The Department of Labor has squeezed an extra $2 million out of Hewitt Associates, which it had accused of misallocating court-supervised settlement funds owed to former Enron employees.
Hewitt, which was the fund’s administrator, and the Enron Creditors Recovery Corp. agreed to restore $11.2 million to the pool.
CFO.com reported in February that the DoL was seeking a civil contempt order against Hewitt for failing to properly distribute more than $9 million to the ex-Enron employees at the end of 2006. The department claimed that Hewitt was responsible for not having enough money in the cash pool to pay all Enron workers, retirees, and beneficiaries all amounts due to them.
“This settlement will ensure that all pension plan participants will receive all the funds to which they are entitled,” said U.S. Secretary of Labor Elaine Chao.
The DoL had 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 Enron collapsed in 2001 to remunerate affected employees. In 2006 former company employees received about $89 million in the first payment under 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 and 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 was 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. Speaking last July, 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.
Enron officials said Hewitt had acknowledged that “virtually none” of the plaintiffs received the right amount in the distribution. Hewitt reportedly acknowledged in court filings that the problem was “due to an undetected data error.”
Officials at the consultancy disputed claims that 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 a Houston Chronicle article.