DoL Accuses North Dakota Firm of Diverting 401(k) Funds

The U.S. Department of Labor (DoL) has accused a Bismarck, North Dakota, manufacturer of wastewater treatment systems and equipment and its owners of diverting employee deferrals and loan repayments from its 401(k) plan.

The DoL leveled the accusations against LAS International and its owners in a lawsuit that also included a charge of failing to forward $39,866.18 in delinquent employee and employer contributions.

A DoL news release said the suit alleges that LAS and individual defendants Neil Whittey and Syver Vinje violated the Employee Retirement Income Security Act (ERISA) when they failed to forward mandatory employer contributions, employee contributions, and loan repayments owed to the plan for 2004 and 2005. The defendants are accused of using the assets for their benefit.

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Regulators ask in the suit that a judge require the defendants to restore all losses and foregone earnings, and require Whittey and Vinje to waive any rights to their 401(k) accounts to offset any losses owed to the plan.

As of December 2006, the latest data available, the 401(k) plan covered 32 participants and had $144,749 in assets.

Target Dates Surge, but Questions Linger

Perhaps not surprisingly, there has been significant movement toward adopting target-date funds as a default investment for automatic enrollment.

In fact, nearly half (44.3%) of the respondents to PLANSPONSOR‘s 2008 Defined Contribution Survey, compared with 33.3% a year ago, before final regulations on qualified default investment alternatives (QDIAs). Still, some might argue that that result is “not as much as you might think” (however, risk-based lifestyle funds, which also are a QDIA-eligible option, nearly doubled—from 8.1% a year ago to 14.1% of the 2008 responses).

On the other hand, while more than half (58.3%) of the nearly 6,000 plan sponsor respondents said they felt that their recordkeeper was offering the most appropriate target-date funds available, an astounding 37.9% admitted that they were “not sure” (the remaining 4% were more blunt in their assessment).

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Most respondents (61.7%) said their investment policy statement does not specifically address target-date funds, even though the vast majority (93%) said they thought that those options should be held to the same standard as other funds on the plan menu.

Nearly two-thirds said they believed their fiduciary risk was increased by offering a target-date fund that would not pass the standards set by their IPS for their normal fund lineup, and more than two-thirds were at least somewhat concerned about litigation resulting from auto-enrolling participants into funds that did not meet IPS muster.

Still, while more than half (60%) said they evaluate each fund in the target-date series when they adopt the series, nearly as many (56.9%) said that, if a fund in the series didn’t meet those IPS standards, they would “do nothing.”

The vast majority (nearly 93%) of respondents would not consider re-enrolling 100% of their plan assets into their current target-date funds; more than half of those who would said it was because the move would be “good for participants,” but a clear plurality (38.9%) of those who would not contemplate the change said that the move would be “bad for participants.”


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