The Department of Labor (DOL) recently entered into an agreement with GreatBanc Trust Company settling claims relating to its service as trustee of an employee stock ownership plan (ESOP) holding stock of a private company. The DOL had claimed that the stock of the company had been overvalued in a sale transaction. The settlement agreement describes the DOL’s view of the obligation of an ESOP trustee to evaluate an appraisal it receives for the private company stock held by the ESOP. According to the DOL, trustees must do more than simply look at an appraisal report and toss it in the file. Pages 13-22 of the Settlement Agreement outline the steps the DOL believes trustees should take in selecting a “valuation advisor” and analyzing the advisor’s work product before accepting it. Documentation of that analysis is also important.

In addition to agreeing to follow the process outlined in the Settlement Agreement, GreatBanc also agreed to pay more than $4,722,000 to the ESOP and $477,000 to the DOL as a penalty for a fiduciary breach relating to the improper stock valuation.

Individuals who serve as trustees of an employer’s ESOP may want to review and follow the DOL guidance in valuing the employer stock held by the plan.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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