DOL Officials Say Lawsuits Over ESOPs Are High on Their Agenda

Speaking to the American Bar Association Section of Labor and Employment Benefits Committee in New Orleans in February, Department of Labor Deputy Assistant Secretary for the Employee Benefits Security Administration (EBSA) Tim Hauser said ESOP valuations have been "an area of chronic problems" that EBSA has aggressively pursued in the last year. Hauser said that the DOL was pursuing a "big number" of cases for 2014.

Hauser said the problem was that appraisers were too willing to accept management projections for future earnings without really assessing how reasonable these projections are. EBSA assistant secretary Phyllis Borzi added that "the valuation issues continue to be very problematic." She acknowledged, however, that they see the bad cases, but "there are plenty of well-run ESOPs." She said that "the problems we see are when ESOPs are used solely and completely as a corporate financing vehicle and not as a vehicle for employee ownership."