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Regulators Sue Over Unpaid Cafeteria Plan Claims

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NU Online News Service, April 20, 2004, 5:44 p.m. EDT – The U.S. Department of Labor has accused a Tennessee executive of mismanaging the Section 125 cafeteria health plan of a staff-leasing firm.[@@]

The firm, International Staff Management Inc., Memphis, Tenn., operated a multiple employer welfare arrangement, or MEWA, that failed and left participants with about $535,000 in unpaid health claims, the department says.

The suit, filed in the U.S. District Court in Memphis, accuses Don Starkey, the former president of ISM, of violating the Employee Retirement Income Security Act of 1974 by failing to take reasonable action to ensure that the plan had adequate reserves to pay claims, the Labor Department says in a notice announcing the suit.

The suit also alleges that Starkey did not ensure that the plan was covered by stop-loss insurance between May 1999 and the plan’s Sept. 30, 2001, termination date.

Starkey does not appear to have a current telephone listing in the Memphis area and could not immediately be reached for comment.

International Staff Management provided health benefits for about 94 participants under a reinsurance arrangement that was administered by an outside benefits administrator. That administrator’s insurer defaulted on benefit claims, and another administrator took over in May 1999, the Labor Department says

“From May 1999 until the plan was terminated, the plan operated without stop-loss insurance and contribution rates created or approved by the defendant were not adequate to pay claims,” the Labor Department says in the notice about the suit.

The suit seeks a court order that would require the defendant to restore any losses with interest. The suit also asks the court to appoint an independent fiduciary to administer the plan and permanently bar the defendant from serving any employee benefit plan governed by ERISA in the future.