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ESOP Valuation Litigation Settlement

Guest djw

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ESOP terminated two years ago. Stock "distributed". Participants put stock back to company. Participants received partial payment and notes. Most participants rolled proceeds and notes over to IRAs. Balance on notes was paid a year later by a new company that purchased the former ESOP company. ERISA and state securities litigation about the purchase price of the stock from participants. Settlement reached with additional proceeds from sale to be made. Payment will come from a former party in interest. The ESOP and trust no longer exist.

There are about 5 PLRs that address the situation where the settlement payment comes directly from the defendant and not through a plan. The IRS has ruled consistently that these payments cannot be rolled over. But, if they come from a plan they may be rolled over.

Payment has not yet been made. I wonder if anyone has any experience with or information about "reviving" or "reinstating" a plan for the sole purpose of receiving settlement and making payment to participants. Per Massachusetts Mutual Life Insurance Co. v. Russell 473 U.S. 134 (1985), amounts recovered under the general fiduciary liability provision are not payable to a participant personally, even in the case of a civil action brought by a participant, because such recovery must be on behalf of the plan.

How about payment for attorneys' fees? Does anyone have experience with allocating settlement between a plan and individuals where, as here, there were both plan fiduciary claims and individual state securities law claims. Could parts of the gross settlement be allocated to each claim where the securities claim portion would pay most, if not all, of the attorneys' fee?

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