The Department of Labor Steps Up Its ESOP Enforcement Activity

It is no secret that the Department Of Labor (DOL) has stepped up its enforcement activities with ESOPs in the last few years. Numerous lawsuits have been filed, and many Trustees are looking to protect themselves from exposure. Our experience has shown that litigation can be avoided by making certain that the appraisal process, methodologies, procedures, and documentation are top notch. Being sure that the selection of the ESOP appraiser and management of the ESOP appraisal process is conducted by Trustees who have no conflicts of interest will go a long way to ensuring you obtain an independent and unbiased appraisal.

Having your ESOP appraisal reviewed by a nationally recognized appraisal firm that specializes in ESOPs will likely provide you with valuable information, either with assurance that your appraisal report will pass muster, or with suggestions as to how to make changes so that it does. Also, make sure your appraisal reports are fully documented and contain all factors noted in the Internal Revenue Services' Revenue Ruling 59-60 and the DOL's proposed regulations on adequate consideration. If your ESOP is contemplating a Transaction, these factors become even more critical, as the DOL is focusing its efforts in this area.