Washington, DC – The U.S. Department of Labor (DOL), through the Employee Benefits Security Administration (EBSA), today published new guiding principles for EBSA’s enforcement priorities. These new principles represent a stark and much-needed shift at the primary regulator of ESOPs under the Employee Retirement Income Security Act (ERISA).
The memorandum released by EBSA notes that these new priorities are intended to ensure the agency’s enforcement is “fair, even-handed, responsive, and focused,” and specifically cites enforcement actions directed at ESOPs.
For The ESOP Association and its members, the new enforcement priorities come after a multi-year effort to curtail regulatory overreach by career professionals at EBSA and DOL that unfairly targeted ESOPs, ESOP plans, and their trustees. It is also an affirmation of Assistant Secretary of Labor for EBSA Daniel Aronowitz’s pledge to “end the war on ESOPs” given during testimony at his confirmation hearing in the U.S. Senate.
Items of high importance, specifically related to ESOPs in the agency’s guidelines include:
· Ending regulation through enforcement: To achieve fairness, the memorandum notes EBSA “must provide clear and advance notice to the regulated public about its interpretation of ERISA and fiduciary responsibilities.” With respect to adequate consideration, the guidance goes on to state: “until EBSA complies with the Congressional directive to provide “acceptable standards and procedures to establish good faith fair market value for shares of a business to be acquired by an employee stock ownership plan,” all pending and proposed ESOP valuation investigations must be reviewed against this guiding principle of fairness.”
· Enforcement must be “responsive and timely”: the guidance notes that both investigated parties and Congress “have expressed concerns that some EBSA investigations are open-ended and unduly continue for extended periods of time.” The memorandum directs that investigations “should be intentional and deliberate with specific planning and focus,” and mandates quarterly reviews of any investigation remaining open for longer than established timeframes.
· The guidance states “routine investigations involving less complicated issues” should be completed in 18 months, while complex investigations should last no longer than 30 months “unless there are exigent circumstances that are communicated to the Director of Enforcement.”
· Common interest agreements: The memorandum notes the DOL’s Inspector General is investigating the practice of common interest agreements with plaintiff law firms and may update its principles after the findings are complete. The guidance specifically says “EBSA investigators and professionals will not do anything that compromises the Department’s independence, integrity and credibility with the regulated or participant communities. This
includes eliminating any appearance that EBSA enforcement activities and priorities are being coordinated with plaintiff lawyers pursuing private actions.”
“This is a major step in the right direction toward level-setting a fair regulatory environment for employee owners and plan providers,” said James Bonham, President and CEO of The ESOP Association. “The new EBSA enforcement guidelines will help ease the regulatory burden, eliminate never-ending investigations, and provide the transparency that employee owners and their fiduciaries deserve. Most importantly, as the chilling effect of regulatory overreach begins to thaw, the new guidance will help more Americans reap the benefits of employee ownership as the volume of new plan formation continues to increase. On behalf of our members, the Association expresses our gratitude to Assistant Secretary Aronowitz for taking these steps to create a fair playing field for ESOP plans.”
The full text of EBSA’s guiding principles is available here.
