RECENT DOL DEVELOPMENTS

3/2/2014
RECENT DOL DEVELOPMENTS
ILLINOIS CHAPTER CONFERENCE
Champaign, Illinois
March 6, 2014
Theodore M. Becker
Drinker Biddle & Reath, LLP
191 N. Wacker Dr., Suite 3700
Chicago, IL 60606
312-569-1301
[email protected]
Agenda
o Current ESOP Landscape
o Handling the Process
o Pre-DOL Inquiry
o On-Site Investigation/Desk Audits
o Closing the Investigation
o Questions
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Current ESOP Landscape
o ESOP Association’s Position on DOL Activity
o Investigative Activity
o ESOP Targeting become more noticeable
o DOL Litigation
o Private Plaintiff Litigation
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Recent DOL Litigation
o Perez v. PBI Bank, Inc. (13-cv-1400) (N.D.
Ind.)
o PBI Bank, Inc. trustee of Miller’s Health Systems,
Inc. ESOP
o
o
PBI allowed ESOP to purchase stock in excess of fair
market value and at an excessive rate of interest
Valuation was unreliable
o Included a control premium when ESOP was not actually
obtaining control because of a stock voting agreement
o Earn-out agreements also restricted growth and earnings
potential of company
o Option agreements diluted stock by 20%
o Purchase valuation had no marketability discount
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Recent DOL Litigation
o Perez v. Mueller (13-cv-1302) (E.D. Wisc.)
o ESOP Trustees improperly approved transaction
at a price greater than fair market value for benefit
of sellers
o
o
o
o
o
Owners and executives were ESOP trustees
Received valuation in August
Hire independent fiduciary to direct trustees in
December
Transaction closes in December at August valuation
price
Valuation was severely flawed and unreliable
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Current ESOP Landscape
o DOL Views on ESOP activity
o National Project/Major Cases
o Chicago Regional Office
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Handling the Process
o Pre-DOL Inquiry
o DOL Targeting
o Steps to reduce potential review
o Preparation
P
ti ffor review
i
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Handling the Process
o On-site Investigation/Desk Audits
o The review process
o Interviews
o Attorney
Att
involvement
i
l
t
o Major issues reviewed
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Handling the Process
o Closing the Investigation
o The process
o Corrective actions sought
o VFC
o Penalties
o Referral to IRS
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Questions?
Ted Becker
Drinker Biddle & Reath LLP
191 North Wacker Drive, Ste. 3700
Chicago, Illinois 60606
312.569.1301
[email protected]
@
Chris Davis
Associate Regional Director
U.S. Department of Labor-ERISA
230 South Dearborn Street, Suite 2160
Chicago, Illinois 60604
312.886.0497
[email protected]
@
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Theodore M. Becker
Ted Becker is a partner in the Drinker Biddle & Reath LLP law firm. He has a
national practice with more than 25 years of experience in litigation and dispute
resolution. He has represented companies that sponsor ESOPs and other
benefit plans, their directors and officers, plan fiduciaries, administrators,
investment advisors, and service providers in high-profile lawsuits and
investigations by regulatory agencies.
agencies He represents clients along the entire
dispute continuum, from litigation avoidance and pre-litigation planning through
pre-trial motions, discovery, trial, and appeal. He practices before the U.S.
Supreme Court, federal and state trial and appeals courts, and bankruptcy
courts, as well as before administrative and regulatory agencies, and in
arbitration, mediation, and alternative dispute resolution proceedings. He has
successfully represented clients ranging from individuals and small companies to
the largest financial institutions and multinationals. He earned his law degree
with highest honors at Northwestern University, and was a fellow at Yale Law
School, where he taught.
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Chris Davis
Chris Davis currently serves as the Associate Regional Director for
the Chicago Regional Office of the Employee Security Benefit
Administration, U.S. Department of Labor (DOL). His tenure with the
DOL began in 1988 as an Investigator. As a Senior Investigator,
p
y responsible
p
for conducting
g and
from 1992 to 2012,, he was primarily
coordinating investigations of employee benefit plans. He is also the
Chicago Regional Office’s Coordinator for the National ESOP
Project. Mr. Davis holds an undergraduate degree in Business
Education from the University of Illinois and a MBA in Finance from
Northern Illinois University.
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Disclaimer
o This communication is provided as a general
informational service to clients and friends of
Drinker, Biddle & Reath LLP. It should not be
construed
co
s ued as, a
and
d does not
o co
constitute,
s u e, legal
ega
advice on any specific matter, nor does this
message create an attorney-client
relationship.
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