Daniel Aronowitz, Assistant Secretary of Labor and the head of the Employee Benefits Security Administration (EBSA), today testified before the House Education and Workforce Committee in a hearing about EBSA’s priorities. In written testimony and in response to committee members’ questions, Aronowitz reinforced his commitment to protecting ESOPs from the regulatory overreach that has persisted at the Department of Labor and EBSA for decades.
“Through his actions since becoming Assistant Labor Secretary for EBSA, Daniel Aronowitz has clearly demonstrated his intent to ease the onerous regulatory burden on ESOPs and allow employee ownership in America to thrive,” said James Bonham, President and CEO of The ESOP Association. “He has taken concrete steps to end the war on ESOPs, and our membership is fully supportive of efforts by EBSA and Congress to create a fair and transparent regulatory environment for ESOPs and plan sponsors.”
In written testimony submitted to the committee, Aronowitz specifically addressed ending the longstanding national enforcement project directed against ESOPs, saying “We removed ESOP valuations…from our national enforcement priorities. Prior ESOP enforcement had the direct impact of employers avoiding the use of ESOPs because of litigation risk. This directly harmed American workers when they lost out on the potential of ownership in the company for which they worked.”
In outlining EBSA’s enforcement priorities, Aronowitz said focus will be on cases “where there is egregious conduct and significant harm, with a significant focus on enforcing the duty of loyalty under ERISA,” and will “stop regulation by enforcement to assure fairness and proper notice to the regulated community.” Aronowitz noted in his testimony that these shifts in priorities will allow EBSA to “prioritize serious misconduct rather than minor process fouls.”
In an exchange with Health, Employment, Labor, & Pensions Subcommittee Chair Rep. Rick Allen on how EBSA is changing its approach to ESOPs, Aronowitz said, “we are pro-ESOP,” and outlined the enforcement guidance the agency published on April 14. With respect to adequate consideration and ESOP valuations, Aronowitz said until the DOL finalizes the guidance “that Congress has asked for for decades,” EBSA “will not second-guess plan fiduciaries in their judgments.” Aronowitz said EBSA is reviewing each of the 90 pending ESOP cases against the agency’s new priorities, and closed by saying “we are going to treat ESOPs fairly like all other retirement plans. We’re ending that war on ESOPs.”
Aronowitz also addressed frivolous ERISA lawsuits in his written statement, saying EBSA’s goal is “to combat ERISA class action litigation abuse, which has stifled innovation in plan design.” He noted that while protecting the rights of plan participants to sue when there is real harm, EBSA is “pushing back on meritless cases that are designed to leverage settlements because the cost of class-action litigation is so high.” Committee member Rep. Randy Fine, who introduced the ERISA Litigation Reform Act (HR 6084), asked Aronowitz about the significance of motions to dismiss in ERISA lawsuits. Aronowitz noted there have been “about 8 trials over the last 5 years”, with plan sponsors winning 7 of the 8 “because many of these cases are against plans that have an excellent fiduciary process,” but it costs millions of dollars for plan sponsors to defend themselves.” Aronowitz also said that in so-called prohibited transaction cases, “you can now sue with no proof of wrongdoing.” The ESOP Association has endorsed the ERISA Litigation Reform Act and supports its passage.
