August 30, 2018

Is My ESOP Account at Risk?
August 30, 2018

Jamie Bowers

An Employee Stock Ownership Plan (“ESOP”) is an ownership program where a company provides its employees with company stock, usually at no cost to the employees.  Shareholders often create an ESOP by selling their shares of stock to the newly created ESOP as a form of an “exit strategy.”  The ESOP may pay the shareholders for these shares of stock by taking out a loan (“leveraged ESOP”).  As the company creates revenue, it repays the ESOP’s loan, and the ESOP releases shares of company stock to its employees.  

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Employee Stock Ownership Plans: Vulnerable to Abuse? 
May 30, 2018

Julie S. Selesnick

Many traditional 401(K) plans are being replaced with employee stock ownership plans (“ESOPs”). While in many cases an ESOP is a valuable benefit to employees, they are also vulnerable to abuse. 

What is an ESOP?

An ESOP is a qualified defined-contribution employee benefit plan designed to invest primarily in the stock of the sponsoring employer. That means, instead of investing the retirement contributions into traditional investment vehicles like stocks, bonds or money market funds, the retirement contributions are invested back into company stock. ESOPs are “qualified” in the sense that the ESOP's sponsoring company, the selling shareholder and participants receive various tax benefits. For these reasons, ESOPs are often used to give the employees a vested interest in the company’s success and aligning their interests with the company's shareholders. Unfortunately, ESOPs can be used for improper purposes, which harms employees and violates the Employee Retirement Income Security Act (“ERISA”), a federal statute that protects employee retirement assets from abuse.

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ERISA Litigation Trends in 2017 
December 18, 2017

Julie Goldsmith Reiser and Jamie Bowers

During 2017, several trends emerged in litigation under the Employee Retirement Income Security Act. Excessive fee cases remained prevalent, with two types commanding a large percentage of ERISA litigation — cases challenging the inclusion of proprietary funds in a 401(k) plan and cases against universities’ 403(b) plans. The U.S. Supreme Court addressed the interpretation of the church plan exemption, overturning three appellate decisions holding that an ERISA-exempt church plan must be established by a church and causing participants to pursue alternate theories of liability. Outside of litigation, Congress repealed a U.S. Department of Labor rule that established a safe harbor from ERISA coverage for state-sponsored retirement plans. Despite the repeal, eight states are continuing to implement their plans, with Oregon being the front-runner to face ERISA preemption challenges. And finally, after the Supreme Court’s Spokeo decision, Article III standing regained prominence, prompting multiple decisions on when a participant in a defined benefit plan incurs sufficient risk to benefits to confer standing. These trends have developed throughout 2017 and raise issues that will continue through 2018.

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A Rule in Flux: The Department of Labor’s Fiduciary Rule
December 1, 2017

Karen L. Handorf and Daniel Sutter

As litigation about the legality of the Department of Labor’s controversial Fiduciary Rule reaches federal circuit courts, the current administration has turned into the Fiduciary Rule’s biggest adversary.

Over a year ago, insurance companies started a broad offensive against the Fiduciary Rule in federal courts across the country. Challengers to the rule have filed six cases in three federal district courts to date. Despite the success of the Department of Labor (“DOL”) in defending the Fiduciary Rule, recent changes of position by the Department of Justice and DOL have cast a shadow over the Fiduciary Rule’s future.

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