New York Times

Critics See a Conflict in Union Contract

By SELWYN RAAB

August 9, 1999

In June 1998, the carpenters' union in the New York metropolitan area hired a financial services company, Zenith Administrators Inc., to oversee pension and benefit payments to 26,000 active and retired members.

Now, after a torrent of complaints about Zenith's management of the funds, totaling $1.7 billion, Federal prosecutors and the Labor Department are investigating complaints that the company may have obtained the contract through favoritism. Critics within the union have said they suspect that the contract was improperly awarded because the president of the national carpenters' union, Douglas J. McCarron, is a director of the holding company that owns Zenith Administrators.

Before hiring Zenith, the union, the District Council of Carpenters and Joiners, administered five funds for 18,000 active members and 8,000 retirees through its employees at the council's offices in Manhattan. In addition to pensions, the funds cover payments for health care, vacations and annuities.

Critics of the contract asserted in interviews that Zenith was selected at the urging of Mr. McCarron, who is the general president of the United Brotherhood of Carpenters and Joiners of America. He is a director of Ullico Inc., the company that owns and controls Zenith.

Ullico, whose original name was the United Labor Life Insurance Company, was formed in 1925 to provide low-cost insurance to union members and is now the holding company for Zenith as well as a private capital investment fund and an insurance company. Mr. McCarron and other union officials, as Ullico's directors, determine policy and select the company's managers.

Richard J. Esposito, a spokesman for Mr. McCarron and the district council, denied that Zenith was chosen through Mr. McCarron's intervention. “It is not a conflict of interest for him to be a director of a company that has a subsidiary,” Mr. Esposito said.

He said Mr. McCarron received $1,000 a month as a Ullico director and got no payment from Zenith.

Mr. McCarron is also one of 12 trustees who supervise the benefit funds in New York and chose Zenith over two other companies that had sought the contract to manage the funds. According to officials of the district council, Mr. McCarron excused himself from the selection process and did not participate in the board's unanimous vote in favor of Zenith.

Officials of the council and Zenith declined to disclose the fees that Zenith receives for administering the funds. Patrick T. Connor, a lawyer for the carpenters' national union, said that Zenith's bid for the contract was not the lowest but that the trustees in New York favored it because the company had a larger staff than its rivals and had wide experience through the management of 71 other pension and welfare funds.

“We are very confident there will be no finding of any impropriety,” said John Rogers, a spokesman for Zenith and Ullico in Washington. Mr. Rogers also declined to say how much the union is paying Zenith.

Mr. Esposito acknowledged that members of the carpenters' union from the New York region had registered about 9,000 complaints with the United States Labor Department concerning Zenith's performance. The complaints, he said, were mainly about late and incorrect payments.

“Zenith seems to have corrected these problems and the trustees of the funds have made a decision to stick with Zenith,” Mr. Esposito said.

The previous administration of the funds, Mr. Esposito said, had been inefficient and expensive. Since the Zenith takeover, costs have been cut by about $15 million a year through the elimination of unnecessary jobs and through improved computerization, Mr. Esposito said.

In April, the United States Attorney's office in the Southern District of New York State subpoenaed the district council's documents concerning negotiations with Zenith and other companies that sought the contract.

Spokesmen for the United States Attorney's office and the Labor Department would not comment on the inquiry.

“Since Zenith took over, the members have suffered and we can't get any answers as to what is going on,” said Gene Clark, a former district council official who asked the Labor Department to investigate. “Many of us think the contract was handed to Zenith without truly competitive bidding because of the company's relationship with McCarron.”