Employee Stock Ownership Plans (ESOPs)
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Investor Guidelines for Shared Value Creation in Employee Ownership Transitions Unveiled

One of the big questions for the employee ownership field is, why has the number of US employee-owned firms failed to grow significantly over the last couple of decades? An upcoming paper from Fifty by Fifty proposes that the barrier to growth is a lack of agency. Employees don’t have the knowledge, skills or capital to pursue a buyout of their employer; and employers, knowing little about the benefits of selling to employees, are more likely to respond to an opportunity that knocks on their door, such as an offer from a private equity firm or a strategic buyer. McDermott’s Ted Becker and Erin Turley share their thoughts on the guidelines in a recent article published on Medium. Access the full article. Originally published on Fifty by Fifty, January 29, 2020

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Federal Court Dismisses Challenge to ESOP Transaction

In Lee v. Argent Trust Co., the court dismissed ERISA claims challenging an ESOP stock transaction because the plaintiff, who “fundamentally misunderstands the nature of the” ESOP transaction, did not allege that she suffered any injury. This decision is important to educate other courts about economics, particularly in cases where plaintiffs rely on little more than the post-transaction valuation as evidence of supposed overvaluation. Access the full article.

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Kruse-Western Wins Partial Dismissal in ERISA Lawsuit over $244 Million Stock Sale

The federal court affirmed ERISA’s limitations on the types of claims and remedies available under ERISA. This well-reasoned decision affords Congress the deference it deserves by limiting claims and remedies only to those Congress intended to provide in ERISA. Access the full story.

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On Top of ESOP Developments: Insights from the 42nd ESOP National Conference

The 2019 ESOP National Conference, an annual gathering for employee owners from all levels, association volunteer leaders and expert professionals, took place May 22–24. Two McDermott partners, Theodore (Ted) M. Becker and Erin Turley, presented three sessions during the conference, the slides of which are available for download on the conference website. See descriptions of the presentations below: New & Notable ESOP Valuation Issues Co-Presented by Erin TurleyESOP valuation methodology and theory continue to evolve in part due to ESOP litigation, DOL investigations, academic studies and other outside factors that may potentially impact ESOP valuations today. This advanced valuation session discussed recent "hot topics" to consider when valuing an ESOP company. Legislative, Regulatory and Judicial Update Moderated by Ted BeckerThis session provided an update of court decisions, IRS and DOL guidance and activities, and federal legislation of significance...

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It Could Happen to You: Tips for Acing a Benefit Plan Audit

Over the past several years, the IRS and DOL have significantly increased the number of benefit plans audits conducted each year. As a result, it is important for plan sponsors to understand the types of issues that often arise in connection with such audits. At the recent PSCA 2019 National Conference, Brian Tiemann explained what plan sponsors should expect if their benefit plan is selected for audited. More specifically, Brian discussed the ways audits are typically triggered and how to respond when a plan is audited. In addition, Brian outlined some of the most common retirement and health and welfare compliance issues identified in plan audits. He also discussed how plan sponsors can prepare for audits and even address potential compliance issues before they occur. View the full presentation.

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US Supreme Court to Review Unusual Second Circuit Decision in Stock Drop Case Against IBM

On Monday, the US Supreme Court agreed to review the Second Circuit’s decision in Jander v. Retirement Plans Committee of IBM, a “stock drop” lawsuit against IBM’s benefit plan fiduciaries. The Second Circuit’s decision marked one of the few times a federal court permitted a “stock drop” lawsuit to survive dismissal since the Supreme Court’s decisions in Fifth Third Bank v. Dudenhoeffer (2012) and Harris v. Amgen (2016). Together, the Dudenhoeffer and Amgen decisions set a high pleading bar for plaintiffs who file “stock drop” claims. These lawsuits involve employee stock ownership plans, in which the plan includes employer stock as an investment option, and a subsequent drop in that stock’s price. Plaintiffs allege that by failing to remove the stock from the plan or take other corrective action (such as disclosing information), fiduciaries breached the prudent person standard of care that ERISA imposes on fiduciaries. Dudenhoeffer requires plaintiffs to...

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Former Employee’s Release Agreement Bars ERISA Claim Against ESOP Fiduciary

A recent summary-judgment decision explains how individual releases can bar the individual from pursuing ERISA fiduciary-breach claims on behalf of the plan. A plan, employer or fiduciary that wants to ensure a release that includes ERISA claims on behalf of a plan should consider language that addresses the court’s areas of inquiry in the case, which are outlined in this article. Access the full article.

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Selling a Family or Multi-Shareholder Business to an ESOP

In a presentation for the National Center for Employee Ownership (NCEO) Conference, Erin Turley presented on selling a family of multi-shareholder business to an ESOP. She discussed ownership transition alternatives and how to execute the ESOP transaction. Below are a few key takeaways from the presentation. A multi-shareholder-owned company should not be a deterrent selling to an ESOP Communicating with the shareholder group is key Legal procedures must be followed to ensure all shareholders are informed View the full presentation.

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ESOPs: What Not To Do (and If You Did, How to Correct It)

In a presentation for the National Center for Employee Ownership (NCEO) Conference, Emily Rickard presented on ESOP plan design, operation and administration. She, along with the other presenters, identified ERISA compliance watchdogs including the plaintiff’s bar, Department of Treasury and Department of Labor, and what attracts their attention when it comes to audits. Emily also identified common mistakes employers make during the entire ESOP lifecycle (e.g. lack of employee communication, distribution strategy and planning) and provided guidance on how to correct those mistakes. View the full presentation.

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ERISA Plan Controversy | Rising Stakes for Those Unprepared

In a presentation at McDermott’s Employment and Employee Benefits Forum, Ted Becker and Chris Scheithauer explored the various ways that disgruntled employees file lawsuits with plaintiffs’’ lawyers. Lawsuits have been brought in cases alleging, imprudence in the management of plans, challenging fees, involving company stock, actuarial equivalence and more. They used recent cases such as, NYU, American Century Services and IBM, as examples of the various types of lawsuits and the important lessons employers can take away from them. In addition, they provided attendees with key strategies to minimize exposure to lawsuits, including demonstrating a thoughtful and deliberative decision-making process. Looking ahead to 2019, they touched on ERISA issues to watch for including, venue/forum selection clauses in plan documents, arbitration agreements and impact on fiduciary duty claims, statute of limitations and burden of proof issues. View the full...

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