• Practice Areas
• Employee Benefits / ERISA

ESOP Employee Stock Ownership Plans

Employee Stock Ownership Plans (ESOPs) are a type of employee benefit plan that own stock in the employer company. ESOPs provide many benefits to employees and employers alike.  However, ESOPs can be subject to abuse and mismanagement. Many employee participants are uncertain about or do not understand their ESOP, or are concerned about transactions involving their ESOP. Schneider Wallace and its attorneys have a track record of success in protecting the rights of ESOP participants.

If you have questions about your ESOP, please call us or email us at schneiderwallace.com. There is no charge for an initial consultation.

What are red flags for my ESOP?

• A sudden decline in the value of your ESOP shares when your company’s business seems strong.
• A change in control of the company or an asset sale without a good explanation of how the ESOP benefits, or that preserves the jobs of insiders at the expense of the ESOP.
• An inability to obtain information from the ESOP’s administrators or the company about the ESOP.
• Unexplained delays in providing information about your ESOP account.
• A newly created ESOP overpaying for employer stock (when the ESOP overpays, the ESOP’s stock often loses much of its value in the first few years after the creation of the ESOP).
• Mass layoffs that eliminate the jobs of many ESOP participants to prevent them from obtaining ESOP benefits.
• An ESOP termination and share repurchase followed by another sale of shares of the employer company to an outsider at a different price than the ESOP received.
• The company fails to pay you what you are owed for your ESOP stock when you retire, or demands that you accept an unsecured or undersecured note for your ESOP stock.

What are my rights as an ESOP participant?

• ESOP participants have important and meaningful rights to obtain information from the ESOP’s administrators and the company about the ESOP.
• In some cases, ESOP participants can go to court to protect their accounts and the ESOP from mismanagement by the ESOP’s fiduciaries and trustees.
• Call us or send us an email to find out more.

Notable ESOP Lawsuits:

• Rush v. GreatBanc Trust Co., et al., No 1:19-cv-00738 (N.D. Ill.). Schneider Wallace represents a certified class of more than 400 ESOP participants. The participants claim that the ESOP’s stock in the sponsor company, Segerdahl, Inc., was sold for tens of millions of dollars less than it was worth in a 2016 transaction that resulted in the termination of the ESOP. For more information, documents regarding the certified class are available here: https://www.segerdahlesoplitigation.com/
• Dalton, et al. v. Freeman, et al., No. 22-cv-00847 (E.D. Cal.). Schneider Wallace represents participants in the ESOP. Plaintiffs claim that the ESOP’s sponsor, OC Communications, Inc., sold its assets to TAK Communications CA, Inc. for too little in 2019.
• Schwartz v. Cook, et al., No. 5:15-cv-03347 (N.D. Cal.). Schneider Wallace attorneys represented a class of participants in an ESOP and successfully negotiated a favorable class settlement. The settlement was approved by the United States District Court for the Northern District of California on October 12, 2017.

What are ESOPs?

The purpose of an employee stock ownership plan is to provide retirement income to plan participants. An employee stock ownership plan seeks to achieve this objective by having employees buy company stock, which hopefully appreciates over time and is available for use at retirement. The Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001, et seq., requires plan fiduciaries, when buying or selling company stock on behalf of the plan, to act prudently and with undivided loyalty.

ERISA §§ 404(a)(1)(A) and (B), 29 U.S.C. §§ 1104(a)(1)(A) and (B), provides, in pertinent part, that a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries, for the exclusive purpose of providing benefits to participants and their beneficiaries, and with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.

These fiduciary duties under ERISA §§ 404(a)(1)(A) and (B) are referred to as the duties of loyalty, exclusive purpose and prudence.

“[T]he duties charged to an ERISA fiduciary are ‘the highest known to the law.’” George v. Kraft Foods Glob., Inc., 814 F. Supp. 2d 832, 852 (N.D. Ill. 2011). ERISA’s duty of prudence “is not that of a prudent layperson but rather that of a prudent fiduciary with experience dealing with a similar enterprise.” Whitfield v. Cohen, 682 F. Supp. 188, 194 (S.D.N.Y. 1988). Put another way, ERISA fiduciaries must “act in good faith as an objectively prudent fiduciary would act, not simply as a prudent layperson would act.” Chesemore v. All. Holdings, Inc., 886 F. Supp. 2d 1007, 1041 (W.D. Wis. 2012), aff’d 829 F.3d 803 (7th Cir. 2016).

ERISA’s fiduciary duties entail, among other things:

1. The duty to conduct an independent and thorough investigation into, and to continually monitor the merits of all the investment alternatives of a plan;
2. The duty to avoid conflicts of interest and to resolve them promptly when they occur. A fiduciary must always administer a plan with an “eye single” to the interests of the participants and beneficiaries, regardless of the interests of the fiduciaries themselves or the plan sponsor; and
3. The duty to disclose and inform, which encompasses: (1) a negative duty not to misinform; (2) an affirmative duty to inform when the fiduciary knows or should know that silence might be harmful; and (3) a duty to convey complete and accurate information material to the circumstances of participants and beneficiaries.

According to Department of Labor (“DOL”) regulations and case law interpreting these statutory provisions, in order to comply with the prudence requirement under ERISA §404(a), a fiduciary must show that: (a) he has given appropriate consideration to those facts and circumstances that, given the scope of such fiduciary’s investment duties, the fiduciary knows or should know are relevant to the particular investment or investment course of action involved, including the role the investment or investment course of action plays in that portion of the plan’s investment portfolio with respect to which the fiduciary has investment duties; and (b) he has acted accordingly.

If you have concerns about your ESOP, please contact Schneider Wallace for a free consultation.

Schneider Wallace Represents ESOP Participants and Employees

To learn more about ESOP disputes and remedies, schedule a comprehensive claims assessment with our knowledgeable employee stock litigation lawyers at Schneider Wallace. Reach us at: