Local 38 of the United Association of Plumbers, Pipefitters and Journeymen isn’t quite as powerful as its leaders, or for that matter, critics, thought it was. The U.S. Department of Labor was reportedly set to cut a deal with the union’s de facto boss, Lawrence J. Mazzola, Sr., effectively dropping a suit it filed against the union back in November 2004. Somewhere along the line, DOL stiffened its spine and imposed tough sanctions against the San Francisco local. The union had been accused of diverting funds from five benefit plans toward the upgrading of a hotel-resort complex in rural Northern California it ran. It also had major expansion plans, the centerpiece of which would be a tribal casino.
On August 17, the department announced Local 38 had formally consented to yield control of the benefit plans in question to court-appointed fiduciaries, and make a payment of $3.5 million to its pension plan through its insurer, Ullico Casualty. The local also could be held liable for a portion of the proceeds from the expected sale of the property, the Konocti Harbor Resort and Spa on Clear Lake in Kelseyville, Calif. (see photo), about an hour-and-a-half drive north of San Francisco. The DOL suit alleged that current and former officers of the union, under the direction of Mazzola, diverted about $36 million in plan assets over the years to prop up the money-losing Konocti complex. In violation of the Employee Retirement Income Security Act (ERISA), the lawsuit indicated, the defendants maintained inadequate financial controls, violated plan documents, engaged in self-dealing, illegally diverted funds to build and maintain facilities, and profited from interest on a $6 million loan.
The settlement calls for an independent court-appointed administrator to oversee the benefit funds and implement financial controls over the sale of the hotel-resort, managing the property until it is sold. An investment monitor will manage the Local 38 funds. Most current and former trustees named in the suit would be permanently barred from serving as fiduciaries or service providers to union benefit plans. The two current trustees allowed to remain, Lawrence Mazzola, Jr. and Robert E. Buckley Jr., would have to attend training sessions on ERISA responsibilities.
The Labor Department is satisfied with the settlement. “Workers’ retirement dreams, health and other benefits were jeopardized by the gross mismanagement of their benefit plans,” said Secretary of Labor Elaine Chao. “This legal action puts the benefit plans under new, independent management and restores at least $3.5 million to the pension plan.” More than 2,000 persons currently participate in the five plans affected – retirement, health, scholarship, apprenticeship and vacation. As for Indian casino development, that’s on hold. But given that its prime backers include people close to California Democratic Party power brokers like House Speaker Nancy Pelosi, Sen. Dianne Feinstein, and present and former San Francisco Mayors Gavin Newsom and Willie Brown, the wait might not be so long. (U.S. Department of Labor, 8/17/07; other sources).