The Employment Retirement Income Security Act of 1974 (ERISA) sets the minimum standards for many retirement and health plans. This includes employee stock ownership plans or ESOPs. In fact, ESOP fiduciaries must pay particular attention to rules and standards of conduct.

The Role of ERISA Fiduciaries

Anyone with authority or control of ESOP plan assets, or who participates in management or administration of the plan, is considered a fiduciary under the ERISA. In fact, the title ‘fiduciary’ does

not have to be given to an individual for that person to be working in a fiduciary capacity.

Part 4, Title I, of ERISA provides general fiduciary standards and rules of conduct. One of the most important requirements is that fiduciaries solely in the best interests of beneficiaries and plan participants. These standards apply whether the fiduciary is managing a health plan or an ESOP.

ERISA Compliance for ESOP Fiduciaries

ESOP fiduciaries must comply with some specific ERISA requirements, including:

  • Primary Purpose. Fiduciaries must form and operate the ESOP to provide benefits to ESOP participants and beneficiaries only, but also keep administrative expenses down.
  • Independent Appraisal Experts. ESOP fiduciaries shall rely on independent appraisal experts when valuing closely held employer stock. Before hiring an appraisal expert, the ESOP fiduciary should carefully vet independent appraisal experts. In addition, the ESOP fiduciary must oversee the appraisers working, document steps taken to provide the appraisal expert with current information. In addition, steps taken to ensure the fiduciary understood the appraisal expert’s report.

Do Your ESOP Fiduciaries Understand ERISA Compliance?

If you are involved in an ESOP or plan to be in the future, it is important to carefully consider the role of fiduciaries. Noncompliance with ERISA can result in costly fines and penalties.