ESOP valuation

[Guest Diane DuFresne]

Facts: A company sponsored ESOP was terminated late 2002 and payouts were made based upon an independent appraisal value as of the termination date.

The owner of the company now has a potential buyer. If the selling price of the company differs from the final appraisal for the ESOP distribution (which it will), what is the liability of the company to increase payout payments to the former ESOP shareholders, or, if the value is below, any reprecussions?

Thought would be appreciated.

Thanks,

Diane

[Guest benefitsrus]

If the value is higher, possibly no liability. See Foltz v. U.S. News & World Report, Inc., 865 F.2d 364, 374 (D.C. Cir 1989) (suit by profit sharing plan participants who received company stock in distribution before value of company increased dramatically). Your situation will depend heavily on its particular facts, however.

[Kirk Maldonado]

Even if you have no liability, you may have to defend yourself in court, as the Foltz case demonstrates. You could also be faced with a DOL investigation, if some participant complains to the DOL.

The longer the time between the termination of the ESOP and the sale of the business, the less likely that there will be a lawsuit or DOL investigation.

[RLL]

Diane ---

A key question here is whether the owner was seeking to sell the company and/or had a "potential buyer" at the time that the ESOP was terminated. If the answer is "yes," there could be liability if the shares are now sold for more than the appraised value upon which the benefit distributions were based.