U.S. Department of Labor sues Mid-States Express for misusing employees' retirement and health benefit plans

The U.S. Department of Labor has sued the owners of bankrupt Mid-States Express Inc. of Aurora, Ill., for allegedly failing to protect the interests of the participants and beneficiaries in the company's 401(k) and health plans.  The department's lawsuit alleges that Bruce Hartmann failed to disclose to employees that their medical bills were not likely to be paid, even as the company continued to take deductions from their paychecks for medical coverage.  

As a result, despite the fact that $1.26 million in employee health plan contributions were withheld, $3 million in employee medical claims were not paid, in violation of the Employee Retirement Income Security Act (ERISA). Hartmann was an officer and owner of the company.

The suit also alleges that Bruce Hartmann and Terry Hartmann violated their fiduciary duties when they failed to remit $65,000 in contributions and loan re-payments, and to timely remit more than $1.5 million in 401(k) plan participant contributions and loan re-payments. The company was allowed to retain these contributions and loan repayments for its own benefit at the expense of participants and beneficiaries.

"These defendants blatantly misused their employees' retirement and health benefit contributions for personal gain," said Phyllis C. Borzi, assistant secretary of the Labor Department's Employee Benefits Security Administration (EBSA).  "Despite financial hardships, employers and plan officials are obligated to forward those employee contributions to the plans."

Mid-States Express provided transportation delivery services until it ceased operation on March 27, 2009.  The company is currently in Chapter 7 bankruptcy. The company 401(k) plan covered 656 participants and had $3,073,342 in assets as of Dec. 31, 2007. The company health plan covered 378 active participants as of Dec. 31, 2007. These are the latest data available.

The suit seeks a court order to require that the defendants restore any losses, with interest, suffered by the plans or their participants and beneficiaries and to undo any prohibited transactions involving the plans. The suit also asks the court to remove the Hartmanns from their fiduciary positions to the plans and to permanently bar each of them from serving in a fiduciary capacity, or service provider, to any plan governed by ERISA.

This case was investigated by EBSA's Chicago Regional Office, which is available at 312-353-0900 or toll-free at 866-444-3272 to provide help with problems relating to private sector retirement and health plans. In fiscal year 2009, EBSA achieved monetary results of $1.3 billion related to pension, 401(k), health and other benefits for millions of American workers and their families.