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Decisive Victory: ERISA Class Action Dismissed with Prejudice

In 2016, Inland Fresh Seafood Corporation of America established an employee stock ownership plan (ESOP), a type of defined contribution employee benefit plan. The ESOP then purchased 100% of Inland Fresh stock from Inland Fresh’s former shareholders.

Since the ESOP was founded, it has provided substantial benefits to Inland Fresh’s employee participants.

In November 2022, four former Inland Fresh employees filed an Employment Retirement Income Security Act of 1974 (ERISA) class action complaint against Inland Fresh, a number of its executives, its outside counsel, the ESOP Committee and the ESOP’s independent trustee.

The complaint alleged that the defendants breached their ERISA fiduciary duties, engaged in transactions prohibited by ERISA and ultimately caused the ESOP to pay more than fair market value for Inland Fresh stock during the initial transaction.

Read more here.




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ESOP Litigation: Latest Trends and Questions

On May 6, 2022, McDermott Partner Chris Nemeth delivered a presentation during the 2022 TEA National Conference titled “ESOP Litigation: Latest Trends and Open Questions.” His presentation focused on recent significant employee stock ownership plan (ESOP) court decisions and emerging litigation trends in the ESOP industry. Chris and his co-presenter touched on the enforceability of arbitration clauses in the Employee Retirement Income Security Act of 1974 (ERISA) litigation, post-transaction debt forgiveness, and pleading and standing requirements.

For questions about employee benefits matters, please contact Chris or McDermott’s employee benefits practice team.




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Mature ESOPs: Remodeling the House You Own

On May 5, 2022, McDermott Partner Allison Wilkerson delivered a presentation during the 2022 TEA National Conference titled “Mature ESOPs: Remodeling the House You Own.” Her presentation focused on the traits of a sustainable employee stock ownership plan (ESOP), common concerns of a mature ESOP and other ESOP-specific investment issues. Allison and her co-presenters also discussed redemption, re-leveraging and the hot acquisition market.

The presentation concluded with the following suggestions:

  • There are options available no matter where you are in the ESOP life cycle.
  • Gauge your employee-owners.
  • Respond with changes that make the ESOP more relevant.
  • Reach out for help—the ESOP community is vested in your company’s success.

For questions about employee benefits matters, please contact Allison or McDermott’s employee benefits practice team.




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Understanding a Trustee’s Role in Management Incentive Plans

On May 5, 2022, McDermott Partner Erin Turley delivered a presentation during the 2022 TEA National Conference titled “Understanding a Trustee’s Role in Management Incentive Plans.” Her presentation focused on the trustee’s role in Management Incentive Plans (MIPs), how retention and performance stock appreciation rights (SARs) impact an employee stock ownership plan (ESOP) and ways to avoid trustee pitfalls with a MIP. Erin also discussed types of synthetic equity design decisions, incentive stock options, non-statutory stock options and phantom stock/SARs.

The presentation concluded with the following fiduciary considerations:

  • Since the issuance of any equity or synthetic equity can have a potentially dilutive impact on the ESOP, it is important for any plan to be in the best interest of the ESOP plan participants.
  • As a result, one of the primary objectives of the plan should be to identify and select a group of people to be incentivized and rewarded to drive value for everybody.
  • For example, in the case of a SAR, you are rewarding a group of individuals based only on appreciation in the value of the company stock. If the value goes up, that’s good for everybody.
  • The overall compensation program should be in line with compensation practices for comparable-type positions in the industry, perhaps taking geography into account.

For questions about employee benefits matters, please contact Erin or McDermott’s employee benefits practice team.




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Inflation and ERISA Penalties: Hand in Hand for 2022

The Federal Civil Penalties Inflation Adjustment Act of 2015 directs the US Department of Labor (DOL) to make annual inflation adjustments to specified Employee Retirement Income Security Act (ERISA) violations. The increased penalties generally apply to reporting and disclosure failures if the penalty is assessed after January 15, 2022, and if the violation occurred after November 2, 2015.

Access the updated DOL penalties.




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Internal Trustee Fiduciary Liability

What are an employee stock ownership plan’s (ESOP) internal trustee’s fiduciary duties? What are some of the most common liability areas for trustees? And how can trustees prevent common liability pitfalls?

In this presentation, McDermott Partner J. Christian Nemeth offers insight into fiduciary duties, standards and best practices.

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Expect More Difficulty Obtaining Fiduciary Insurance

Increasing retirement plan-focused litigation has put insurance carriers and fiduciary service providers in difficult positions. In this article published in PLANSPONSOR, McDermott Partner Erin Turley said such litigation continues to be a “major focus” in the fiduciary insurance marketplace.

“It is a challenging market right now, to the point that we are looking at trying to think about ways that insurance products might be differently structured, to address what we hope will only be a short-term tightening in the market.”

Access the article.




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IRS Announces 2022 Retirement Plan Limits

The Internal Revenue Service (IRS) recently announced the cost-of-living adjustments to the applicable dollar limits for retirement plans for 2022. Most of the dollar limits currently in effect for 2021 will increase, with only the catch-up contribution limit remaining the same for 2022.

View the adjustments here.




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