A federal judge has ruled that May Department Stores Co., parent to the Hecht Co. here, can no longer serve at trustee for its employes' life insurance plan because its handling of the assets, while "perhaps well-intentioned," nevertheless "ran afoul" of federal law that sets standards for administration of insurance and pension plans.
U.S. District Judge Barrington D. Parker ordered the company to nominate a new administrator--or fiduciary--to oversee the plan for employes of May, the nation's second largest department store firm. The fiduciary's appointment would be subject to court approval, Parker said. A May spokesman said that 20,000 active and 13,000 retired May employes are covered by the life insurance plan.
The lawsuit, brought to the court in the name of Hecht Co. warehouse employe Louise Corley, was financed and supported by Local 400 of the United Food and Commercial Workers union in Landover, Md., which long has been attempting to organize the 4,000 Hecht Co. workers in the Washington metropolitan area.
Hecht Co. Chairman Edgar S. Mangiafico said last week that he expected that May would appeal Parker's decision to remove the company as trustee of the life insurance plan. Mangiafico said the plan that is the subject of the lawsuit is optional coverage available to employes in addition to basic coverage provided by the company to all employes at no cost.
The dispute centered on May's handling of money that was refunded to the company by the insurance carriers from 1967 to 1978 in those years when the employes' total contribution to the plan exceeded the premium paid by May to Metropolitan Life Insurance, the insurance carrier. May had been using those refunds to offset premium payments it had made to the insuror in other years during that 14-year period when recalculation of the premium showed additional monies owed. The refund policy was stopped in 1978 when May established a reserve account with Metropolitan, which now credits refunds to that account instead of paying them to May. orley argued that from 1967 to 1978, May should have used the refund money to increase employe benefits, or to declare a temporary "premium holiday" for employes. Corely contended that instead, May was using the refund money for its own benefit--to offset the premium payment--in violation of the 1974 Employee Retirement Income Security Act (ERISA).
Parker said, however, that the contract between May and Metropolitan Life permitted May to be reimbursed for contributions May made to the plan. He also noted that if May had not come up with its own cash to cover shortfalls, the money would have had to come from employe paychecks.
Parker also rejected Corley's view that the money paid into the plan by May was a "donation" intended to generate good will among employes who might otherwise have to contribute additional money to the insurance company. Instead, Parker sided with a finding by the Labor Department that premium payments by an employer can be considered a "service" rendered to the plan and reimbursements for those services--in this case the refunds to May--would not conflict with federal law.
Parker said, however, that while May's conduct was "perhaps well-intentioned," the company was nevertheless "highly unprofessional and careless" as fiduciary.
In a 16-page opinion, Parker said May ran afoul of federal law that says the company, as fiduciary, has an obligation to carry out its duties with "care, skill, prudence and diligence."