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Life Health > Health Insurance > Life Insurance Strategies

Labor Sues Association Plan Over Demutualization Proceeds

By Staff Writer

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A federal agency is suing a single-state benefits purchasing group that kept the proceeds from a mutual insurer’s move to go public.

The U.S. Department of Labor says it has filed a suit against the Iowa Association of Business and Industry, Des Moines, Iowa, in the U.S. District Court for the Southern District of Iowa.

The department has accused the ABI of violating its fiduciary responsibility to employees under the Employee Retirement Income Security Act participating in an ABI benefit plan by keeping the proceeds when on of the plan’s insurers, Principal Mutual Insurance Company, Des Moines, demutualized and became Principal Financial Group Inc.

In 2001, the ABI plan provided group life insurance and group disability insurance as well as group health insurance, officials say.

The ABI received 870,373 shares of Principal stock when the insurer converted, then sold the stock and put the cash in a trust, officials say.

The ABI violated ERISA guidelines by keeping the stock sale proceeds, officials say.

The Labor Department is seeking a court judgment declaring that proceeds from the stock that are attributable to employee contributions are plan assets and to bar the ABI from receiving any portion of the insurance proceeds that are deemed plan assets, officials say.

The department also is asking the court to appoint an independent fiduciary to determine the amount of the proceeds that are plan assets.

The filing of the suit “was anticipated,” says Mike Ralston, president of the ABI.

The ABI has been in contact with the Labor Department and is hoping the filing of the suit means the case is moving closer to resolution, Ralston says.

Ralston says he disagrees with the Labor Department views of the ABI’s actions but say more because the suit is still in progress.

At this point, the ABI is not sure whether the Labor Department is simply addressing what it believes to be problems at the ABI plan or whether the department expects to apply the same reasoning to other plans that have received demutualization proceeds, Ralston says.

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