ERISA Litigation and Employee Stock Ownership Plans: The Evolving Landscape of Claims Against Fiduciaries & Non-Fiduciaries

Strafford

This CLE course will guide counsel on procedures and fiduciary responsibilities in employee stock ownership plan (ESOP) transactions and cover recent court rulings. The panel will discuss best practices in satisfying fiduciary duties in ESOP transactions, legal issues that arise, and lessons learned from recent cases to defend against and minimize litigation.

Description

An ESOP is a tax-qualified defined contribution employee retirement benefit plan designed to primarily invest in the stock of the sponsoring employer. ERISA imposes the highest duties known to law on trustees and other fiduciaries of ESOPs as well non-fiduciaries who are involved with the ESOP, and transactions involving ESOPs may lead to regulatory investigations or litigation.

Many complex issues arise when an ESOP company purchases or sells the stock. ESOP fiduciaries face essential ERISA fiduciary standards and valuation issues. Non-fiduciaries also need to be cognizant of these issues if they engage in a transaction involving an ESOP.

Most lawsuits concerning these transactions typically involve (1) claims that selling shareholders sold their stock in the plan sponsor to the ESOP at an inflated price; (2) claims that fiduciaries of the ESOP took insufficient action to protect the interests of participants, particularly when the plan sponsor faced financial difficulties; (3) management or other purchasers bought the ESOP's shares for less than they were worth, or (4) ESOP fiduciaries engaged in transactions whereby they profited at the ESOP’s expense.

ESOP litigation involving publicly traded companies is evolving as well. In January 2020, the Supreme Court vacated a Second Circuit decision in Retirement Plans Committee of IBM v. Jander that had held ESOP participants adequately alleged a breach of fiduciary duty in asserting that the price of company stock was artificially inflated and fiduciaries should have disclosed concealed losses to one of the company's divisions. After that, when the Second Circuit reinstated its original decision, the Supreme Court declined to hear the case again, potentially providing a new path for other plaintiffs to pursue "stock drop" claims against fiduciaries of ESOPs holding publicly traded company stock.

Listen as our panel discusses best practices in satisfying fiduciary duties in ESOP transactions, legal issues that arise, and lessons learned from recent litigation to defend and minimize litigation.

Outline

• Fiduciary duties, policies, and procedures of ESOP transactions
• Recent court rulings and developments
• Fiduciary review process: projections, documentation, and reliance
• Valuation considerations
• Best practices for defending and minimizing litigation

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