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Schnader Harrison used retirement contributions to fund operations, pay equity partners, suit alleges

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A defunct law firm is accused in a lawsuit of commingling contributions to the firm’s 401(k) plan with the firm’s general assets for months at a time and using the money to make distributions to equity partners. (Image from Shutterstock)

The defunct law firm Schnader Harrison Segal & Lewis is accused in a lawsuit of commingling contributions to the firm’s 401(k) plan with the firm’s general assets for months at a time and using the money to make distributions to equity partners.

The Feb. 7 suit by former nonequity partner Jo Bennett claims that nonequity partners and counsel were required to defer a portion of their compensation to fund the retirement and savings plan, even though the plan terms called for Schnader Harrison to make employer contributions.

The deferred compensation was then withheld from the retirement and savings plan for up to 18 months at a time, the suit says. The Philadelphia-based firm used the money to fund its operations and make distributions to equity partners in violation of the Employee Retirement Income Security Act of 1974, according to the suit.

Law360, Reuters and Law.com have coverage of the suit, which was filed in the U.S. District Court for the Eastern District of Pennsylvania.

The suit says Schnader Harrison failed to immediately deposit deferred compensation into the plan when it was withheld from paychecks. Instead, contributions withheld from monthly paychecks in one year were not deposited into the retirement plan until September of the following year.

In 2022, when Schnader Harrison experienced a significant decline in operating revenue, the equity partners were not asked to make capital contributions and continued to receive regular distributions, the suit says, citing information and belief.

In September 2023, the liquidating partners informed nonequity partners that deferred compensation would not be deposited with the retirement plan because the firm lacked the funds, the suit says. As a result, deferred compensation from 2022 and 2023 was not deposited with the plan.

Bennett’s would-be class action suit seeks to represent retirement plan participants who were not equity partners at the former firm, along with beneficiaries of the plan participants.

The suit seeks a determination that plan fiduciaries breached their fiduciary duties, an accounting of the funds, a surcharge to the defendants for investment losses, and a constructive trust over employee contributions not yet deposited into the retirement plan.

Bennett worked at Schnader Harrison from 2016 to mid-January 2023. Schnader Harrison announced that it was closing in August 2023.

Bennett is currently a lawyer at Culhane Meadows Haughian & Walsh, where she is the labor and employment chair.

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