HIGHLIGHTS:

  • The U.S. Department of Labor has entered into a fifth settlement agreement with the trustee of an employee stock ownership plan (ESOP). The agreement was entered into in connection with a recently settled case relating to the 2010 purchase of Cactus Feeders Inc. stock by the Cactus Feeders Inc. Employee Stock Ownership Plan.
  • The agreement with Lubbock National Bank (the LNB Agreement), announced on May 4, 2018, is identical to the first process agreement that the DOL entered into in 2014 with GreatBanc Trust Company (the GBTC Agreement).
  • Notably, the LNB Agreement does not contain any of the items that the DOL requested be added to agreements with ESOP trustees that were entered into after the GBTC Agreement.

The U.S. Department of Labor (DOL) has entered into its fifth settlement agreement with the trustee of an employee stock ownership plan (ESOP). The agreement, announced on May 4, 2018, was entered into in connection with the recently settled case in the U.S. District Court for the Northern District of Texas relating to a Dec. 22, 2010, purchase of Cactus Feeders Inc. stock by the Cactus Feeders Inc. Employee Stock Ownership Plan.1

The agreement (the LNB Agreement) requires Lubbock National Bank (LNB) to follow certain procedures whenever it serves as a trustee or other fiduciary of any employee stock ownership plan subject to Title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA), in connections with transactions in which an ESOP is purchasing or selling, is contemplating purchasing or selling, or receives an offer to purchase or sell non-publicly traded employer securities.

Holland & Knight has previously described each of the four prior settlement agreements and how they differ from each other in previous client alerts. (See Holland & Knight's alerts, "DOL Settlement Agreement Provides ESOP Transaction Guidance," Sept. 27, 2017; "Further ESOP Transaction Guidance Set Forth in Latest DOL Settlement Agreement," Oct. 9, 2017; and "DOL Enters into Another Settlement Agreement with ESOP Trustee," Feb. 28, 2018.) The LNB Agreement is interesting in that it is identical to the first process agreement that the DOL entered into in 2014, by and between the DOL and GreatBanc Trust Company (the GBTC Agreement).

Notably, the LNB Agreement does not contain any of the items that the DOL requested be added to agreements with ESOP trustees that were entered into after the GBTC Agreement. The LNB Agreement does not contain any language dealing with requirements to:

  • review the types of financing available to ESOPs
  • obtain fairness opinions (though it is industry practice to obtain fairness opinions in ESOP transactions)
  • obtain fiduciary insurance "sufficient to provide liability coverage"
  • conduct additional levels of diligence when selecting a valuation advisor
  • perform additional oversight analysis of a valuation advisor
  • document certain items when ceding any degree of control in a transaction

As we have done in connection with prior alerts, visit Holland & Knight's website for an updated in-depth chart summarizing the terms and highlighting the similarities and differences among the five agreements.

As we have noted before, the terms contained in the various settlement agreements have been viewed as representing "best practices" by some for ESOP fiduciaries. However, because the substantive terms of the LNB Agreement are identical to the substantive terms of the GBTC Agreement, it remains to be seen whether only the provisions contained in the GBTC Agreement and the LNB Agreement should be viewed as "best practices" and the other provisions which may be found in one or more of the other agreements are really tangential or specific only to the particular circumstances of each fiduciary referred to in such agreements.

Additionally, the LNB Agreement still has not cleared up many of the ambiguities or uncertainties found in the prior agreements. Because there are now five separate agreements in place, in order for the agreements to be truly useful to the ESOP community as a whole, additional clarification and/or guidance from the DOL, either in the form of regulations or otherwise, is still needed.