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A final settlement is being implemented in a U.S. Labor Department suit that accused Harmon City Inc. of making unsound loans from an employee pension fund.

The suit was filed in August 1988 against Terry Harmon, F. Ray Green, Harmon City Inc. and Midwest Realty and Finance Inc.Harmon and Green, trustees of the plan at the time, caused the plan to lend $6 million to Midwest, the suit contends. The suit said Midwest was a poor credit risk.

Harmon was president of Harmon City Inc. and a director of Midwest, while Green was secretary-treasurer of Harmon City and general manager of Midwest, it said.

Under the partial settlement agreement (which was signed last August without any indication of wrongdoing), $4 million will be paid to the pension plan. A total of $1 million has been paid in the form of cash and a promissory note, while $3 million in Harmon City Inc. stock is being transferred.

The stock's value is based on audits of the company, which found that Harmon City was worth more than had been supposed, said the firm's lawyer, Brinton R. Burbidge. The company turned out to be worth around $21.2 million, versus $16 million in a 1987 evaluation.

"The company has transferred the stock to the plan," he said. "The plan will be transferring cash and stock to participants." It will go to employees who have left the company or retired, not present employees not yet eligible for benefits under the plan.

Those getting stock will have an option to sell it back.