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DOL offers stock-appraisal guidance for companies that sponsor ESOPs

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in Compensation and Benefits,Human Resources

The U.S. Department of Labor has developed appraisal guidelines to help employers that sponsor Employee Stock Ownership Plans (ESOPs) make informed decisions about legally buying and selling company stock.

Roughly 6,800 U.S. companies have an ESOP, a type of retirement plan in which employees own stock in the company they work for. ESOPs are governed by the Employee Retirement Income Security Act (ERISA), which dictates how almost all retirement plans must be administered.

ESOPs can buy or sell stock—but only at fair market value. Making sure stock is valued correctly is the responsibility of the ESOP’s advisor or valuation expert—and the company’s owners. And incorrectly valuing stock can be a costly mistake.

The Department of Labor’s Employee Benefits Security Administration (EBSA) enforces ERISA’s ESOP provisions. Since fiscal year 2010, it has recovered more than $241 million for ESOP violations, mostly involving improper valuations.

In 2013, fiduciaries had to restore more than $4 million to the Parrot Cellular ESOP. Last June, GreatBanc Trust Co. had to repay $5.25 million to its ESOP. In both cases, investigators found that those responsible for the ESOP had allowed it to purchase stock above fair market value.

Errors like those are avoidable. In EBSA’s settlement with GreatBanc, it laid out a set of appraisal guidelines that all employers can follow to ensure they’re making wise and prudent decisions.

If you sponsor an ESOP, download a free copy of the guidelines. Then pass it along to your company’s owners and staff who manage your ESOP plan.

{ 1 comment… read it below or add one }

H Kaplan May 21, 2015 at 3:32 pm

These are not public guidelines, they are the terms of a settlement agreement with this specific defendant and should not be interpreted as guidelines.


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