In this article:
- Who Are ESOP Fiduciaries, What Are Their Responsibilities, and How Do They Get Appointed?
- Who Votes the Shares Held in the ESOPs?
- Corporate Governance of ESOP Companies
- ESOP Legal Pitfalls
Who Are ESOP Fiduciaries, What Are Their Responsibilities, and How Do They Get Appointed?
Any person with discretion over the management or administration of a plan, or who exercises any authority or control over plans assets, is a fiduciary under ERISA. The ESOP trustee, or any other person or committee designated in the plan documents as responsible for making investments in company stock, is a named fiduciary.
ERISA requires that plan fiduciaries act prudently and solely in the interest of plan participants. Three of the most important responsibilities of an ESOP fiduciary are:
- Securing a proper valuation of the stock;
- Assuring that the interests of plan participants are protected in ESOP transactions; and
- Approving all purchases and sales of ESOP stock.
SES ESOP Strategies provides expertise and support at every stage of the ESOP lifecycle.
Who Votes the Shares Held in the ESOP?
The Code requires that company stock in the ESOP must have full voting rights. In non-public ESOP companies, voting rights on shares allocated to ESOP accounts must be passed through to ESOP participants for votes on major corporate matters such as a merger or consolidation, recapitalization, reclassification, liquidation, dissolution, or sale of substantially all of the assets of the corporation.
Unallocated shares, and allocated shares voting on other matters (such as the election of the Board of Directors), may be voted by a named fiduciary, or as otherwise designated in the plan.
Some ESOPs pass through voting to participants on all matters, or provide for proportional voting for all shares held in the ESOP (both allocated and unallocated shares) on the basis of one vote per participant.
SES ESOP Strategies provides expertise and support at every stage of the ESOP lifecycle. Please contact us to learn more.
Corporate Governance of ESOP Companies
Without the founding entrepreneur steering the ship, ESOP companies’ corporate governance is of paramount importance. SES ESOP Strategies can help you understand the roles of trustees, directors and officers, how corporate governance affects value, and best practices for corporate governance in ESOP companies.
ESOP Legal Pitfalls
Whether you have recently adopted an ESOP, have been an ESOP company for years, or are now looking to implement an ESOP transition strategy, we can help you identify – and avoid – common red flags in your ESOP transaction documentation and plan operation.
Co-authored by Jim Steiker, this article reviews the legal standards that govern ESOP committees. Published 2004 in the Journal of Employee Ownership Law and Finance Is an ESOP right for your company? Use our ESOP self-assessment tool to find out. Explore various Ownership Transition Options or replay our Introduction to ESOPs webinar.
Jim Steiker wrote this chapter from the book “ESOPs and Corporate Governance.” Is an ESOP right for your company? Use our ESOP self-assessment tool to find out.
Steve Greenapple addresses breach of fiduciary duty and federal common law fraud by participants who transferred their 401(k) account balances to an ESOP, against the sponsor of the Plans, fiduciaries of the Plans and the ESOP’s financial advisor.