Frequently Asked Questions

Employee Ownership FAQs

Common questions about employee stock ownership plans (ESOPs), employee ownership trusts (EOTs), and other forms of employee ownership, from the basics to technical topics.

This FAQ is written primarily for business owners, managers, and advisors involved in setting up or running an employee ownership plan. If you're an employee at an ESOP company looking to understand your own benefits and rights, see our articles on Working at an ESOP Company and The Rights of ESOP Participants.

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What can be done to repair plan operational errors subject to Department of Labor oversight?

The Department of Labor (DOL) has a Voluntary Fiduciary Correction Program (VFC). Under the VFC, plans can correct certain violations of the fiduciary requirements of the Employee Retirement Income Security Act (ERISA). They may also be able to avoid any penalties. The program is open to any ERISA plan not "under investigation" by the DOL. However, the program is limited to 13 specific issues.

1. Delinquent participant contributions to pension plans (both unpaid and late contributions).

2. Loans at a fair market interest rate to a party in interest.

3. Loans at below market rate to a party in interest.

4. Loans at below market rate to any other person.

5. Loans at below market rate solely because the plan's security interest is not perfected.

6. Purchase of an asset from a party in interest.

7. Sale of an asset to a party in interest.

8 .Sale and leaseback of real property to employer.

9. Purchase of an asset from an unrelated party at a price "other than fair market value.

10. Sale of an asset from an unrelated party at a price "other than fair market value.

11. Payment of benefits without valuing plan assets on which payment is based.

12. Payment of "duplicative, excessive, or unnecessary compensation.

13. Payment of dual compensation to a fiduciary.

Only some of these are likely to arise in an ESOP. Companies must apply to a regional office of the Department of Labor and must indicate how the breach occurred, who was involved, how it was repaired, how the loss was calculated, and provide a variety of other information on plan administration. Supporting documents must be included, including the plan itself, a fidelity bond, materials sent to employees notifying them of the breach and how it was repaired, and other information. The correction must take place before the application is filed. The program does not preclude people from suing, other agencies taking actions, or the DOL seeking non-monetary relief (such as removing the fiduciaries).

Link to this FAQ Topic: Governance, Fiduciaries & Compliance