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September 23, 2002
Feds Sue Benefit Plan Over Loan
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U.S. Department of Labor has filed a complaint against Merrill E. Schmidt DDS, Inc. and the trustee of the Merrill E. Schmidt DDS, Inc., Defined Benefit Plan, claiming violations of the Employee Retirement Income Security Act (ERISA).

The department is seeking to restore losses to an employee benefit plan of the company, which was based in Santa Ana, California.

Filed September 6, 2002, in the U.S. District Court for the Central District of California, the suit results from an investigation by the Los Angeles Regional Office of the department's Pension and Welfare Benefits Administration (PWBA).

Besides Merrill E. Schmidt DDS, Inc., the complaint names as defendant Merrill E. Schmidt, who served as trustee of the plan. The company, whose sole owner was Schmidt, was the plan administrator and the named fiduciary for the plan.

The plan is a defined benefit plan that provides for employer contributions to support benefits for eligible employees of Merrill E. Schmidt DDS, Inc.

Billy Beaver, Los Angeles regional director of PWBA, said violations of ERISA occurred when Schmidt authorized the plan to lend $50,000 of the plan assets to himself on December 31, 1989.

No security agreement or promissory note was executed in connection with the loan but an amortization schedule stated that the loan was to be paid in full by December 31, 1996, including interest at 10 percent per annum. As of the date of the complaint, Schmidt had made one payment of $5,201 to the plan on April 10, 1990. Since that date, neither the company nor Schmidt have taken any steps to collect the overdue loan. As of July 31, 2002, the amount owed to the plan was $155,113.

In a consent judgment filed contemporaneously with the complaint, the defendants will restore the plan's losses, over time, in the amount of $155,113, plus interest. Schmidt shall forfeit any interest in the recovery and in the plan.

The defendants are also enjoined from acting as fiduciaries or service providers of any trust or plan covered by ERISA, and an independent fiduciary shall be appointed at the expense of the defendants with full discretionary authority to manage and administer the plan and its assets, and to undertake the orderly termination of the plan.

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