The DOL recently reached a settlement of its lawsuit alleging violations of ERISA against GreatBanc. As part of the settlement, GreatBanc was required to enter into a “Fiduciary Process Agreement.” The agreement applies only to GreatBanc and is not a Regulation, Field Assistance Bulletin or other advice by the DOL. However, it does provide helpful information to ESOP trustees, ESOP fiduciaries, and the broader ESOP community regarding what the DOL considers best practices and standards in the stock valuation process. In fact, Assistant Secretary of Labor for Employee Benefits Security, Phyllis Borzi, stated that “others in the industry would do well to take notice of the protections put in place by this agreement.” In short, the Fiduciary Process Agreement can be viewed as a “playbook” that, if followed, could serve as evidence that the trustee fulfilled its fiduciary duty by engaging in a prudent process in connection with ESOP transactions and valuations.
The policies and procedures described in the agreement apply whenever the Trustee serves as a trustee or other fiduciary of any employee stock ownership plan (ESOP) subject to Title I of ERISA in connection with transactions in which the ESOP is purchasing or selling, is contemplating purchasing or selling, or receives an offer to purchase or sell employer securities that are not publicly traded. The agreement is categorized into three basic components: (1) valuation content and analysis, (2) the qualifications of the financial advisor to the ESOP Trustee and (3) the independence of that financial advisor.
ESOP Fiduciaries would do well to review the provisions of the Settlement Agreement not solely for ESOP Transactions but also in determining their best practices for annual ESOP valuations.
The Fiduciary Process Agreement can be found at: http://www.dol.gov/ebsa/pdf/esopagreement.pdf
Issue Briefs can be found on the NCEO and ESOP Association’s websites.
Please contact your Watkins Ross administrator if you have any questions. If you have someone in your network that would like to discuss this, please let us know.