The DOL announced last week that it had reached agreement under a consent judgment with Richard E. Landry, Sr., owner of Landry Architects of Salem, New Hampshire, whereby Mr. Landry will pay $100,000 to his company’s retirement plan along with a $10,000 civil monetary penalty to the DOL. Such actions resulted from claims by the DOL that Mr. Landry failed to adequately monitor and control activities of service providers to the plan, to oversee and control the plan’s assets and to secure a bond to protect the plan’s assets. Those claims resulted from conversion of over $560,000 of the plan’s assets by the owner of two outside companies that had provided investment and financial management service to the plan in 2004 (for which that owner is now serving an 11-year prison sentence). Besides the payments to the plan and the DOL, Mr. Landry was ordered to resign as trustee of the plan and to hire an institutional trustee to serve as plan fiduciary.
This case provides a good reminder of responsibilities fiduciaries have with respect to plan service providers, particularly those service providers who have access to cash or other assets owned by the plan. Such responsibilities include performance of reasonable due diligence in selecting a service provider initially, and ongoing due diligence in monitoring the service provider’s activities. The written contract and disclosure burdens placed on service providers under recently proposed DOL regulations (see our EmployNews article from December 21, 2007 - link), once final, should be helpful in ensuring that service providers provide important information to fiduciaries, particularly with respect to conflicts of interest, but plan fiduciaries hiring such service providers must still be diligent in monitoring the providers.
This case also emphasizes the importance of maintaining a proper fidelity bond for a plan. Not only is this a requirement under ERISA, but for a typically inexpensive cost it also may mitigate severe losses by plans falling victim to unscrupulous service providers.