Recently the Wall Street Journal featured three articles related to Employee Stock Ownership Plans (ESOP) and valuation practices that put employees’ retirement funds at risk. These articles discuss increased scrutiny by the federal government to ensure that employees are not cheated in their ESOP retirement funds. They also describe the challenges in proper valuation for ESOP transactions and provide several examples of employee groups that have successfully challenged plan trustees in court.
ESOPs are a significant vehicle for retirement savings. About 6,800 US companies had ESOPs as of 2011, according to the Wall Street Journal article. More than 13.4 million workers participated in these plans in 2011, with combined assets of $940 billion.
Problems arise when company valuations are inflated, putting employees and their retirement at risk. The main article describes how the number of private lawsuits and investigations by the Department of Labor have risen in the past few years. Since 2009, the Department of Labor has filed 28 lawsuits tied to ESOPs.
The articles cite several civil cases, including one against Southern California Pipeline Construction. This civil case was brought by Donahoo & Associates, PC on behalf of John Vincent and 200 other employees and recovered over $5 million, most of which was returned to the employees’ ESOP retirement accounts.
Employees may bring a civil action to recover lost retirement benefits in ESOPs. The government has limited resources to investigate and litigate these claims and employee benefits attorneys with ESOP and class action experience can assume a significant role in assisting employees to recover their retirement benefits.
Read the Wall Street Journal articles here:
U.S. Increases Scrutiny of Employee-Stock-Ownership Plans
Performance of Employee Stock Plans is Tough to Gauge
Trachte Building Systems Case Shows How Employee-Stock-Ownership Plans Can Go Awry
