DOL Cautions Firms to Stop Using Employee Benefit Plans in Negotiating Corporate Sales

WASHINGTON, March 7 /U.S. Newswire/ -- Financial institutions maynot use employee benefit plans as bargaining chips in negotiationsto sell their subsidiaries or divisions, warned the U.S. Departmentof Labor's Pension and Welfare Benefits Administration (PWBA).

PWBA Deputy Assistant Secretary Alan D. Lebowitz said, "Thedepartment is concerned that other financial institutions may beusing their plans to barter for higher purchase price. There is nogray area under the law -- employers cannot promise prospectivebuyers that they will get plan business, especially if theystand to profit by reaping a higher price on the sale of anaffiliate."

The department has learned that some financial institutions maybemisusing their authority to hire investment managers and serviceproviders for plans when engaging in such sales. One recentsettlement with the Labor Department involved such an arrangementregarding the sale of a subsidiary by a nationally prominent bank.As part of the sale, the bank had agreed to continue to retain thesubsidiary being sold as investment manager of the bank's employeebenefit plans in exchange for a higher sale price for thesubsidiary.Under the settlement, the bank agreed to pay $1.8 million to oneof its pension plans. It also agreed to refrain from using itsauthority over plans under its control to obtain services from anysubsidiary it may sell in the future, if the sales proceeds paid tothe bank would be affected by the bank;s use of its authority overthe plans.A financial institution may not misuse its discretionary authorityto select an investment manager or service provider on behalf of aplan for its own benefit. Federal pension law requires that thesefinancial institutions act solely in the interest of plans, andtheirparticipants and beneficiaries in using their discretionaryauthority.According to the department, the law -- the Employee RetirementIncome Security Act of 1974 -- applies to such transactions, notonlyin cases where the plan pays the fees, but also where the fees forinvestment management or other services for the plan are paid out ofthe general corporate assets of the employer sponsoring the plan.The department cautions that financial institutions who include inthe sale price of a related subsidiary or division the business ofmanaging plans under their control could be placing their interestsahead of the plans, and participants and beneficiaries, in violationof the fiduciary standards of federal pension law.------U.S. Labor Department news releases are accessible on theInternet at: http://www.dol.gov------The information in this news release will be made available tosensory impaired individuals upon request. TDD Message ReferralPhone: 1-800-326-2577, Voice phone: 202-219-7316.