Trustee for defunct company facing action from Labor Dept.

By Dee Thompson | Jan 17, 2017

ERIE – What happens when the Department of Labor sues a defunct wind turbine company on behalf of employees whose retirement funds have allegedly disappeared? If you’re the trustee for the plan, you may be personally responsible for putting the money back.

Thomas E. Perez, secretary of the U.S. Department of Labor, filed suit against Wind Turbine Solutions LLC and Matthew Kenneth Smith on Dec. 2 in U.S. District Court for the Western District of Pennsylvania, where the company did business. He alleges that in 2011, a 401(k) retirement plan was set up for employees of Wind Turbine Solutions LLC, and as trustee, Smith was supposed to invest employee contributions.

According to the complaint, “For the years 2011 until the company ceased operations in April 2014, the company and Smith withheld approximately $78,000 from employee participants’ wages and salary, which the employee participants specifically requested be transferred to the trust. For the years 2011 until the company ceased operations in April 2014, the company and Smith failed to transfer the entire amount of the employees’ contributions to the trust.”

However, the complaint state that Smith instead used some of the money “...for his own use and for the use of the company to cover operating costs and to meet his obligations to the company as a member.” That went on until the company ceased operating in 2014 and filed bankruptcy, the complaint states.

The complaint is the result of an investigation by the Department of Labor as it relates to the Employee Retirement Income Security Act (ERISA). The lawsuit seeks to force Smith and Wind Turbine Solutions to restore more than $78,000 in allegedly missing funds to the company’s 401(k) fund.

Attorney Ary Rosenbaum is an ERISA/retirement plan attorney for The Rosenbaum Law Firm P.C. and he handles ERISA plan administration.

“The company went out of business and they didn’t remit the deferrals to the plan," he said. "The Department of Labor sued them and sued the trustee of the plan, so he’s on the hook personally for that.”

"When you’re the fiduciary for a retirement plan, there is personal liability,” Rosenbaum said. "Smith could declare personal bankruptcy, but then there are questions of whether the other levels of protection were in place. All ERISA-based plans need to have an ERISA bond. Hopefully there’s a bond in place for that, if need be. There are different levels of protection available.”

Lawsuits like this one typically come about because employees do not get back their retirement contributions when the company declares bankruptcy and the Department of Labor steps in.

“Usually when companies go under, a lot of times the Department of Labor has an 'orphan plan' program where they take over plans (called The Abandoned Plan Program on the Department of Labor website) because the plan sponsor is out of business, has ceased operations.”

The complaint states that the company also breached its fiduciary duty to its employees.

The complaint states: “As the employer and Trust Administrator, the company is a party in interest.”

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U.S. Department of Labor U.S. District Court for the Western District of Pennsylvania

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