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Partner Craig C. Martin recently discussed current developments in ESOP fiduciary litigation at the Great Lakes Benefits Conference in Chicago. The Conference, which is co-sponsored by the American Society of Pension Professionals & Actuaries (ASPPA) and the Internal Revenue Service, offered the opportunity to discuss the latest employee benefit issues with colleagues and top IRS and DOL government agency representatives.
Mr. Martin opened his presentation with a summary of the basic legal structure of an ESOP, including the purpose of ESOPs, the definition of a fiduciary and what a breach of fiduciary duty entails. He cited several ESOP fiduciary duties–duty of loyalty, duty of prudence, duty to diversify, duty to act in accordance with the plan documents, and the prudent sale of stock for adequate consideration. Conflicts of interests and favoring employee-related interests were mentioned as examples of breaches of these fiduciary duties.
Mr. Martin focused on the impact of the Third Circuit’s decision in Moench v. Robertson, which developed the presumption that a fiduciary acts consistently with the Employee Retirement Income Security Act (ERISA) by investing in employer stock.
However, Mr. Martin said, a plaintiff in a breach of fiduciary duty lawsuit may overcome this “Moench Presumption” by establishing that the fiduciary abused its discretion and that a prudent investor in the same circumstances would not have invested in employer securities by the plan’s mandates.
Many litigation issues exist for ESOP fiduciaries of private companies, Mr. Martin added. Because no market gauge of the value of the employer stock is available for ESOP participants, he said, valuation and redemption legal claims could arise. Another issue Mr. Martin discussed was potential information disclosure matters, including ESOP participants having access to less information about a private company.
Mr. Martin presented with David Ackerman of Morgan, Lewis & Bockius, LLP.
Mr. Martin is the Chair of the Firm’s ERISA Litigation Practice and Co-Chair of its Business Litigation Practice.