Roughly 6,800 American companies have an employee stock ownership plan, or ESOP. Recently Assistant Secretary of Labor Phyllis Borzi had some cautionary comments for those who have, and work with, those plans.
In a blog post entitled “ESOP 101: 4 Tips for Business Owners”, Borzi noted that since fiscal year 2010, the DOL has recovered more than $241 million for ESOP violations, most of which involved improper valuations of the employer stock held in the plan.
Borzi went on to cite examples such as the $4 million that fiduciaries were required to restore to the Parrot Cellular ESOP, and some $5.25 million that GreatBanc Trust Co. had to pay to the Sierra Aluminum Co. ESOP. “In both cases, the settlements followed investigations finding that those responsible for the ESOP had allowed it to purchase stock above fair market value,” she said.
Borzi suggested the following steps for business owners and ESOPs:
- Make sure your advice comes from a trustworthy source who would not be influenced by conflicts of interest.
- To accurately determine a stock’s value, the valuation advisor relies on complete, accurate, up-to-date information. Employers are responsible for getting that information to the advisor.
- When you receive advice, make sure it’s reasonable. Thoroughly read the report and assess it for consistency and accuracy. Check for assumptions about growth projections, financial statements, business risks and other factors that might influence stock value.
The blog also provided a link to a set of appraisal guidelines that DOL laid out as part of the GreatBanc settlement.
