ESOP Employer Responds to DOL Action

March 18, 2002 (PLANSPONSOR) - On Friday, the Earle M. Jorgensen Company (EMJ) confirmed that while it has been told by the Department of Labor that the DOL had filed suit against the company, it was surprised by the action - and intends to defend its position.

However, the company said it has not yet been served with the complaint and is not in a position to comment specifically on the DOL’s suit, according to a press release.  EMJ said that it has cooperated fully with the Department of Labor’s investigation that focused on the annual valuations of the company’s stock used in connection with the company’s ESOP.

The suit, filed on March 8 against the Brea, California-based firm, alleged that the company and its pension plan benefits committee violated the Employee Retirement Income Security Act (ERISA) by allowing stock contributed to the pension plans to be valued above fair market value.  That resulted in fewer shares being assigned to the company-sponsored plans, according to the suit.

Reasonable Requirement?

The suit alleges that the defendants failed to take reasonable steps to investigate and correct deficiencies in valuations conducted by Houlihan, Lokey, Howard and Zukin.  The DOL contends the benefit committee should have caught and corrected the errors made by Houlihan – and now seeks a court order to require:

  • that the defendants purchase back all stock contributed to the plan at the values assigned by Houlihan to correct any prohibited transactions with the plan
  • the permanent ban of the benefit committee members from serving as fiduciaries with respect to the investment of assets of plans governed by ERISA.

Named in the suit are the company, its parent holding company Earle M. Jorgensen Holding Company, Inc., and benefit committee members Randal J. Haas, Lonnie R. Terry, Charles P. Gallopo and Stephen C. Wild.

Thorough Review

In responding to the DOL’s assertion of deficiencies in the methods used by the ESOP’s independent appraiser, the company says it conducted a thorough review of the operations of the ESOP, including obtaining a second independent valuation of the company’s stock from a nationally prominent valuation firm.

The results of that review generally corroborated the methods used in the original valuations of the company’s stock and rejected the assertions of the DOL, according to EMJ.

Jorgensen Company is a privately-held company that distributes steel, aluminum and other metals and sponsored the ESOP for 1,293 participants. As of March 1999, the plan reported assets of $69,829,615 of which $64.8 million represented employer securities, according to the Department of Labor.