Department of Labor scares trustees with hint of prosecution

The DOL’s Information Letter dated February 23, 2005, to trustee William Lindsay of IBEW Local 25 Health and Benefit Fund, relates to political donations of US$280 made in 2001, to the “Lindsay forLegislature” campaign.

Lindsay, who served on the board of trustees of the plan, was electedto the Suffolk County Legislature in March 2001 and sought re-election in November 2001. According to the letter, the trustees were recently in the process of interviewing several third party administrators to handle claims processing for the fund.

Lindsay did not serve on the subcommittee involved in narrowing the selection, and had no say in the selection of the two finalists.

But in footnote (3), the DOL states: “It also should be noted that the receipt or agreement to receive or solicitation of money or a thing of value by a plan trustee with intent to be influenced with respect to his or her actions...may constitute a crime under Title 18 U.S.C. 1954.”Although the DOL stated it had “no views concerning the application of

Title 18 to the facts described in this letter”, the legal community is questioning the DOL’s motives in reviving a case some four years after the event.

“The curious thing with respect to that footnote is that goes well beyond simple application of ERISA’s prohibited transaction rule,” said Alan Cleveland at Sheehan Phinney Bass & Green in New Hampshire.

“ERISA plans are within the purview of the DOL – they have direct authority to prevent plan trustees from receiving payments from plan vendors under the prohibited transaction rules. The added threat of criminality under the letter’s footnote seems intended to scare ERISA fiduciaries.

“For this administration, philosophically and politically, it’s easy to put a shot across the bow of a practice with respect to union officials. There’s no downside for them – this is not their constituency.”

In 1999, the SEC drafted Proposed Rule: Political Contributions by Certain Investment Advisers, but due to political opposition from Congress, the proposals were shelved.

As to whether this DOL letter signals a revival of the SEC’s proposals, Cleveland commented: “It might very well revive that proposed pay to play rule which is still sitting with the SEC, but the fact is, is that going to be revived in this administration? I don’t think so.”