The federal Employee Benefits Security Administration has given a union pension fund permission to sell 15% of the stock of a fund-owned financial services company to an affiliated union.[@@]
EBSA, an arm of the U.S. Labor Department, has blessed the deal by granting UNITE National Retirement Fund, New York, an individual exemption from the laws that normally govern potential conflicts of interest at benefit plans.
UNITE National Retirement Fund now owns ALICO Services Corp., New York, a stock company that owns Amalgamated Life Insurance Company. Amalgamated Life is licensed to sell life insurance, annuities, and accident and health insurance in
Bruce Raynor is the president of UNITE-HERE, New York, the union that sponsors the UNITE pension fund, and the chairman of Amalgamated Life, according to the “prohibited transaction exemption” notice, PTE 2005-11, which appears today in the Federal Register.
An independent fiduciary that appraised the deal says the price of the deal could be about $9.5 million to $11 million, based on a total value of $33 million to $38 million for ALICO Services.
The UNITE pension fund says it has agreed to the deal because leaving all ownership of ALICO Services in the hands of the UNITE pension fund will force ALICO Services to continue to meet the complicated requirements for a “plan asset look-through vehicle.” If ALICO Services continues to be a plan asset look-through vehicle, other unrelated entities would be unwilling to engage in joint ventures with [ALICO Services], the UNITE pension fund argues.
The UNITE pension fund says it is selling to the UNITE-HERE union, rather than a truly independent buyer, because the 2 potential independent acquirers it approached turned it down. No potential independent purchaser wants to buy a small piece of an illiquid insurance company that wants to retain control over its operations, the fund says.
Cintas Corp., Cincinnati, a manufacturer of work uniforms, objected to the deal, arguing that about half of its benefits fees go toward administrative costs, rather than plan contributions, and that completion of the deal could expose the UNITE pension fund and Amalgamated Life to many different types of potential conflicts of interest.
The UNITE pension fund rejected those arguments. Administrative costs make up a high percentage of fee revenue at Amalgamated Life because cost of administering a multi-employer union plan is high and fee schedules have more to do with labor contract negotiations than with the actual costs of running union benefit plans, the pension fund says.
In addition, UNITE-HERE and the UNITE pension fund have taken many steps to avoid conflicts of interest from causing problems, the fund says.
The fund notes that Raynor is recusing himself from the decision-making process regarding Amalgamated Life.
Labor officials have sided with the UNITE pension fund.
Exempting the fund from restrictions on doing business with related parties “is in the interests of the plan and its participants and beneficiaries, and the exemption is protective of the rights of the participants and beneficiaries of the plan,” officials write in the PTE notice.
But the officials write that they are not expressing any views about whether the deal raises questions about the fiduciary responsibility provisions of the Employee Retirement Income Security Act of 1974.
The text of the Labor Department ruling is on the Web at http://a257.g.akamaitech.net/7/257/2422/01jan20051800/edocket.access.gpo.gov/2005/pdf/05-16046.pdf