A recent settlement agreement announced by the DOL provides plan trustees and advisors with some serious food for thought. As the law firm Bradley Arant Boult Cummings LLP reports, the $5.25 million settlement ended a suit in which the DOL said the trustee of Sierra Aluminum Company’s ESOP did not do all that it should have to verify the accuracy and credibility of the financial statements and assumptions on which it based its support of the ESOP’s purchase of 3.4 million shares of company stock.
But money was only part of the settlement. GreatBanc also agreed to new policies and procedures to guide its future activity as a trustee or fiduciary of an ESOP regarding transactions involving employer securities that are not publicly traded in which the ESOP considers, receives an offer about, or actually buys and sells them.
GreatBanc agreed to the following policies and procedures:
• following new guidelines for the selection and use of a valuation advisor;
• requesting financial statements before proceeding with a transaction;
• following a fiduciary review process;
• not causing an ESOP to buy employer securities for more than their fair market value; and
• considering whether it is appropriate to request a claw-back arrangement or other purchase price adjustments.
The terms of the settlement are specific only to Perez v. GreatBanc. However, the settlement does provide a useful illustration of how other trustees may expect the DOL to treat their policies and procedures if they come under the microscope. The settlement also affords trustees an opportunity to make sure they are following sound practices that would pass DOL muster.
