Class Action Alleges United Service Workers Union Failed to Properly Manage Benefit Funds

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A proposed class action claims the Building Industry Electrical Contractors Association (BIECA) and the union that represents the employer association’s workers have failed to properly administer union-sponsored multiemployer benefit funds such that the employers and employees are equally represented.

The 41-page case more specifically claims the defendants—who include BIECA; its predecessor, United Electrical Contractors Association; United Service Workers, Local Union No. 363; four benefit funds and two individual trustees—have “completely and utterly disregarded” federal regulations meant to “prevent misuse of [retirement] funds” by prohibiting their administration by solely workers or management.

In other words, the lawsuit alleges the Electrician’s Retirement Fund, Building Trades Annuity Benefit Fund, Building Trades Welfare Benefit Fund and Building Trades Educational Benefit Fund have, in violation of the Taft-Hartley Act, been administered entirely by the two individual employer-side trustee defendants with no representation appointed by Local 363.

Per the case, this “plainly illegal fund structure” and Local 363’s utter failure to fairly represent its members by appointing labor trustees to oversee management of the funds has allowed the employer trustees to pay themselves an excessive $1 million in compensation over the past eight years while unlawfully allocating fund assets to employers for their own apprenticeship programs at the expense of benefit plan participants. 

The lawsuit alleges the employer defendants have engaged in unlawful “self-dealing” in violation of the Employee Retirement Income Security Act (ERISA) by misappropriating the benefit funds’ assets and failing to prudently administer the plans in the best interests of participants and their beneficiaries. From the complaint:

Moreover, the case contends that Local 363’s decision to allow its members’ retirement benefits to be “solely overseen and administered by management” is not only “patently illegal and plainly irresponsible,” but “completely unheard of” among American labor unions. 

According to the suit, Local 363 has a “long history” of failing to fairly represent its members and serve their best interests, and has long been “dominated” by employers.  The lawsuit goes so far as to allege that the union exists not to improve the wages and working conditions of its laborer members but to undermine the prevailing wage rates in the electrical industry by negotiating wages that fall below industry standards. To illustrate, the case says that while the prevailing wage and benefit rate for electricians working on publicly funded jobs in New York City is roughly $115.22, the wage rate for Local 363’s highest classification of workers is “a mere $47.12.”

Per the suit, a further illustration of BIECA’s domination of Local 363 is the provision in the benefit funds’ trust agreements that the employer association has “sole authority” to appoint trustees to each funds’ board. The suit claims Local 363 has acted “arbitrarily or with bad faith” by failing to appoint union trustees to the funds’ boards or even negotiate for authority to do so.

“Local 363 is required by law to appoint trustees to its members’ pension and welfare benefit funds, and yet, since the Benefit Fund’s establishment in 1996, Local 363 has continued to neglect this critical duty,” the complaint scathes. “Its decision to allow the Benefit Funds to be solely trusteed by its bargaining opponent is a clear breach of its duty of fair representation to its members as it is ‘so far outside a wide range of reasonableness as to be irrational.’”

According to the case, the authority granted to the benefit funds’ trustees, who used to be owners and managing officers of BICEA member employers, have allowed the individuals to amend the plans’ trust agreements to provide themselves with compensation as “service providers” to the benefit funds. The suit claims the amendments, which were applied retroactively to March 2013, have potentially granted the trustees in excess of $1 million from plan assets despite the fact that the fair market value of the services they provided was not “anywhere near” the level of compensation they received.

The lawsuit goes on to claim that the benefit funds were further depleted by the use of plan assets to assist BIECA member employers in creating their own apprenticeship programs, costs the case claims should have been borne by the employers themselves.

“Such transactions are clearly prohibited, and evidence imprudent and disloyal fiduciary conduct,” according to the filing.

The suit contends that had the defendants not breached their fiduciary duties to participants and beneficiaries of the benefit funds, the funds would have earned “millions more,” and union members would have received better benefits or higher wages.

The lawsuit seeks an injunction requiring the defendants to remove the current trustees and appoint new ones, pay for an independent trustee to oversee management of the funds, reform the benefit fund plan documents to require joint administration and restore to the funds “all compensation and other illegal payments” made to the trustees and employers in addition to lost profits and interest.

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