Info on ESOP Investigation by DOL

[Guest brettc]

It is rumored our company’s ESOP is under investigation by the Employee Benefits Security Administration (part of the Department of Labor/DOL) for possible ERISA violations.

Once the DOL’s investigation has concluded:

- How can I find out the findings of the investigation?

- Is my company required to let me know of the DOL’s findings?

- Is this information publicly available?

Thank you,

Brett

[ESOP Guy]

I believe the answer is "no" they don't have to make it public.

I would also caution you to NOT read too much into a DOL examination of an ESOP. Particularly if the ESOP is in its early years or it just recently purchased a large block of stock form an owner who is an officer of the company.

The DOL has stepped up its review of ESOPs in the last 5 or so years and has concentrated on the transactions that bring stock into the plan via a purchase from people who can be seen as company insiders. In those cases they are looking to make sure the ESOP didn't over pay for the stock. In the case of new ESOPs it is close to 100% of them are getting a visit from the DOL.

Most of them are ending with no action on the part of the DOL.

[Peter Gulia]

ESOP Guy, when you say most examinations end with no DoL enforcement action, am I right in guessing that this refers to examinations that you know about (or have heard about from practitioner friends)?

One imagines that other plans, about which an employer or fiduciary might have been less well advised than what you or your friends would do, could have a higher likelihood of unwelcome outcomes.

For a situation in which a top executive sold his or her stock to a plan that was long established, what does an EBSA examiner look for to find that the plan didn't overpay?

[ESOP Guy]

ESOP Guy, when you say most examinations end with no DoL enforcement action, am I right in guessing that this refers to examinations that you know about (or have heard about from practitioner friends)?

One imagines that other plans, about which an employer or fiduciary might have been less well advised than what you or your friends would do, could have a higher likelihood of unwelcome outcomes.

For a situation in which a top executive sold his or her stock to a plan that was long established, what does an EBSA examiner look for to find that the plan didn't overpay?

Yes, obviously this is based on my experience.

I find that whenever there is a stock transaction the DOL looks for the same things. It is always been about price of the stock, the terms of a loan, and so forth.

Getting that right is all about making sure the paperwork is all in order. Was there a good appraisal done with realistic projections regarding the company? I find it always helps to have an independent trustee going over the whole thing.

[Peter Gulia]

ESOP Guy, thank you for helping me.

Independent appraiser, independent fiduciary, and independent counsel for the independent fiduciary; that's strongest.

[GMK]

Implicit in this is that all these people are not merely independent, but that they are good at what they do and understand their relevance to the ESOP transaction. The key is ESOP Guy's good appraisal done with realistic projections.

[Guest brettc]

Thank you very much for the information.

When you said "no they don't have to make it public”, I assume that goes for both the DOL and the ESOP. I also assume you mean the ESOP does not have to provide any information to the employees concerning this DOL investigation.

The ESOP in question is well established. It is 20+ years old. I don’t think this is your “typical” DOL investigation as there have been numerous employee complaints to the DOL concerning the company’s management of the ESOP.

Would I be able to use the “Freedom of Information Act” to compel the DOL to provide information regarding the outcome of their investigation?

Thank you,

Brett

[ESOP Guy]

I will have to admit I don't think I have ever seen someone try as hard as a Freedom of Information Act to get the desired information.

Have you simply tried asking the right people?

I am not trying to be mean here but I am amazed the number of times someone comes on this board with a bit of a problem. They are looking for a way to get something done and the one thing they never seem to try is simply ask management for the information.

[Guest brettc]

Thanks for your reply esop guy, but I will not ask our management for the DOL’s findings.

It becomes a rather hostile work environment if an employee questions management concerning the ESOP. More than a few employees have been “laid-off” because they questioned the management of our ESOP. It would not be wise to ask management: “I heard there was a DOL investigation into our ESOP, can I please have a copy of their findings?”

I will not lose my job over this, but I would like to have an understanding of what the DOL thought of the management of our ESOP. Unless there is another way, I will go with the Freedom of Information Act.

Thanks

[Belgarath]

I will leave it to the lawyers here to provide you a definitive answer, but I don't think FOIA applies to this situation. I can certainly understand that you don't want to broach this subject with management.

[BeckyMiller]

I can't tell from the recitation of facts how large this plan is. But remember, if the plan is large enough to required a financial statement audit (generally over 100 participants with some exceptions for companies just growing from small to large), the footnotes to the financial statement will typically discuss the existence and status of any government examinations - DOL or IRS. It might be very limited disclosure - DOL announced that they are coming in to examine the plan, Plan management believes the results of such examination will have no material financial statement results. Or, if the examination does have material financial statement results or concluded that there was a prohibited transaction, there should be more detailed disclosures. (This, of course, assumes they have a competent plan auditor.)

The plan's audited financial statements are filed with the Form 5500 and are available to the general public at: https://www.efast.dol.gov/portal/app/disseminate?execution=e1s1