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The Inside ESOP Fiduciary Handbook

(Print Version)

2nd Edition

by Corey Rosen, Merri Ash, Jeff Gelburd, and Scott Rodrick

This is the print version, and shipping charges apply. It also is available in a digital version with no shipping charges.
$25.00 for NCEO members; $35.00 for nonmembers

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Inside fiduciaries for ESOPs have substantial legal responsibility and risk. Making sure an ESOP complies with the law and the plan document is the best insurance against costly legal problems, and at the same time it builds trust and credibility for employee ownership among plan participants. This book is meant to provide an overview of life as an inside ESOP fiduciary. It alerts the reader to the key issues, including ESOP basics, fiduciary issues, valuation, valuation scenarios fiduciaries may face, board-trustee interactions, and fiduciary insurance. Appendices provide sample DOL investigative questions, a sample trustee engagement letter, and a sample trust agreement. The second edition of this book adds a great deal of new material and is over twice as long as the first edition.

Publication Details

Format: Perfect-bound book, 130 pages
Dimensions: 6 x 9 inches
Edition: 2nd (April 2012)
Status: In stock


1. A Review of Basic ESOP Rules
2. What Is an ESOP Fiduciary, and Who Serves as a Fiduciary?
3. What Are Fiduciary Duties?
4. Valuation Basics
5. Valuation Q&A for Inside Fiduciaries
6. Potential Penalties and How to Cover Them
7. Best Practices in Interaction Between the Board of Directors and Trustees
8. Fiduciary Liability Insurance
Appendix 1: Sample DOL Questions on ESOP Appraisals
Appendix 2: Sample Trustee Engagement Letter
Appendix 3: Sample Trust Agreement
About the Authors
About the NCEO


From Chapter 3, "What Are Fiduciary Duties?"

Finally, and critically, fiduciaries must remember that they, not the appraiser, ultimately decide whether the ESOP is paying a justifiable price. Simply hiring a good appraiser is insufficient; fiduciaries should spend considerable time going over the appraisal report and asking tough questions. In some cases, it may also be necessary for the trustee to commission financial advice more than once a year if business conditions have changed substantially before a purchase.

ERISA specifically provides that for purposes of paying benefits, the trustee may rely on an independent valuation performed as of the most recent valuation date prescribed under the plan. In general, this means that the trustee may make distributions at the price per share determined as of the most recent year end. When the ESOP is buying stock back from former participants with ESOP assets, however, the fiduciary should be careful not to overpay for the stock. Both current and former participants could make claims against the fiduciaries where there has been a significant change in the value of stock between the valuation date and the date stock is repurchased, depending on which direction the stock value is moving. Fiduciaries must also remember that the obligation to repurchase shares belongs to the company, not the ESOP. If it is not clear that the per-share value being used for purposes of a distribution of benefits is no more than fair market value, the trustee might well have to insist that the company honor its obligation under the put option (as opposed to having the ESOP buy the shares). Even where the company is buying back the shares, the trustee may very well have an obligation to assure that the board is making a decision about the price that reflects the need to avoid paying too little (in order to protect the rights of participants receiving distributions) and too much (in order to protect the value for the participants who remain).

While a valuation is always required in an ESOP, in some transactions, a fairness opinion is advisable as well. Fairness opinions differ from valuations in that they focus on whether the terms of ESOP purchase (or sale of ESOP stock) are fair to participants. For instance, if the ESOP is one of a number of buyers, a fairness opinion will determine if the amount of equity the ESOP gets relative to the other buyers is fair. Because the ESOP is typically buying shares with non-recourse debt, while the other buyers are putting in cash or otherwise taking more risk, the amounts paid per share may differ. Or the other investors may be getting warrants or other forms of synthetic equity on top of their shares.