THE BACKGROUND
The U. S. Department of Labor (“DOL”) reached agreements to resolve four lawsuits with First Bankers Trust Services Inc. (“FBTS”). The lawsuits alleged that FBTS violated the Employee Retirement Income Security Act (ERISA) when it approved stock purchases by the Employee Stock Ownership Plans (ESOPs). As part of the agreements, FBTS paid approximately $16 million to the plans and reformed its procedures for handling ESOP transactions. Three of the settlements were reached in 2017 and the most recent one was reached in April 2018.
DOTTING “i”s & CROSSING “t”s
In each of the cases, FBTS served as a trustee and fiduciary of the ESOP, charged under ERISA with ensuring that the ESOP paid no more than fair market value for the employer stock. The DOL alleged that FBTS approved transactions without undertaking the due diligence required of an ERISA fiduciary, and ultimately caused the ESOPs to overpay by millions of dollars for the stock they purchased.
In one of the cases, the New Jersey district court held – after a 17-day trial – that FBTS breached its duties of prudence and loyalty when it caused the ESOP to overpay for shares of stock. Another case was the subject of a two-week trial before the New York district court in April 2017, but no judgement had been returned as the parties discussed settlement.
CHANGE IN POLICIES & PROCEDURES
As part of the settlement in one of the cases, FBTS also agreed to follow specific policies and procedures when it acts as a trustee or fiduciary to an ESOP that is purchasing, selling, or considering the purchase or sale of employer securities that are not publicly traded. These policies and procedures include requirements for the selections and oversight of a valuation advisor, the analysis required as part of the fiduciary review process and the documentation of the valuation analysis.