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Lessons Learned from Recent Litigation Involving ESOP-Owned Companies (PDF)
28 presentation slides. "Recent litigation and audit activity is focusing on the process undertaken by fiduciaries in connection with a transaction involving an ESOP." (McDermott Will & Emery)
Importance of Corporate Structure for Employee Stock Ownership Plans
"The parent company sought a ruling that its stock held by the ESOP will constitute qualifying employer securities with respect to the subsidiary, and that the application of sections 409(h), 409(p), 512(e)(3) and 4975(e)(7) would not be affected by the C corporation subsidiary's adoption of the plan.... Ultimately, the IRS concluded [in PLR 201828007] that the C corporation's adoption of its parent company's ESOP will not affect its status and the rules will continue to apply based upon the S corporation parent, as the ESOP held employer securities consisting of stock in an S corporation." (RSM US)
NCEO Employee Ownership Index Doubles S&P Performance for Its First Year
"[T[he Employee Ownership Index [includes] 28 publicly traded companies that had both broad-based employee ownership and had won one of three major national employer rating awards ... For the first year, the Employee Ownership Index has a 30.3% return; the S&P 500 had a 15.5% return. The index was expanded to 30 companies this June." (Blue Ridge ESOP Associates)
Supreme Court Declines to Hear Challenge to Time Limits on Fiduciary Breach Waivers
"he Supreme Court on [June 25] declined to hear a challenge by an ESOP plan trustee on whether a time limit for bringing breach of fiduciary duty claims can be waived. The [DOL] had argued for the petition to be denied[.]" (Pensions & Investments)
Will You Be Able to Retire From Your Small Business?
"Only 31% of small business owners are confident they will be able to retire by 65.... Small business owners have built up so much equity in the company that there may not be an easy way to hand the company over to someone else. The company may fill a niche market and not have a ready buyer to pay fair market value.... In these situations, an [ESOP] could be an ideal option[.]" (Butterfield Schechter LLP)
The ESOP Fiduciary's Responsibility for Determining Stock Value
28 PowerPoint slides. "[ERISA] generally requires relying upon the work of an independent appraisal expert. If a fiduciary relies on an inadequate appraisal, that fiduciary can breach its duties and/or violate ERISA's prohibited transaction rules." (McDermott Will & Emery)
Recent DOL Settlement Agreements with ESOP Trustees
"When viewed in its entirety, the [GreatBanc Trust Company (GBTC)] Agreement emerges as the most relevant guidance for ESOP trustees by laying the groundwork for subsequent settlement agreements. While there are differences and departures, subsequent agreements ... largely follow the principles laid out in the GBTC Agreement.... [T]he most recent settlement reached in May of 2018, is notable in that it is identical to the GBTC Agreement." (The Wagner Law Group)
[Opinion] Employee Stock Ownership Plans: Vulnerable to Abuse?
"Even though ESOPs are technically considered to be retirement plans existing for the benefit of employees, the assets of these plans can be -- and often are -- used to enrich the management of the company, to create liquidity for existing shareholders, and to serve as a lucrative 'exit strategy' for company founders. This can result in significant conflicts of interest, between the management of the company and its employees, and between existing shareholders and the employees who are 'buying' the shares via an ESOP." (Cohen Milstein)
Supreme Court Workplace Arbitration Decision: Potential Impact on ESOPs
"Although the Supreme Court's recent decision ... was not a case under [ERISA], the Court's analysis indicates that it would likely reject an argument that an arbitration provision with a class action waiver in an [ESOP] is fundamentally unenforceable under ERISA. However, the decision leaves open numerous questions about the practical effect of including such provisions in ESOPs." [Epic Systems Corp. v. Lewis, No. 16-285 (U.S. May 21, 2018)] (Holland & Knight)
Unique ESOP Structure Considerations (PDF)
24 presentation slides. Topics: [1] Review development of transaction goals; [2] Summary of regulatory/litigation environment; [3] Financial structuring alternatives; [4] Post-transaction price adjustments; [5] Designing incentive arrangements; [6] Transaction provisions/considerations. (McDermott Will & Emery, Chartwell Financial Advisory, and GreatBanc Trust Company)
ESOP Trustees Are Increasingly Becoming Targets
"[C]ompanies can help ESOP trustees avoid claims that they paid too much to shareholders for their stock by providing accurate and reliable information about the company.... ESOP trustees often seek indemnification agreements from ESOP sponsors, and ESOP sponsors are typically willing to provide them. Nonetheless, the DOL and plaintiff's bar have attacked the enforceability of such agreements." (McDonald Hopkins)
Coordinating an ESOP with Other Qualified Plans
"Which plan will receive the matching contributions? ... Will the plans have the same limitation year? ... Will the same compensation definition be used for all plans? ... Will the plans have different eligibility requirements?" (Principal Financial Group)
DOL Enters Into Fifth Settlement Agreement with an ESOP Trustee -- and It Looks Familiar
"The agreement with Lubbock National Bank (the LNB Agreement) ... is identical to the first process agreement that the DOL entered into in 2014 with GreatBanc Trust Company (the GBTC Agreement). Notably, the LNB Agreement does not contain any of the items that the DOL requested be added to agreements with ESOP trustees that were entered into after the GBTC Agreement." (Holland & Knight)
Progress on Two ESOP Bills in Congress
"With bipartisan support, H.R. 5236 would make it easier for ESOPs to obtain stock acquisition loans from the Small Business Administration (SBA). ESOP stock acquisition loans could also be made under the SBA's preferred lender program.... [S1538 includes] an SBA program to appoint an individual to serve as the Service Core of Retired Executives (SCORE) Employee Ownership Director." (Butterfield Schechter LLP)
Sen. Gillibrand Introduces Pro-ESOP Legislation
"[The Main Street Employee Ownership Act of 2018 (S2876)] would provide $500 million in support of [ESOP] programs and would operate through the Small Business Administration." (The ESOP Association)
Private Equity Seeks Second Chance on ERISA Liability Ruling
"The court could send the matter to arbitration, which is the standard method for resolving multiemployer plan withdrawal liability. It could hear the case and distinguish its facts to rule that Trilantic was a passive investor without explicitly approving or rejecting the higher investment-plus standard. It could adopt the investment-plus test but find that the facts here fall short of plus, or alternatively that Trilantic did have the required level of involvement to constitute a trade or business. Or it could reject the higher standard, finding that even hands-on management is consistent with the status of a passive investor, resulting in circuit split." (Kaufman & Canoles, P.C.)
Recent Developments in ESOP Litigation
Summary of 10 recent court opinions and consent orders, 6 recent complaints, and one settlement, most initiated by the U.S. Department of Labor, all involving ESOP valuation and fiduciary issues. (Kaufman & Canoles, P.C.)
DOL Voids ESOP Fiduciary Indemnification Agreements to Reach Settlements
"In recent litigation involving ESOP-owned companies, the DOL has taken the position that indemnification clauses are void against public policy under Section 410 of [ERISA]. Though lacking clear precedent, this policy has also been adopted by private plaintiff classes in recent years. As evident from [a recent settlement], a policy of voiding indemnity provisions can limit defense budgets, make settlements more likely and potentially create dangerous precedent for ESOPs." (McDermott Will & Emery)
Tax Reform Impacts on ESOPS
"ESOPs will need to consider how their loan payments compare to EBITDA or EBIT to make sure that they are able to deduct payments.... State and Local taxes are expected to increase for sellers to ESOPs ... [L]ess-than-100% S Corporation ESOPs will need to distribute less cash each year so that non-ESOP shareholders can pay their share of taxes on corporate profits." (Retirement Management Services, LLC)
What You Need to Know About ESOP Valuation Season
"Impact of First Bankers Trust settlement on fiduciary responsibility... Selection and use of valuation advisor ... Conflicts of interest.... Oversight of valuation advisor ... Financial statements.... Fiduciary review process ... Documentation of valuation analysis.... Reliance on valuation report.... Preservation of Documents.... Fair market value.... Control.... Consideration of claw back." (McDonald Hopkins)
March ESOP Madness: Ready to Make the Most of Your Annual Participant Statements?
"[1] Develop a communications goal ... [2] Communicate the rules of the 'ESOP game' ... [3] Use a 'dummy' or sample statement to show the score ... [4] Share stats to illustrate what drove stock value ... [5] Give employee owners a game program ... [6] Have fun and celebrate employee ownership." (Blue Ridge ESOP Associates)
Tenth Circuit to Address Deferred Corporate Deductions for Expenses Payable to ESOP-Participating Employees
"[The employer] claimed the deductions, and the shareholders claimed flow-through deductions for the accrued but unpaid payroll expenses. The IRS disallowed these deductions... because [the employer] and the ESOP-participating employees were considered 'related persons.'... [The Tax Court] concluded that the ESOP trust was a 'trust' for purposes of IRC Section 267(a)(2) [which meant that] Petersen and other S corporations must defer deductions for expenses paid to their ESOP-participating employees until those expenses are includable in those employees' gross income.... [T]he shareholders argue that Congress never intended for IRC Section 267 to apply to employee trusts such as ESOPs." (McDermott Will & Emery)
ESOP Sponsor's Board of Directors Sued Over Company Stock
"The company stock held in Lifetouch's ESOP declined by more than $840 million between 2015 and 2018, representing an average loss of more than $22,000 in retirement savings for each of the plan's 16,000 investors, according to the lawsuit. This decline happened while several Lifetouch executives retired and cashed out their stock at favorable prices, the lawsuit claims." (Bloomberg BNA)
Power to the ESOP: Tax Savings Benefits for Employers and Employees
"Companies considering ESOP ownership, partial ESOP ownership in 2018, or even existing ESOPs may want to compare the costs and benefits of electing to be treated as a C corp or S corp. The new lower C corp taxes may have some S corps reconsidering their entity choices." (Butterfield Schechter LLP)
ESOPs: Legislative Updates
"The National Defense Authorization Act of 2017 ... has been updated to include certain ESOPs as falling within the category of small business concerns owned and controlled by service-disabled veterans. In calculating the 51% minimum veteran ownership, these businesses can now disregard the percentage of ESOP stock ownership. This change effectively opens up more partial employee-owned businesses to defense contracting preferences." (Butterfield Schechter LLP)
The Road Ahead: Considerations for Tax Reform's Impact on Your ESOP
"A C corporation or partially owned S corporation ESOP plan sponsor should immediately consider the benefits of maximizing its 2017 contribution to the ESOP.... A potential 20 percent reduction in tax liability for the outside shareholders of certain S corps means there may be less S corp distributions flowing to the shareholders, including the ESOP.... ESOP companies may be required to make greater company contributions to satisfy their debt payments and repurchase obligation." (Findley Davies | BPS&M)
Prior to Distribution, ESOP Lacked 'Actual Knowledge' of Participant's Developmental Disability
"An ESOP plan administrator did not violate plan terms when it distributed about $80,000 to a developmentally disabled former employee who had been adjudged in state court to be legally incompetent ... Delivery of conservatorship papers regarding the employee's incompetency to the grocery store where he worked was insufficient to provide the plan administrator with the 'actual knowledge' of the worker's legal incompetency required by the plan." [Bauman v. Publix Super Markets, Inc. Employee Stock Ownership Plan, No. 17-11709 (11th Cir. Oct. 10, 2017)] (Wolters Kluwer Law & Business)
ESOPs and the Tax Act
"[T]he tax benefits for ESOP-owned companies are significantly greater for S-corporations, going from a 37 percent potential tax rate to zero percent taxes, than they are for C-corporations, going from a 39 percent tax rate to a 21 percent tax rate." (Valuation Research Corporation)
DOL Continues to Watch ESOP Valuations with Recent Trustee Settlements
"While these settlements are aimed primarily at trustees and their valuation advisors, employers who are considering sponsoring an ESOP as well as the lenders ... to ESOP sponsors should pay attention to these settlements as well. If a portion of the sale proceeds must be returned to the trust, that could affect the amount that the selling shareholders ultimately receive, particularly if the sellers financed part of the deal. In some situations, depending on the transaction documents, an ESOP sponsor may be required to indemnify an ESOP trustee. As a result, the company and its lenders could pay a price if the trustee violates its ERISA fiduciary duties with respect to the valuation process." (Porter Wright Morris & Arthur LLP)
ESOP Benefits for Defense Contractors
"[D]efense contractors may have long-term and complex contracts and relationships with government agencies. A sudden change in leadership or sale of the company can make contractors and customers nervous and could lead to the government seeking out a competitor. With an ESOP transition, leadership and ownership changes can take place over time based on the owner's direction." (Butterfield Schechter LLP)
Tax Reform's Secondary Impacts on ESOPs
"New leveraged ESOPs where the company borrows a large amount relative to its EBITDA may find that their deductible expenses will be lower and, therefore, their taxable income may be higher ... Most S corporations make distributions to non-ESOP owners so they can pay their taxes on their share of corporate profits. So if an ESOP owns 30% of the company, it gets 30% of the distributions. These distributions now will be somewhat smaller because the non-ESOP owner will be declaring 20% less income and therefore requiring a smaller S distribution." (National Center for Employee Ownership [NCEO])
DOL Settlements Set Prudence Standard for ESOP Trustees
"Through a series of recent settlements, the [DOL] has outlined the process steps fiduciaries should follow in connection with a transaction involving a purchase from, or sale to, an employee stock ownership plan (ESOP). Largely based on the 'fiduciary process steps' first introduced by the DOL in the 2014 settlement of Perez v. GreatBanc Trust Co. ... [t]he recent settlements may ... provide helpful insight into the DOL's position regarding what is required to meet fiduciary obligations under [ERISA] when engaging in an ESOP transaction." (McDermott Will & Emery)
[Official Guidance] Text of IRS CCM 201747007: Provisions in ESOP Document Designed to Prevent Occurrence of a Nonallocation Year Under Section 409(p) (PDF)
"The Prevention Methods ... are all variations on the two examples in the preamble that provide for the reduction of allocations to HCEs or the increase of allocations to NHCEs.... [T]hese provisions also need to articulate a methodology to guide the ESOP administrator in making the allocations.... One way to meet this requirement is for the ESOP to have plan language stating the order in which these provisions are to be applied.... The subject plan provision provides for the re-allocation of stock that has been already allocated to participants' accounts. This would result in the forfeiture of accrued benefits[.]" (Internal Revenue Service [IRS])
[Official Guidance] Employee Stock Ownership Plan (ESOP) LRM and Information Package, October 2017 (PDF)
43 pages. Oct. 2017, published online Nov. 2017. "This information package contains samples of plan provisions that satisfy certain requirements of the Code applicable to ESOPs. Such language may or may not be acceptable in specific plans depending on the context in which used. To expedite the review process, plan sponsors are encouraged to use the language in this package. A partnership or a joint venture is not eligible to maintain an ESOP. However, a partnership or a joint venture that has elected to be taxed as a corporation may be a Participating Employer as defined in this ESOP LRM." [Editor's note: the Oct. 2017 revision appears to replace the version released in June 2015.] (Internal Revenue Service [IRS])
First Bankers Trust Settles Three ERISA Suits
"According to DOL allegations, FBTS violated [ERISA] when it approved stock purchases by three employee stock ownership plans (ESOPs). As part of the agreements, FBTS will pay $15.75 million to the plans and reform its procedures for handling ESOP transactions." (planadviser)
How to Undertake an ESOP Repurchase Obligation Study (PDF)
"[T]he prospect of 'doing a repurchase obligation study' can be daunting ... [S]everal underlying assumptions must be developed, the calculations are complicated, and making sense of the results can be challenging.... [T]he process of performing a study should include ... Defining the issues ... Gathering data ... Developing assumption ... Modeling a 'base case' forecast ... Analyzing results ... Modeling additional scenarios ... Developing conclusions and presenting result." (ESOP Economics)
ESOPs: An Alternative Exit Strategy for Family-Owned Businesses
"Employee stock ownership plans (ESOPs) can be an attractive and tax-favored alternative for a family-owned business looking for an exit strategy. For the owner of a C corporation, proceeds on the gain from the sale of stock to the ESOP can be tax-deferred by reinvesting them in the securities (including both stocks and bonds) of other domestic companies, subject to certain requirements. If such replacement securities are not sold prior to the owner's death, no capital gains tax is ever due on the gain recognized by the sale of the company stock to the ESOP." (Family Business Advocates)
A Lender's Primer on Leveraged ESOPs and Recent Litigation (PDF)
"A prudent lender should ensure that the ESOP trustee has independently performed due diligence on the target corporation; negotiated a robust and arm's-length transaction with the selling shareholder (including the inclusion of standard indemnities and other relevant provisions in the acquisition documents that sufficiently protect the ESOP, as purchaser, and the company as it continues operations post- acquisition); and otherwise fulfilled its fiduciary duties to the ESOP." (Mayer Brown)
DOL Settlement Agreements Provide ESOP Transaction Guidance
"The [DOL] and First Bankers Trust Services Inc. [recently] entered into a settlement agreement ... resolving a case challenging FBTS' actions as trustee in a transaction whereby a private label denim manufacturer was sold to an [ESOP]. This settlement agreement ... largely mirrors a process agreement that the DOL entered into with GreatBanc Trust Company in 2014 ... [This article describes] some key areas where the Agreements differ ... [and provides] an in-depth chart that summarizes the terms and highlights the differences between the two Agreements." (Holland & Knight)
District Court: Suspension of ESOP Diversification Elections Pending Interim Stock Valuation Was Arbitrary and Capricious
"[T]he Plan could have made an exception for an alternative valuation date or other contingency plan in unexpected times of financial stress, but it did not.... [T]he terms governing the timing of the valuation of Bankshares's stock for purposes of ascertaining the fair market value of the stock and the individual ESOP accounts are clear, mandatory, and permit no exception. This court ... cannot rewrite the requirements of the Plan to alleviate the adverse consequences to Bankshares as a result of its allocation of risk." [Bryant v. Community Bankshares Inc., No. 14-1074 (M.D. Ala. Sept. 12, 2017)] (U.S. District Court for the Middle District of Alabama)
The Importance of an ESOP Distribution Policy
"The plan document typically will include the form, method and timing options the plan will allow -- cash vs. stock, lump sum vs. installments. A distribution policy will specify how distributions will be paid. For example, a distribution policy may read: 'Upon death, disability, or retirement, distributions will be paid out lump sum in cash and commence no later than one year following the event.' There are many things to consider when drafting a distribution policy -- repurchase liability, cash flow projections, future transactions, corporation status, benefit levels and compliance testing issues. All of these will impact how you structure your policy to meet your company's objectives." (Blue Ridge ESOP Associates)
The Board of Directors Responsibility in Addressing ESOP Repurchase Liability
"In order to plan for ESOP repurchase liability, the corporation must quantify the liability and implement a strategy to fund it. These functions are the responsibilities of the board of directors of the corporate sponsor of the ESOP. This article [summarizes] director duties in determining and funding ESOP repurchase liability." (Principal Financial Group)
ESOP Class Actions: An Existential Threat to the ESOP Community
"The DOL lawsuits are aimed at a relatively few specific transactions where the DOL has determined that the ESOP trustee has overpaid for the shares. However, the class action suits have a broader focus, which is to find errors in the implementation or operation of the ESOP in order to obtain the highest possible dollar recovery. What makes this so significant is that the plaintiff's bar obtains access to the ESOP's books and records by claiming the loss in share value constitutes a breach in fiduciary duty. This loss, however, is a necessary part of every leveraged ESOP transaction." (Fox Rothschild LLP)
Bill Would Boost ESOPs
"The bill is aimed at smaller companies that may not have easy access to the expertise needed to launch an ESOP. It calls for the nonprofit business-advisory group SCORE -- which operates with support from the U.S. Small Business Administration -- to provide those companies the information they need." (HRE Daily)
The Nuts and Bolts of ESOP Loans (PDF)
"There is a very high probability an ESOP will be leveraged during its lifecycle. When this leveraging occurs and the ESOP takes on debt to acquire company stock, a number of legal documents are drafted to record the terms of the transaction and the requirements of the involved parties. As the TPA of an ESOP, it is important to understand the reason these documents exist and the differences between ESOP internal loans versus external loans." (Blue Ridge ESOP Associates, via Plan Consultant)
ESOPs: Issues to Consider Before Converting from C-Corp to S-Corp
"S-Corps and C-Corps can generally deduct contributions to the ESOP of up to 25% of qualifying employee payroll annually to repay an ESOP loan used to acquire shares of the company. However, S-Corps must include interest as well as principal, where C-Corps base this contribution amount only on the principal paid.... Dividends paid on a C-Corp ESOP are tax deductible so long as they are used to pay down an ESOP loan, or are passed on to employees. However, S-Corp ESOP dividends are generally not tax-deductible." (Butterfield Schechter LLP)
S Corporation Denied Deduction for Amount Payable to ESOP Participants
"On June 13, the Tax Court concluded that an S corporation and its employees who participate in an [ESOP] are considered to be related parties, meaning that, an accrual basis S corporation could only deduct amounts payable to those employees in the year the amounts were actually paid.... This decision is not surprising. It is a good reminder, however, that S corporations with an ESOP owner must be diligent about scrubbing their year-end accruals for amounts that are payable to ESOP participants." [Petersen v. Comm., Nos. 15184-14, 15185-14 (148 T.C. 22 June 13, 2017)] (RSM US)
Three More U.S. States Move Forward with Pro-ESOP Initiatives
"In April 2017, the Colorado state legislature passed a pro-employee ownership bill (HB17-1214). The bill creates a revolving-loan program to be operated by the Colorado Office of Economic Development and International Trade (OEDIT) and to be funded by gifts and donations.... [A Texas] bill, if passed, would allow ESOP companies in Texas to be recognized as Historically Underutilized Businesses.... In September 2016, the Missouri state legislature passed legislation (H.B. 2030) that provides a tax deduction on qualifying sales to Missouri-based ESOPs." (Morgan Lewis)
ESOPs Can Provide Liquidity to Facilitate Division of a Family-Owned Business Upon Divorce
"The benefit of a financed transaction is that the ESOP can pay for the stock with pre-tax dollars as opposed to the normal stock repurchase arrangement between spouses which would require one spouse to generally use after-tax dollars for the purpose of buying out the former spouse's interest in the stock. Essentially the U.S. government is subsidizing the initial cost of the buy-out through use of tax deductible payments." (Butterfield Schechter LLP)
Measuring a 'Year of Participation' for ESOP Diversification
"Diversification is required to be offered to ESOP participants who have attained age 55 and have ten years of participation in the plan.... Does 'year' mean an entire plan year or any fraction of a plan year? 'Participation' begins at the entry date, but when does participation end? Date of termination, last plan year in which the participant received a contribution, distribution of vested account balance, or something else? Variations in the definition of participation can change when a participant is eligible to diversify." (Principal Financial Group)
ESOP Trends in the Marketplace (PDF)
17 presentation slides. "[1] Sophisticated pre-transaction structure analysis. [2] Investigation of an ESOP transaction in connection with other events. [3] Allowing a 'market' process to include an ESOP transaction alternative. [4] Exploration of tax planning opportunities. [5] Development of sophisticated economic transactions. [6] Post transaction planning. [7] ESOP-owned S corporations beginning acquisition strategy (typically 'mature' ESOP situation). [8] ESOP-owned companies increasing attractiveness to strategic buyers (end of ESOP lifecycle)." (McDermott Will & Emery)
Communicating Your ESOP
"Here are three practical ideas to make more of your annual statements: [1] Include ownership information and a 'how to read the statement' handout with your mailing.... [2] Hold a webinar to review the annual statement and ESOP results.... [3] Hold live meetings to build ESOP and business knowledge." (Blue Ridge ESOP Associates)
Will DOL Continue to Make ESOPs a Compliance Priority?
"A recently filed case ... suggests that the DOL may continue to make a priority out of investigating potential abuses in ESOP transactions.... [E]mployers who are considering the adoption of the ESOP should be mindful of putting together an experienced team to guide them through the fiduciary issues. In particular, it is critical for the trustee of an ESOP to hire an independent appraiser that has not performed a preliminary ESOP feasibility study for the company, and the trustee and other fiduciaries of the ESOP should be engaged with the due diligence process." (Porter Wright Morris & Arthur LLP)
What Is Your Strategic Vision for Your ESOP?
"After the ESOP loan is repaid and all the shares have been allocated new issues arise.... [T]he first questions that need to be answered are: What are your long-term plans for your ESOP? Is it short-term ownership strategies to help with ownership transition on a tax-favored basis? ... If employee ownership using your ESOP is your long-term ownership strategy, there are several strategies available to make shares available for allocation after your ESOP loan is paid off." (Principal Financial Group)
District Court Awards ESOP $9.4 Million After Fiduciary Caused Participants to Overpay for Company Stock
"A federal judge, presiding over a U.S. [DOL] lawsuit, has found that First Bankers Trust Services Inc. breached its duties of prudence and loyalty to the participants of an [ESOP] when it caused the plan to overpay for shares of the company's stock.... [The judge] awarded to the plan $9,485,000 (plus interest), subject to the reduction in a 2016 consent order against SJP Group Inc.'s CEO Vincent DiPano. SJP Group, the plan's sponsor, hired First Bankers as an independent fiduciary to advise the company's plan on whether, and at what price, to purchase company stock from its majority shareholder DiPano." [Perez v. First Bankers Trust Serv. Inc., No. 12-4450 (D.N.J. Mar. 31, 2017)] (PLANSPONSOR)
Communicating Your ESOP Distribution Policy
"Many companies [find] that a key challenge facing their ESOP participants is understanding the distribution policy.... Live meetings are the best way to answer any immediate questions participants may have. A short recorded webinar can be developed to provide an overview of the distribution policy, including the process and timeline.... Print materials are useful because participants can refer to them at a later date and can share them with spouses or financial advisors." (Principal Financial Group)
DOL, First Bankers Move Closer to Trial Over ESOP Transaction
"A federal judge in New York March 29 denied motions for summary judgment by the department and First Bankers, holding that there were disputed issues of fact that couldn't be resolved at this stage. The issues to be resolved at trial include whether First Bankers failed to investigate the financial adviser's independence, whether it properly reviewed the valuation and if it negotiated the $15.5 million the ESOP paid for Rembar's stock." [Hugler v. First Bankers Trust Services, No. 12-8649, (S.D.N.Y. Mar. 29, 2017)] (Bloomberg BNA)
Employee Stock Ownership Plans 101
"There are three main reasons to consider an ESOP. [1] Succession planning ... [2] Borrowing money on a tax-favored basis ... [3] Organizations that support employee ownership frequently tout the higher profitability of employee-owned companies and offer supporting statistics." (Findley Davies | BPS&M)
ESOPs: A Powerful Tool for Closely Held Banks
"For shareholders in a closely held bank, an ESOP can be used as a succession planning or liquidity vehicle. For the bank's employees, it can provide enhanced benefits useful in attracting, motivating and retaining employees. For the sponsoring bank or bank holding company, an ESOP can facilitate tax-efficient capital enhancement.... An ESOP is not an isolated, stand-alone vehicle. To be successful, it must be integrated into the bank's overall strategic plan." (Holland & Knight)
Seventy Seven Energy Sued Over Chesapeake Stock in 401(k)
"The lawsuit is quite different from other stock drop challenges insofar as it aims not at Seventy Seven Energy stock, but at the stock of its previous parent company -- Chesapeake.... The plan included an employee stock ownership plan component, which only allowed 'employer securities.' The fiduciaries allowed Chesapeake stock in the ESOP component, an action that was prohibited under ERISA, according to the lawsuit.... Between July 2014 and December 2014, the plan's interest in Chesapeake stock dropped in value by $23.7 million, and yet it remained by far the plan's largest investment, the complaint said." (Bloomberg BNA)
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