Aloha Air, 2 isle banks to pay $9.5 million to pension plans


POSTED: Friday, June 12, 2009

The U.S. Department of Labor has reached settlements with Aloha Airlines, Bank of Hawaii and First Hawaiian Bank to pay $9.54 million to the airline's three pension plans for losses the plans suffered on investments in stock of the airline's holding company.

Both Aloha and its holding company are bankrupt.

The money will be paid to the Pension Benefit Guaranty Corp., the trustee of the plans.

The Labor Department contends that Aloha and Bank of Hawaii, as the plans' fiduciaries, breached their duties under the Employee Retirement Income Security Act (ERISA).

They allegedly caused or permitted the plans to buy newly issued stock of the airline's holding company in September 2000 for more than its fair market value and without investigating the merits of the purchase for the plans, as well as failed to take steps to protect the plans as the stock lost all of its value.

In the department's view, the transaction also was prohibited because there was no purchaser independent of the issuer. Additionally, the department contended that First Hawaiian Bank, which was an investment manager for a portion of the plans' investments not involved in the transaction, facilitated the stock transaction and therefore knowingly participated in the fiduciary breaches or violated its duties as a co-fiduciary.

“;First Hawaiian Bank fully cooperated with the Department of Labor's inquiry, and although we strongly disagreed with their conclusions, we felt that a contribution to the Pension Guarantee Fund would be better than paying protracted legal fees,”; said William Atwater, First Hawaiian Bank's corporate counsel.

Bank of Hawaii also refuted the finding.

“;While Bank of Hawaii disagrees with the Department of Labor's contentions, we are pleased to have this long-contested matter resolved,”; Bankoh spokesman Stafford Kiguchi said.

Under separate settlement agreements, Aloha Airlines also agreed to pay $5.5 million, including $500,000 in civil penalties paid to the federal government. The banks also each agreed to pay $2.5 million, for a total of $4.54 million in restitution and $454,546 in civil penalties.

“;We will vigorously pursue plan fiduciaries who engage in transactions with employer securities that are prohibited by ERISA,”; said Alan D. Lebowitz, deputy assistant secretary for the Labor Department's Employee Benefits Security Administration (EBSA).

In an earlier settlement agreement, in September, PriceWaterhouseCoopers LLP agreed to pay $250,000 to the plans and a $50,000 civil penalty.

The Labor Department contended that PriceWaterhouseCoopers, the auditor for the plans and the companies, knowingly participated in the fiduciary breaches.

The settlements resulted from an investigation conducted by EBSA's Los Angeles regional office.