DOE sues California firm over lapse in pension fund
The suit claims fraud in the disappearance of nearly $2.3 million
The Hawaii Department of Education is suing a California financial services company over the disappearance of nearly $2.3 million of contributions by department employees into their retirement funds.
The lawsuit, filed in California against Plan Compliance Group, accuses the company of fraud, negligence and breach of contract.
It alleges that Walnut Creek, Calif.-based PCG, and in particularly company President Francis W. Reimers, "took approximately $2,280,194.60 and converted the same to their own use."
PCG had been handling the transferal of employee contributions into tax-deferred annuity funds for the department since 2002 until October. The funds are just one type of investment option available to department employees, and not all employees are affected.
The lawsuit says deposits into funds were delayed or missed outright on several occasions beginning in late July.
The University of Hawaii, PCG's other Hawaii client, has reported similar problems. Officials there have estimated that $420,000 of university employee funds remain unaccounted for.
It was unclear whether the university was considering similar legal action.
The office of state Attorney General Mark Bennett, which has been investigating PCG's conduct since the allegations came to light, refused comment on the matter. UH officials did not return calls.
The DOE lawsuit, filed on Thursday in California Superior Court, said Reimers attributed the disappearance of the department funds to an erroneous levy by the Internal Revenue Service but has refused to provide further information on the levy or to return the missing funds.
Efforts to reach Reimers yesterday were unsuccessful.
Under its contract with the department, PCG was required to maintain at least $2 million to cover such errors, the lawsuit said.
The lawsuit said the department has "demanded the immediate return of the missing funds but (the) defendants have failed and refused to return the DOE funds."
"We are deeply concerned at this apparent breach of trust and will work with the attorney general to do everything possible to recover the missing money," schools Superintendent Pat Hamamoto said in a press release. She declined further comment.
Both university and education department officials say they have stepped in to make the payments missed by PCG and that employees will suffer no losses.
When it first bid for the Education Department contract in 2001, PCG touted itself as a nationally recognized leader in tax-sheltered annuity administration, the lawsuit said. Yet department officials now believe that PCG was merely a "shell, instrument and conduit through which Reimers conducted business," often mingling PCG funds with his own personal assets, the lawsuit stated.
PCG's Web site lists several mainland clients, mainly regional school districts.