Is­land Air work­ers shut out from 401(k) funds

A mo­tion re­quests to dis­miss the air­line’s Chap­ter 7 case due to lack of money

Honolulu Star-Advertiser - - FRONT PAGE - By Dave Se­gal dse­gal@starad­ver­tiser.com

Is­land Air’s for­mer em­ploy­ees have been dealt an­other blow. The com­pany’s 423 work­ers, al­ready with­out their fi­nal Novem­ber pay­check and health in­sur­ance, now are be­ing shut out from ac­cess­ing their 401(k) re­tire­ment funds — some of which have been de­posited in the wrong ac­count.

About $35,770 in 401(k) con­tri­bu­tions that were taken out of em­ploy­ees’ fi­nal Oc­to­ber wages mis­tak­enly ended up in an Is­land Air tax ac­count rather than the em­ploy­ees’ in­di­vid­ual ac­counts at Mass Mu­tual Fi­nan­cial Group, ac­cord­ing to a bank­ruptcy fil­ing made Wed­nes­day by the Chap­ter 7 trustee. The fil­ing also said $3,133 of the mis­placed 401(k) funds were loan pay­ments made by em­ploy­ees who bor­rowed against their 401(k) ac­counts. Those loans are now delin­quent be­cause Is­land Air failed to cor­rectly process the pay­ments to Mass Mu­tual.

And not only are those funds now in limbo, but pre­vi­ous con­tri­bu­tions that em­ploy­ees made to­ward their re­tire­ment are now in­ac­ces­si­ble, the fil­ing said.

Those dis­clo­sures were part of a mo­tion filed by trustee El­iz­a­beth Kane, who is ask­ing the court to dis­miss the Chap­ter 7 case be­cause there is no money avail­able for her to carry out her re­spon­si­bil­i­ties, pay ad­min­is­tra­tive ex­penses or to pay un­se­cured cred­i­tors.

A pre­lim­i­nary hear­ing on the mo­tion is sched­uled for 10:30 a.m. to­day. If the case is ul­ti­mately dis­missed, then the em­ploy­ees — pos­si­bly with union as­sis­tance — and the cred­i­tors will be on their own out­side of bank­ruptcy to try to col­lect what they are owed.

Kane in­di­cated in the fil­ing that she is ex­plor­ing what can be done to en­able the for­mer air­line em­ploy­ees to gain ac­cess to the $35,770 that was de­posited in the wrong ac­count. She also said she likely will re­quire the as­sis­tance of spe­cial fed­eral re­tire­ment coun­sel to as­sist in the ter­mi­na­tion of the 401(k) plan.

Since all of Is­land Air’s em­ploy­ees have been ter­mi­nated, there is no one

re­main­ing to over­see the com­pany’s self-ad­min­is­tered 401(k) plan and re­spond to for­mer em­ploy­ees’ re­quest to ac­cess the funds for hard­ship with­drawals, loans and to trans­fer the amount to ei­ther an IRA or an­other com­pany’s 401(k) plan.

PaCap Avi­a­tion Fi­nance and Car­bon­view Ltd., the se­cured cred­i­tors and own­ers of Is­land Air, say they have $200,000 in an ac­count that is avail­able to han­dle 401(k) mat­ters and W-2 pro­cess­ing. PaCap Avi­a­tion is headed by Honolulu ven­ture cap­i­tal­ist Jef­frey Au and Car­bon­view is a sub­sidiary of Ohana Air­line Hold­ings, which is owned by bil­lion­aire Larry El­li­son, the pre­vi­ous sole owner of Is­land Air who sold a two-thirds stake to Au’s in­vest­ment group.

De­spite the own­ers’ of­fer, the trustee said these funds are only a small frac­tion of the ex­penses nec­es­sary to ad­min­is­ter the case and the trustee can­not ad­min­is­ter the case with sup­port only for those mat­ters that a se­cured cred­i­tor ap­proves.

The mo­tion said that prior to the con­ver­sion of the case on Nov. 13 from a Chap­ter 11 re­or­ga­ni­za­tion that “it ap­pears no plan­ning was done to as­sist the for­mer em­ploy­ees … in ob­tain­ing con­tin­ued health in­sur­ance cov­er­age through CO­BRA, or even al­low­ing them ac­cess to their 401(k) plans.

“With no money in the Chap­ter 7 es­tate and no as­sis­tance from the se­cured cred­i­tors or own­ers, the trustee is un­able to con­tinue to ad­min­is­ter the case,” the mo­tion said.

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