ESOP DC Live Tweet

Live Tweets from The ESOP Association’s 39th Annual Conference

Capital Trustees attended The ESOP Association’s 39th Annual Conference in Washington DC from May 18th – 20th, 2016.  Thanks to everyone involved for a very productive and informative conference. We live-tweeted from several of the conference sessions. For those of you who missed the conference and are not on Twitter, we’ve transcribed our Live Tweet sessions below.


ESOP Legislative, Regulatory, and Judicial Update

May 19, 2016 10:00 AM:  Legislative, Regulatory, and Judicial Update, Technical Topic, as described in the ESOP Conference Schedule: “This session, led by two ESOP attorneys, will provide an update of court decisions, IRS and DOL guidance and activities, and federal legislation of significance to ESOP companies, fiduciaries and service providers.

Live tweet by Bret Keisling (@CapTrusteesBret) of @CapTrustees:

ESOPDC Legal and Regulatory

“We’re #LiveTweeting the #ESOPDC Legal & Regulatory Update Session. (Mute us from 10-11 EST if you don’t want the heavy twitter feed.) #ESOP

Preparing to Live Tweet the Legal & Regulatory Update Session @ESOPAssociation Nat’l Conf. #esopdc

Tibble v. Edison Int’l: Plaintiffs for alleged breach of fiduc. duty re: availability of mutual funds as invest options under Plan.

Tibble: Plaintiffs argued that Co. had continuing fiduc. duty to monitor propriety of mutual funds as investment options under Plan.

Tibble: Sup Ct: 9th Circuit reached holding without considering the role of the fiduciary’s duty of prudence under trust law.

Tibble: Sup. Ct.: fiduciary is req. to conduct reg. review of investment with nature/timing of review contingent on circumstances.

Tibble: Supreme Court concluded fiduciaries have an ongoing duty under ERISA to monitor plan investments.

Tibble: Sup Ct.: Fiduciary duty separate and apart from the duty to be prudent when first selecting plan investments.

Tibble: Sup. Ct.: Plaintiffs’ bar may assert & courts may recognize continuing violations” under a failure to monitor theory,

Tibble: Sup.Ct.: fiduciary breach claims reach back to plan investments initially selected well beyond the 6-year SOL:

Bremer Trust, NA v. Quality Ingredients Corp.: 100% ESOP Co. Bremer was directed trustee.

Bremer: Escrow of purchase price payable in 2 installments. Disputed 2nd installment. Special Comm. appointed to evaluate both.

Bremer: Residual ERISA responsibility of directed trustee makes it a fiduciary with standing under 502(a) w/ standing to sue.

Bremer: Also, Bremer’s suit flows from the employee vote in which it clearly acted as a fiduciary.

Hill v. Hill Brothers Construction Company: Plaintiffs sued Company, its directors, and its ESOP and 401(k) plan.

Hill: 1/2: Plaintiffs stock drop case claimed defendants failed to manage plan assets prudently and loyally,

Hill: 2/2: failed to monitor other fiduciaries and provide them with accurate information, and stole corporate opportunities.

Hill: 1/2: Plaintiffs should have alleged alternative that prudent fiduciary wouldn’t have seen as more likely to harm than help it

Hill 2/2: Court also found that Plaintiffs failed to plead causal connection between alleged breaches and losses to the plan.

Hill: Court dismissed. Appeal expected.

Dalton v. Greatbanc Trust Co.: 1/2: Plaintiffs claimed defendant breached ERISA fiduc. duties & participated in prohibited trans.

Dalton: 2/2: by purchasing stock at inflated price, financed with a loan containing an unreasonable rate of interest.

Dalton: plaintiffs relied heavily on post-transaction drop in share value as well as year-over-year declines in value.

Dalton: Court dismissed, noting that stock value after purchase is not indicative of FMV of the stock before ESOP purchase.

Dalton: Court found plaintiffs’ claim that interest rate (6.25%) was 2% above market rates was conclusory and w/out any support.

Dalton: Court dismissed claim. Appeal expected.

Determination Letter Program: 1/2 Eff. 1/1/17, 5-year remedial amendment cycles for individually designed plans, including ESOPs

DL 2/2: , to apply for a determination letter (DL), (currently in Rev. Proc. 2007-44) are eliminated.

Determ. Lttr: DL applications based on the five-year cycles will no longer be accepted by the IRS.

DL: IRS will only issue DLs for: Initial plan qual., terminated plans; & certain limited circumstances determined by IRS & Treas.

IRS Notice 2016-03 Expiration dates on DL’s issued prior to 1/4/16 will not be operative, meaning DL maintains its vitality.

IRS PLR 201538021: Single Ruling – Units in an LLC can qualify as “employer securities” under IRC Section 409(l).

Everyone thought LLC’scould NOT be ESOPs. This private ruling changes that in some instances.

Only good for LLC’s that elect to tax as corporations. Accordingly, there is not expected to be a rush to create LLC ESOPs.

Congrats Laurence A. Goldberg, ESOP Law Group, LLP & Larry Gwaltney, Moore & Van Allen PLLC. Excellent Legal & Regulatory Update.

Thxs to all at the #ESOP Legal & Regulatory Update @ESOPAssociation #ESOPDC, Great conference w/ more to come.”

[Copied from 19 May 2016 Twitter feed, with light editing to remove repeated hashtags specific to Twitter and reordered with earliest tweet first.  Please excuse any typos and creative abbreviations inherent to a live-tweet event!]

Addressing Conflicts of Interest

May 20, 2016 9:00 AM:  Addressing Conflicts of Interest, Technical Topic, as described in the ESOP Conference Schedule: “The preamble to the DOL’s 1988 Proposed Regulation Relating to the Definition of Adequate Consideration states the DOL’s view that the “close relationship between the plan and plan sponsor … raises a significant potential for conflicts of interest as the fiduciary values assets which are the subject of transactions between the plan and the plan sponsor.” However, ERISA does not prohibit directors and officers of the plan sponsor company from serving as plan fiduciaries. More recently, the Fiduciary Process Agreement entered into last year between the DOL and GreatBanc Trust Company contains a section on conflicts of interest of valuation advisors. This session will focus on the difference between actual and potential conflicts of interest, how corporate law and associations of appraisers address conflicts of interest, and how to address them in the context of ESOP transactions and annual valuations so as not to run afoul of the DOL.

Live tweet by Bret Keisling (@CapTrusteesBret) of @CapTrustees:

Independent Valuation Live Tweet

“We’re sharing @CapTrusteesBret #LiveTweet of #ESOPDC “Addressing Conflicts of Interest” session.

If you are not interested in this #ESOPDC #LiveTweet “Addressing Conflicts of Interest” #ESOP session please mute us until 10 AM EST.

Looking forward to the start of “Addressing Conflicts of Interest” with Julie Govreau, Howard Kaplan, & John Miscione.

Addressing Conflicts of Interest: Ted Becker is filling in for Howard Kaplan.

True or False: ERISA requires that valuation advisors be independent from the parties to a transaction? FALSE.

The concept of “independence” appears in the DOL’s Proposed Regulations Relating to the Definition of Adequate Consideration.

Adequate Consideration = fair market value of asset as determined in good faith by a fiduciary.

Assessment of independence is made in light of all relevant facts and circumstances.

1/2 Good Faith = Prudent investigation + 2. Fiduciary is either Independent of all parties to the transaction OR …

2/2 OR … relies on the report of an appraiser who is independent of all parties to the transaction.

1/2 DOL scrutinizes when valuation firm conducts a feasibility study or advises potential sellers on stock price …

2/2 … then serves as the valuation advisor for the ESOP Trustee in the transaction.

Perception is financial advisor is driving trustee to price they previously advised selling shareholders could be obtained.

Independence is addressed by Fiduciary Process Agreement entered into between the DOL and GreatBanc Trust Co.

1/2 The Trustee will not use a valuation advisor for a transaction has previously worked – including a “preliminary valuation” …

2/2 –for any party other than the ESOP or its trustee; or has a familial or corporate relationship to any party of the transaction

1/2 This does not mean that the plan sponsor company can *never* use the same valuation advisor as the trustee.

2/2 … Nor does it mean the trustee cannot use the same valuation advisor for annual valuations.

Exercise caution if valuator has preciously performed Estate/Gift tax valuations or other prior work for buyer.

If there is a perceived conflict, Trustee should document the decision to use valuation advisor.

But then again, a good Trustee documents ALL decisions. (CapTrustees does this).

Other sources: ASA & AICPA: Require members to approach/perform valuations w/ independence & impartiality.

Other sources: 1/2 USPAP requires appraisers to “perform assignments with impartiality, objectivity, and independence, …

Other sources: 1/2 USPAP requires appraisers to “perform assignments with impartiality, objectivity, and independence, …

Other sources: IRS Code generally requires valuation providers to provide an impartial opinion of value.

IRS looks to generally accepted appraisal stds to determine if valuation was conducted impartially and independently.

1/2 The role of the valuation professional is not to advocate for value, or investment, on behalf of anyone, …

2/2 … but instead to provide an impartial, independent opinion of value.

The fiduciary process agreement only applies to GreatBanc, but a prudent Trustee (including CapTrustees) implement the components.

Potential ramifications of ignoring GreatBanc Process Agrmnt:: Presumptive breach of fiduciary duty & Increased litigation risk.

DOL asserts that appointment/engagement of ESOP Trustee transforms selling shareholder into appointing fiduciary with oversight role.

The more hats one wears in connection to company and ESOP transactions, the more likely a conflict will arise.

Conflicts are often assessed for selling shareholders and management. Board conflicts should be examined as well.

Congrats & thanks to Julie Govreau, John Miscione, & Ted Becker for a great and informative session “Avoiding Conflicts of Interest” #esopdc

ESOP Nifty Fifty

May 20, 2016 10:45AM – 11:45AM: Nifty Fifty, Breakout Session, as described in the ESOP Conference Schedule: “Nifty Fifty Speakers will offer their top 50 (or more!) ideas for employee engagement, ownership culture and ESOP communications in a fast-paced, round-robin format, guaranteed to provide you with plenty of ideas to bring back to your company. Come prepared to jot down idea.

NiftyFifty ESOPDC

Live tweet by Bret Keisling (@CaptTrusteesBret) of @CapitalTrustees:

“About to live tweet “Nifty-Fifty” with Tony Bayt, Matthew S. McKenney, Katherine Bersbach, & Tracy Woolsey. #esopdc

(As always, if you don’t want the increased traffic in your feed, mute us until the close of the hour-long session.)

Nifty-fifty: rapid fire sharing of ideas among companies. Presenters are hoping to do 50 topics in 60 min. Put on your setabelt.

Presenter Katherine Bersbach is with Opportunities for Positive Growth provides support to folks with developmental disabilities.

Presenter Matthew S. McKenney is with @Hypertherm, which is a 100% ESOP with numerous domestic and international team members.

Presenter Tony Bayt (@Wormsway) is Business Affairs & Compliance at Worms Way, a 100% ESOP.

Bersbach: Nifty50: Have a dream manager at your company. It keeps you growing and thinking, and ads to personal development.

McKenney: Communication team manages celebration and communication at the company. It’s a great way to engage associates.

Bayt: @wormsway has ESOP University, which engages participants. There are multiple choice questions/essays on ESOP and C. topics.

Bayt: Upon graduation from ESOP University, participants get certificate and hoody. Very popular.

McKenney: We have anniversary cards that mark participant’s anniversary with the co. Gift cards to other ESOP companies as gift.

Bayt: Co. has ESOP bucks, which can be earned throughout year for participation and in contests. In Oct. bucks are redeemed.

Bersbach: Have a co. newsletter. Including message from ceo, births, new hirings. Got a new hire from someone who saw newsletter.

Bersbach: Post employee classifieds, which allows employees to feel connected even if they don’t see colleagues.

McKenney: Comm. Team prepares New Participant letter signed by ceo and also a catered meal, attended by company founders.

Bayt: When employees become vested, their is recognition on the inetrnet and a vesting ceremony, awarding a fleece vest.

Bayt: Upon vesting, participants names are engraved on a vesting plaque.

Woolsey: Based on Worms Way, vesting ceremonies are now very popular in Indiana Chapter.

Berbach: Company has an annual recognition dinner.

McKenney: Co. has a vesting ceremony, where a vesting coin, made by company, with participant name engraved is distributed.

Bayt: 1/2 Co. has Worms Way TV. Quarterly presentation where financials are reviewed, and there are spotlights, …

Bayt: 2/2 … allowing people in different offices to get to know each other.

Bersbach: Co. gets everyone involved in long term “passion projects,” which helps co. be more responsive to its constituents.

McKenney: 1/2 Annual meetings discussed financial performance. Mgmnt & Comm teams developed quarterly videos …

McKenney: 2/2 allowing staff and management to present what their working on and what their passion is. Video is a huge hit.

Bayt: Company has the hot seat, where participants ask questions. Best question gets department pizza party.

McKenney: Co. uses HyperWeb for company communication. Front page has easy access to esop info. Staff posts questions and comments.

Bayt: Before valuation is announced, there is contest to guess stock value. Prize is ESOP Bucks and an ESOP T-shirt.

Bersbach: Have a comment card/dialog box to express concerns or problems. Have a place to offer a solution.

McKenney: A lot of events during Ownership Month. A daily calendar lists events. This year there was a sculpture contest.

Bayt: Co. has ownership month w/ a pitch-in. There is expanded Fri. lunch & commemorates late colleague & celebrates ownership.

McKenney: Ownership month features Selfie Contest. Contest winnners may be eligible to attend esop conference.

Bayt: Haiku Spirit: contest about ownership. Winning haiku is made into a poster. Very popular.

Woolsey: She has seen selfie videos, which are extremely popular.

McKenney: Ownership Month: Play bingo. Clues to bingo clues are places on the Hyperweb, encouraging use of HyperWeb. Very fun.

Bayt: Participants get gifts during ownership month. Gifts have included tshirts, flasks, stress balls, etc.

Bersbach: When planning an event, get input as to what employees want. If people don’t come to an event, there is little benefit.

McKenney: CIA Program: Suggestions made by employees have saved co. significant $ and improved operations. Also a poster contest.

Bayt: Co. has quarterly newsletter, including co. news, anniversaries, birthdays, board update. People like hard copy newsletter.

Bersbach: talk about employee-ownership during interview process. Discuss ownership culture, you may get better hires.

McKenney: Co. has Value Statement, covering core values. Includes video and talks about co. history of employee ownership.

Bayt: Co. posts one-page flyers in restrooms called InSTALLment news.

Bersbach: Have longtime participant paired up with new hire to teach culture and pass along ownership expectations.

Bayt: Co. tries to promote philanthropic events throughout company including sports league sponsorships.

Bersbach: Basic idea: have regular and positive performance reviews. Performance matters, and reviews encourage positive actions.

McKenney: Stock Certificate education, which shows participant results, and empowers partcipants to have better knowledge.

Bayt: Oct. has a pumpkin dress-up to help foster spitrit. Winning entry gets a certificate. Very popular.

Woolsey: Have participant caricatures drawn regularly and hung in the offices.

McKennney: Pie judging contest. Great pies, and lots of volunteers to judge.

Woolsey: To combat bad information, co. has “Rumor Has It” which raises rumors andthen dispels them.

McKenney: Ownership has evolved from culture to business strategy, making it a critical part of success.

Bayt: Has interviews with Trustee and Board members, allowing participants to learn about these people.

Woolsey: Pics are taking first day, and are attached to emails, allowing colleagues to put a face to the name.

McKenney: Have short online training videos. Considering instituting a Certified Owner program.

Bayt: Have requested trustee to post blogs quarterly, to better share knowledge. Is also responsive to participant emails.

McKenney: Has a technical advisory committee, mixing management and rank and file, allowing different voices to be heard.

Bayt: Comm. Committee helps HR by putting out a PowerPoint for all new employees, covering ESOP information, expectations, etc.

1/2 Congrats to Tony Bayt, Matthew S. McKenney, Katherine Bersbach, & Tracy Woolsey for a great presentation on “Nifty Fifty” ideas.

2/2 Tracy Woolsey did a wonderful job as moderator. Well done to the panel.

Appreciate all that we learned from the #ESOPDC #NiftyFifty @ESOPAssociation! Missed the #LiveTweet? We’re recapping on our FB later today!

[Copied from 20 May 2016 Twitter feed, with light editing to remove repeated hashtags specific to Twitter and reordered with earliest tweet first.  Please excuse any typos and creative abbreviations inherent to a live-tweet event!]


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