The U.S. Department of Labor has filed suit against the owners of Mid-States Express, alleging that the bankrupt carrier did not protect the interests of the participants and beneficiaries in the company's 401(k) and health plans.

The department claims that Bruce Hartmann, owner and officer of the company, did not notify employees that their medical bills were not likely to be paid, although the company continued to take deductions from their paychecks for medical coverage.

Despite the fact that $1.26 million in employee health plan contributions were withheld, the Aurora, Ill.-based carrier failed to pay $3 million in employee medical claims, which the DOL says is a violation of the Employee Retirement Income Security Act.

The DOL also claims that Bruce Hartmann and Terry Hartmann violated their fiduciary duties because they failed to remit $65,000 in contributions and loan re-payments. The suit also alleges the two failed to timely remit more than $1.5 million in 401(k) plan participant contributions and loan re-payments. The company was allowed to retain these contributions and loan repayments for its own benefit at the expense of participants and beneficiaries.

"These defendants blatantly misused their employees' retirement and health benefit contributions for personal gain," said Phyllis C. Borzi, assistant secretary of the Labor Department's Employee Benefits Security Administration (EBSA). "Despite financial hardships, employers and plan officials are obligated to forward those employee contributions to the plans."

In March 2009, the regional less-than-truckload carrier shut down all of its 26 facilities in nine states due to a lack of funding. The company is currently in Chapter 7 bankruptcy.

The suit seeks losses, with interest, suffered by the plans or their participants and to undo any prohibited transactions involving the plans. The DOL will also request that the Hartmanns be removed from their fiduciary positions to the plans and be barred from serving in a fiduciary capacity, or service provider, to any plan governed by ERISA.