Employee Benefits Law Report

Archives: ESOPs

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ESOPs from the seller’s perspective

By Rich Helmreich on
An Employee Stock Ownership Plan (ESOP) can be a great option for small business owners looking for a tax-advantaged way to sell their business. My colleague, Greg Daugherty, recently appeared on an episode of the podcast, “The ESOP Guy: The Journey to an ESOP.” Greg spoke with host Phil Hayes about the seller’s perspective and key … Continue Reading

Sellers beware: Recent court case shows sellers – as well as ESOP fiduciaries – should be engaged in ESOP due diligence and valuation process

By Greg Daugherty and Deb Boiarsky on
As we have explained in prior ESOP blogs, the Department of Labor (DOL) remains acutely concerned with private company employee stock ownership plan (ESOP) valuations in the formation of ESOPs. In particular, trustees who approve an ESOP trust’s purchase of shares from a seller must demonstrate that they have satisfied ERISA’s fiduciary duties with respect … Continue Reading

Will the DOL continue to make ESOPs a compliance priority?

By Greg Daugherty on
One question that has been on the minds of plan sponsors is how aggressive the Department of Labor (DOL) under President Trump will be compared to that of President Obama. In recent years, the DOL made a priority of investigating ERISA fiduciary issues, with a particular focus on employee stock ownership plans (ESOPs). After the … Continue Reading

Join us for our upcoming program in Columbus on the benefits of ESOPs

By Porter Wright on
Employee Stock Ownership Plans (ESOPs): A Tax-Advantaged Strategy for Growth, Liquidity and Succession Planning Tuesday, September 23, 2014 REGISTER NOW BEFORE SEPTEMBER 19! 3:30 – 4:00 p.m. –  Registration 4:00 – 6:00 p.m. – Program Join us for hors d’oeuvres and cocktails immediately following the program in our Atrium. Porter Wright 41 S. High Street, 29th Floor … Continue Reading

ESOP boundaries: plan design versus fiduciary function

By Porter Wright on
Greeting from Northeast Ohio. We have LeBron James coming home, the Republican National Convention, and something almost as exciting: thoughts about ESOPs! As I mentioned in a prior blog, in Coulter v. Morgan Stanley & Co. the Second Circuit held that the decision to contribute employer stock rather than cash to a benefit plan was … Continue Reading

Dudenhoeffer update – The Supreme Court kills the Moench presumption but requires plausible pleadings

By Deb Boiarsky on
In a bit of a surprise, the United States Supreme Court declined today in Fifth Third Bancorp v. Dudenhoeffer to adopt the Moench presumption of prudence, which entitled fiduciaries of qualified defined contribution plans (including ESOPs) a presumption of prudence for continued investments in qualifying employer securities. In its holding, the Court did unanimously reverse the … Continue Reading

ESOP Trustee Indemnification Stymied by Arbitrator’s Legally Unsupportable Analysis – Schafer v. Multiband Corp.

By Porter Wright on
I am not a fan of binding arbitration in the context of ERISA plans, and a new Sixth Circuit decision, Schafer v. Multiband Corp., demonstrates why. Two individuals (Schafer and Block) founded a company. As part of a series of corporate transactions, two employee stock ownership plans (“ESOPs”) were formed. Schafer and Block were appointed as trustees of the ESOPs, and entered into indemnification agreements with mandatory arbitration clauses. While the DOL was investigating its suspicion that the ESOPs had purchased stock at inflated prices, and with knowledge of this, Multiband entered into a purchase agreement to buy the holding company. As part of the transaction, Multiband entered into indemnification agreements that contained essentially the same provisions as the prior agreements.… Continue Reading

Supreme Court Takes on Fifth Third Bancorp v. Dudenhoeffer ESOP Dispute

By Porter Wright on
As I mentioned in my Heimeshoff v. Hartford blog, the U.S. Supreme Court has agreed to review Dudenhoeffer v. Fifth Third Bancorp, now captioned Fifth Third Bancorp v. Dudenhoeffer. The Court granted certiorari on the question as originally framed: Whether the Sixth Circuit erred by holding that Respondents were not required to plausibly allege in their complaint that the fiduciaries of an employee stock ownership plan (“ESOP”) abused their discretion by remaining invested in employer stock, in order to overcome the presumption that their decision to invest in employer stock was reasonable, as required by [ERISA], and every other circuit to address the issue.… Continue Reading

Dudenhoeffer v. Fifth Third Bank at the U.S. Supreme Court: DOL Brief and the ESOP Sponsor / Fiduciary Boundary Dispute

By Porter Wright on
The DOL has filed a brief with the U.S. Supreme Court in the Dudenhoeffer v. Fifth Third Bank employee stock ownership plan (“ESOP”) dispute that made me think about Boundaries, a book about the importance of establishing boundaries, and compelling respect for those boundaries. In designing ERISA, Congress forged a delicate balance between protecting benefit plans and encouraging employers to provide those benefit plans. The U.S. Supreme Court reminded us in CIGNA v. Amara that this delicate balance includes carefully distinguishing the roles of plan sponsors and fiduciaries, even when one entity (e.g., the employer) wears both hats. The Court ruled that CIGNA, while acting as plan fiduciary, did not have authority to change the terms of the plan as written by CIGNA, acting as plan sponsor.… Continue Reading

Join Porter Wright and GBQ for a breakfast seminar on Friday, October 11 on ESOPs

By Porter Wright on
Employee Stock Ownership Plans (ESOPs): A Tax-Advantaged Strategy for Growth, Liquidity and Succession Planning In an uncertain tax and financial environment, business owners are increasingly looking at ESOPs as a potential strategy for tax-preferred growth and business succession planning. Join Porter Wright and GBQ Consulting LLC as we present a morning seminar discussing the ins … Continue Reading

Sutardja Decision Shows Employers How to Preserve Stock Option Flexibility In a 409A World

By Greg Daugherty on
Many commentators were surprised by the recent federal court of claims decision to deny summary judgment in Sutardja v United States. Sutardja, which currently is headed for trial, involves the IRS assessing a public company executive with Code Section 409A penalties, including a 20% additional income tax plus interest, with respect to potentially discounted stock … Continue Reading

IRS Announces Cost of Living Adjustments for Retirement Plans

By Porter Wright on
The Internal Revenue Service ("IRS") recently announced cost of living adjustments affecting retirement plans. These new limitations are effective for tax year 2012. Many, but not all, applicable dollar limitations will increase. For this purpose, the IRS uses an adjustment process that is similar to the process used to adjust Social Security benefits (which also will increase effective in 2012).… Continue Reading

“Fiduciary” Regulation Change Put On Hold, Pending Revision and Economic Analysis

By Porter Wright on
The Department of Labor's Employee Benefits Security Administration (EBSA) has put the brakes on its proposed rule on the definition of a fiduciary, which was slated to become final in the near future. EBSA's goal for the regulatory change was to ensure that potential conflicts of interest among financial advisors would not compromise the quality of investment advice to individuals.… Continue Reading

Curtiss-Wright Corp. v. Schoonejongen Comes Back to Haunt Us — Follow Your Plan Amendment Procedures

By Porter Wright on
We often are asked why plan amendment procedures vary from plan to plan, and why it is important to follow those procedures—however written. Sometimes there are unique reasons for the specified procedures, but very possibly the answer goes back to the 1990’s and a case called Curtiss-Wright Corp. v. Schoonejongen, which took us on an … Continue Reading

Update on What Fiduciaries Need to Know about Investments and Fees

By Porter Wright on
Plan fiduciaries generally understand that they have certain duties related to plan investments and service provider fees. Court decisions over the years have shed some light on these duties. Fiduciaries should already be doing the following to satisfy their fiduciary duties: 1. Obtain some measure of expertise in plan investments. Lacking expertise, a fiduciary should … Continue Reading
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