401(k) Specialist Issue 4 - 2021 - 10

401(k) FIDUCIARY FILE
'Plan Fiduciary' Ordered to Pay $42 Million
in Case Lasting Decades
In 2003, the department's Employee Benefits Security Administration
Philadelphia Regional Office began an investigation of
John J. Koresko V, of Bridgeport, the Regional Employers Assurance
Leagues Voluntary Employees' Beneficiary Association Trust, and
other affiliated companies.
The agency found that Koresko and others had diverted money
in plan assets for their personal benefit through a variety of illegal
transactions-money they used for purposes such as purchasing
personal property on the Caribbean island of Nevis and in South
Carolina, boat rentals and other improper personal uses.
On Aug. 19, the U.S. District Court for the Eastern District of PennAN
INVESTIGATIVE AND legal pursuit that spanned almost two
decades ended recently when the Department of Labor obtained
a final order in a Pennsylvania federal court to conclude its case
against a disbarred attorney and former benefits plan fiduciary who
diverted tens of millions of dollars from employee benefit plans.
sylvania issued a final order closing the case and added nearly $4
million to costs previously assessed against Koresko (who refused
to cooperate and was later found in contempt), resulting in a judgment
of more than $42 million.
The court's order follows the final distribution in 2021 of $17.7
million to more than 200 employee benefit plans nationwide
harmed by Koresko and others-bringing the total distribution to
the affected plans to $68 million.
Wanted: Consistent Standards in Fiduciary
Breach Legal Proceedings
COMPARING ACTIVE AND passive investment options, impossible
benchmarks-courts have applied inconsistent and often arbitrary
pleading standards to the over 350 excessive fee lawsuits in the
last five years. So how should they weed out frivolous, yet often
expensive, filings, and how can courts provide much-needed clarity
on what is, and is not a fiduciary breach?
Fiduciary insurance underwriter Euclid Specialty Managers tackles
the topic in a recent whitepaper from Managing Principal Daniel
Aronowitz that focuses on Hughes v Northwestern University, et al.,
No. 19-1401, an excessive fee accepted by the Supreme Court.
The Department of Labor filed an amicus brief noting that the
case presented an opportunity for the Court to rule on " the question
of what ERISA requires of plan fiduciaries to control expenses " -a
question that " frequently recurs. "
According to Euclid's whitepaper, " the key issue is what standard
or hurdle plaintiffs must satisfy in order to withstand a motion to
dismiss. "
The pleading standard is critical, it notes, because if the case
proceeds to expensive discovery, it's more burdensome to the
10
ISSUE 4 2021 | 401kSpecialist.com
defense and plaintiffs gain the upper hand to drive a substantial
settlement against plan sponsors based on a high damages model.
The differential model is the difference in what plaintiff lawyers say
recordkeeper and investment fees should have been subtracted
from what the plan actually paid.
Only one-quarter of cases are dismissed at the pleading stage,
and Northwestern says it paid $4 million for discovery in just 16
months before its motion to dismiss was decided.
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401(k) Specialist Issue 4 - 2021

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