A federal district court judge found that since shares for the ESOP were purchased with borrowed funds, the subsequent lower valuation of the stock was an immediate equitable benefit to participants.
The court found as a fiduciary to the ESOP, Evolve Bank failed to notice, question or investigate several red flags that appeared in the appraisal of the stock that was used to set the share price for a 2010 purchase.
ESOP participants have an average retirement balance of $170,326, more than twice the $80,339 that other workers have saved
The lawsuit alleged that employee stock ownership plan participants overpaid for company stock.
Ruling in favor of a detailed motion to dismiss filed by defendants, the court cites a long list of precedent-setting cases, including the U.S. Supreme Court’s 2014 decision in Fifth Third v. Dudenhoeffer.
Lubbock National Bank, the ESOP’s trustee, has also agreed to take steps that will ensure it fulfills its fiduciary obligations in the future.
The Department of Labor sued Sonnax Industries, company officers and ESOP fiduciaries Tommy Harmon and Frederick Fritz, and Illinois-based First Bankers Trust Services Inc. in December 2016, alleging the fiduciaries had the plan overpay for Sonnax Industries stock by millions of dollars.
Both, one in the House and one in the Senate, have bipartisan support
The appellate court agreed with a lower court that plaintiffs did not meet pleading standards set forth in the Supreme Court ruling in Fifth Third v. Dudenhoeffer.
Newly leveraged ESOPs that borrow a large amount relative to their earnings could find their deductible expenses decrease.