Employee rights and the trustee's fiduciary responsability

[Guest Heidi Roche]

I am looking for information about the recourse (if any) that employees may have when they believe that the ESOP trustee is not protecting their interests. In this case, there is only one trustee for the 30% ESOP share of the company, who also happens to be the sole owner of the other 70% and the CEO. The ESOP was originally funded by a former profit sharing plan, against employee protest. There are two issues: 1) Redirection of employee retirement funds from a diversified portfolio to 100% investment in the ESOP, and

2) subsequent mismanagement of the company, which now reduces the value of employees' stock (down over 50% in 1998 alone).

Employee questions or critism of management are met with derision. Any employee generated official complaint would be cause for dismissal. Many of these employees are unskilled factory workers who are facing unemployment plus loss of their entire retirement "savings". They don't have the resources to retain legal counsel. As a former officer of this company, who "got out in time", I still feel a responsability for these people and would like to help if I can.

[Guest Sherry Porter]

Contact the nearest office of the U.S. Department of Labor, Pension and Welfare Benefits Administration (PWBA). This agency audits employee benefit plans, such as ESOPs, and service providers to benefit plans to ensure compliance with the Employee Retirement Income Security Act (ERISA). You should be able to find a list of the PWBA regional offices on the DOL website at www.dol.gov/dol/pwba. The PWBA may open an audit of a plan if they are presented with adequate information that alleges a violation of ERISA (and, at least here in the area covered by the Cincinnati Regional Office, they have taken a partiuclar interest in ESOPs.) Good luck and be persistent!

[RLL]

It appears that there may be violations of ERISA Sections 404 (relating to fiduciary duties), 406 (relating to prohibited transactions and fiduciary self-dealing) and 510 (relating to interference with protected rights).

An ESOP fiduciary must act solely in the interests of participants and must protect the rights of participants as beneficial shareholders of the company.

If the participants are not in a position to hire legal counsel, contacting PWBA is an alternative. On the other hand, it may be preferable to try to find counsel who would be willing to pursue litigation (or the threat thereof) on a cost effective basis. ERISA Section 502(g) does allow a court to award attorney's fees in appropriate situations.