Risk Management

DOL Sees Through X-Ray Company’s Scheme

A Miami equipment maker is ordered to pay $1.2 million in restitution for commingling retirement and company funds and other plan mismanagement.
Sarah JohnsonJuly 11, 2007

A federal judge has ordered a Miami company to pay nearly $1.2 million in restitution for allegedly using its employees’ retirement funds to pay company expenses.

The Department of Labor sued X-Ray Equipment Co. (XEC) and its president, Colen Carter, in February, charging that the private company had violated the Employee Retirement Income Security Act for the past six years. The DOL claimed that XEC had commingled loan payments intended for the plan with the company’s general assets. Further, the department said the company had not collected outstanding loans and interest for its profit-sharing retirement plan.

A judge in the U.S. District Court for the Southern District of Florida, in Miami, recently ruled in the DOL’s favor after the defendants did not address the complaint. In addition to the restitution fee, the court appointed an independent fiduciary to oversee the retirement plan.

Carter died last September. A company spokesman declined to comment to CFO.com for this article.

According to the DOL compliant, XEC borrowed $1,156,800 from the retirement plan and did nothing to pay it back or to pay the interest that would have accrued. On several occasions, XEC allegedly withheld participant loan repayments totaling $427,021. Instead of putting that money into the retirement plan, the company used it to pay off its own obligations, the DOL said.

In addition, the complaint alleged, the company did not “prudently invest” the plan’s assets. By concentrating on notes and mortgages, the company failed to keep the plan liquid enough so that the company could easily pay out benefits.

Understanding Which ERP Modules Your Business Needs – And When