New woes battering a corrupt union local

Pension freeze imminent in wake of bogus job plot
Monday, April 24, 2006
BY TED SHERMAN
Star-Ledger Staff

A year after a federal judge removed the leadership of a corrupt New Jersey labor fund riddled with high-paying, no-show administrative jobs, trustees say the union's pension plan is in danger of collapse.

The local's pension benefits are to be frozen next week -- angering thousands of rank-and-file union members who will not accrue any additional credit toward their eventual retirement.

It is just the latest blow to Local 734 of the Laborers' International Union of North America, now under the supervision of its Washington, D.C.-based parent union.

The Rochelle Park-based local that represents more than 2,200 workers in construction, health, food service and custodial services in New Jersey and parts of Pennsylvania is the focus of a criminal investigation by the U.S. Attorney's Office.

Trustees for the local charge former administrators illegally diverted more than $225,000 from the benefits funds to pay for their legal defense.

The parent union this week will seek to extend its trusteeship and concedes it is considering merging Local 734 with another Laborers' local.

A federal judge in Newark removed the administrators of the local's welfare and pension funds last April, after an independent hearing officer found friends, relatives and partners of former executive board member August "Auggie" Vergalito were being hired by the benefits fund for non-essential or part-time jobs at what he called grossly excessive salaries.

Vergalito left the local in 1997 after he pleaded guilty to concealing payments he made from the benefits funds. However, Vergalito's wife, a daughter, three sons-in-law, a former son-in-law and two business associates were all on the payroll of the fund or the local itself, at an annual cost of more than $1 million for what trustees said were essentially no-show jobs.

The hearing officer, Peter F. Vaira -- the former U.S. attorney for the Eastern District of Pennsylvania -- also raised questions about the local's connections to organized crime.

Trustees say the high-paying jobs and a poor investment strategy took a toll on Local 734's pension fund, leaving it near the point of being unable to support the vested pension benefits already promised.

"The fund has very severe problems," said Patrick Byrne, a trustee for the local assigned by the international. "I've never seen a fund in a condition like this."

Beginning May 1, Byrne said, he intends to freeze the plan. That means employers will still pay into the fund on behalf of active workers, who will get no additional pension credits for their continued tenure. Essentially, active union members will be paying for the benefits of others.

The pension freeze has sparked an uproar among members. Roberto Perez, 44, of North Bergen, a Local 734 shop steward who works at the Winston Towers condominium in Cliffside Park, said many believe they are being cheated.

"I don't believe Pat. I don't believe any of them. They're just there to help themselves. They're taking care of their cronies," he said.

He said Local 734 had more than $80 million in its pension fund with no warnings of trouble when the international assumed trusteeship.

Another Local 734 member, Emin Tejaoglu, 54, of Lincoln Park, a machine operator at Sandvik Tooling in Fair Lawn, said he's confused and angry.

"They eliminated a lot of employees who made six-figure salaries, but they are very secretive as well," he said. "They're not forthcoming on the questions we have."

According to Perez, some Local 734 units are pushing to decertify the union entirely, or are being courted by independent unions. They are also looking to hire their own attorney, he said.

Byrne acknowledged the growing anger, but said the pension fund was basically ransacked by those running it.

An audit showed administrative expenses siphoned more than 40 percent of the contributions made on behalf of employees, with most going to salaries for close relatives and friends of Vergalito, said Vincent Giblin, an attorney for the trustees. The average pension administrative cost nationally is only 10 percent, he noted.

"They burned through $3.4 million," Giblin said. "Not only were they running ungodly excess administrative costs, they weren't hitting investment benchmarks."

An attorney for Louis Calastro, former chairman of the pension and welfare funds of Local 734, said the local's problems stemmed mainly from eroding membership.

"Clearly, shrinking membership is causing a gap," said Angelo R. Bisceglie Jr., noting Local 734 has lost more than 3,000 members in five years.

He also rejected criticism of the administrative costs.

The U.S. Attorney's office, meanwhile, is continuing its criminal investigation. Byrne said the local's records have been subpoenaed and he recently testified before a federal grand jury.

Assistant U.S. Attorney V. Grady O'Malley, who is overseeing the investigation, declined comment.

 

 

Ted Sherman may be reached at tsherman@starledger.com or (973) 392-4278.