The Inside ESOP Fiduciary Handbook

September 2007. 62 pp. (6" x 9"), softcover. $10 for NCEO members; $15 for nonmembers.

Inside fiduciaries for employee stock ownership plans (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 short book provides a basic overview of fiduciary issues and is a must for any inside fiduciary.

Introduction
Chapter 1: What Is an ESOP Fiduciary and Who Serves as Fiduciaries?
Chapter 2: What Are Fiduciary Duties?
Chapter 3: Potential Penalties and How to Cover Them
Conclusion
Appendix 1: Basic ESOP Rules
Appendix 2: Valuation Issues: What You Need to Know About the Key Fiduciary Responsibility

Excerpts

From Chapter 2, "What Are Fiduciary Duties?"

Responding to offers to buy the company is also challenging. Companies should develop documented, thorough procedures about how both the board and the fiduciaries should handle offers. Typically, the board vets any initial offers. Many of these will turn out not to be worth considering. Their financing may be uncertain, the price obviously too low, the buyer of uncertain capability, etc. Offers that are deemed serious should be investigated, and the board should seek additional information on details of the offer.

If the board decides the offer is both serious and presented thoroughly enough for the board to recommend the offer to the shareholders, the next step is for the fiduciary to consider the offer. If an inside fiduciary (who may have personal conflicts of interest) concludes that the offer is one that seriously raises the possibility of increasing plan assets in a meaningful way, then it is probably prudent to hire an independent fiduciary to make the decision. Inside fiduciaries are per se conflicted because their jobs, their (often large) stake in the ESOP, and any additional equity they have are at stake. While there is no law requiring an independent fiduciary, this is an area that can easily lead to litigation from participants, potential acquirers, and non-ESOP shareholders if not handled properly. A separate valuation and/or fairness opinion should be done specifically for the transaction by a financial advisor unrelated to the company in any other way. It is also essential that the ESOP have its own legal counsel not otherwise involved with the company.

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The Inside ESOP Fiduciary Handbook

Contents

Excerpts

From Chapter 2, "What Are Fiduciary Duties?"

How to Order