Fiduciary Compliance in ESOP Transactions: Recent DOL Settlement Agreements and Best Practices for Counsel

Description

The DOL's ESOP enforcement project has continued its focus on valuation issues regarding ESOPs established by privately held companies throughout 2018. Most often, the DOL has focused on the reasonableness and reliability of valuations, which, if not undertaken correctly, can lead to the ESOP paying too much for shares of employer stock. The DOL's focus on valuation issues has resulted in several enforcement actions and settlement agreements that now serve as guidance to fiduciaries and counsel.

The DOL entered into a settlement agreement with GreatBanc Trust Co. (the GBTC agreement) in 2014. Since then, the GBTC agreement has become an accepted guide for the due diligence process for ESOP transactions, providing trustees with guidelines and procedures to satisfy their fiduciary duties in ESOP transactions. Those procedures were expanded at the end of 2017 by the DOL's settlement agreements with First Bankers Trust Services Inc. (the FBTS agreement) and Alpha Investment Consulting Group L.L.C (the Alpha agreement). More recently, the DOL has entered into another settlement agreement with Lubbock National Bank (the LNB agreement), which appears to be reflective of the GBTC agreement with continued ambiguity and uncertainties regarding ESOP transactions.

The most pertinent elements of these settlement agreements focus on the selection of valuation advisers, oversight of appraisers, financial statements and document preservation, as well as the fiduciary review process. Counsel must recognize the differences and additions of each settlement agreement to understand the DOL's perspective on the duties of ESOP trustees and advisers in such transactions.

Listen as our panel provides guidance to counsel on rules and procedures governing fiduciary and compliance responsibilities of trustees and advisers in ESOP transactions, implications of recent DOL settlement agreements, and best practices in satisfying fiduciary duties in ESOP transactions and avoiding litigation.