according to the Chronicle.
In response, Loeb called Hewitt’s assertion that it is not the fund administrator “ridiculous.”