DOL Lawsuit Challenges ESOP Trustee's Decisions

The federal court suit alleges PBI Bank, Inc., trustee of the Miller's Health Systems Employee Stock Ownership Plan, is responsible for violations of the Employee Retirement Income Security Act.

The U.S. Department of Labor announced it has filed a lawsuit in a U.S. district court to recover losses to the Miller's Health Systems, Inc., Employee Stock Ownership Plan. The lawsuit alleges that PBI Bank, Inc., the trustee of the plan, authorized a $40 million purchase of company stock in September 2007 even though that amount was "far in excess of the fair market value of the stock." The suit also alleges that PBI Bank approved financing for the transaction at an excessive interest rate. Miller's Health, based in Warsaw, Ind., long-term care and assisted living facilities.

"Fiduciaries must act with undivided loyalty to plan participants. When it comes to ESOP stock purchases, they must ensure that the plan receives full value for its money," said Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi. The case was investigated by the Chicago Regional Office of DOL's Employee Benefits Security Administration; the suit seeks to require PBI Bank to restore all losses suffered by the plan, plus interest, and to remove PBI Bank as a fiduciary and service provider of the plan and permanently bar it from serving as a fiduciary or service provider to ERISA-covered plans in the future.

As of Sept. 30, 2012, the plan had 2,939 participants and assets of $12,848,000. At the time of the stock purchase, Miller's Health managed 31 long-term care facilities under the name of Miller's Mary Manor and 10 assisted living facilities under the name Miller's Senior Living. Miller's Health also operated Theracare, Inc., which primarily provided physical and occupational therapy and speech-language pathology to residents in Miller's Health facilities.

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