Federal and New Jersey ESOP Business Valuation Regulations Based on GreatBanc Trust
The GreatBanc Trust Case is a case where an Employee Stock Ownership Plan (ESOP) Trustee did not meet the standards of a fiduciary in reviewing the ESOP business valuation of the business and purchasing the company stock for the ESOP trust members. As part of the settlement with the Department of Justice a Fiduciary Process Agreement was reached and GreatBanc agreed to meet those provisions in all instances. It is generally felt in the ESOP valuation and trustee industries that the Fiduciary Process Agreement provisions are minimum standards that everyone needs to meet in the future.
Fiduciary Process Agreement Requirements Include:
Goals Include encouraging bona fide negotiations between ESOP trustee and sellers through rigorous questioning of management projections.
Discourage blind reliance on valuation advisor.
Account for and eliminate conflicts of interest from valuation advisors and management.
Ensure that valuations have narrative consistency and weaknesses identified in the text of report are reflected in the valuation.
Encourage consideration by trustee of all relevant factors and assumptions.
Encourage accountability on the part of all parties involved with the transaction.
The list continues. Clearly the Department of Justice is laying out guidelines for ESOP trustees. These guidelines include that the trustee is to review every component of the valuation and make sure that the value found is consistent. The trustee is then required to go out and negotiate a fair deal or better for the ESOP Trust owners.
For more information click on the following links: GreatBanc DOL Settlement ESOP Fiduciary Process Agreement, Department of Labor Press Release ESOP Business Valuation