The judgment in Chao v Earle M Jorgensen will also require the valuation of holdings in the plan consistent with past stock valuations. This move will allow the more than 1,200 employee participants in the ESOP to benefit from previously overvalued stock contributions, the US Department of Labor (DoL) said about the ruling, according to a report by the LA Times.
Under the agreeemt, Jorgensen will guarantee that distributions made from the plan will be priced at either the current valuation methodology or $4.25 per share, whichever is greater.
The privately held Brea, California-based Earle M Jorgensen Company was sued by the DoL March 8, 2002 for allegedly overvaluing company stock contributed to its employee pension plans, a violation of the Employee Retirement Income Security Act (ERISA). The DoL charged that the company, its parent holding company, and former benefits committee members, were involved with the common stock overvaluation in plan contributions from 1994 to 2000 (See DOL Says ESOP Stock Contribution Overvalued ) .
This resulted in plan participants receiving much less stock than the department believed they were entitled to in their pension accounts.
Employees own about 30% of Jorgensen, with investment firm Kelso & Company owning most of the rest. The company became an Employee Stock Ownership Plan (ESOP) in May 1990, as part of a merger of metal distributors Jorgensen Steel & Aluminum and Kilsby-Roberts.
Viewed and Reviewed
Jorgensen responded to the original charges by the DoL by conducting what the company says was 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 metal distributor said 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 (See ESOP Employer Responds to DOL Action ) .
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 DoL.