Compliance September 3, 2015

DOL Accuses ESOP Fiduciaries of Prohibited Transactions

A lawsuit says BAT Masonry was valued at $13 million less than what its ESOP paid for company stock.
Reported by

The Department of Labor (DOL) has filed a complaint alleging that fiduciaries of the BAT Masonry Co. Inc. Employee Stock Ownership Plan (ESOP) breached their duties of prudence and loyalty to the ESOP and engaged in prohibited transactions in connection with the ESOP’s purchase of the company stock and one trustee’s withdrawals of cash thereafter, in violation of the Employee Retirement Income Security Act (ERISA).

The complaint further alleges that fiduciaries effectively abandoned the plan and breached their fiduciary duties.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

According to the DOL, BAT Masonry Co. Inc., the sponsor and administrator of the plan, established the ESOP as of May 1, 2009. The trustees of the plan were Wayne B. Booth, Gregory Booth and Melvin Hinton. In July 2010, the ESOP purchased all the stock of the company from the Wayne Booth Revocable Trust, an entity controlled by Wayne Booth, for $1.6 million in cash and two promissory notes in the amount of $11.9 million, a total purchase price of $13.5 million.

The purchase price was based on a valuation of the company conducted by SMK, which the company had hired for that purpose. However, the DOL says SMK’s valuation of the company was flawed in several respects, resulting in the ESOP overpaying the Wayne Booth Revocable Trust for the company stock.

SMK failed to account for the deteriorating fundamentals of the company’s business and improperly treated $5.8 million that Wayne Booth had previously withdrawn from the company’s account, and which he never intended to repay, as an account receivable, among other errors. The trustees of the plan relied on SMK’s valuation, despite knowing the financial condition of the company was deteriorating.

In December 2010, the company hired another valuation firm, which valued the company at $163,590, more than $13 million less than what the ESOP had paid for company stock only months before.

In addition, Wayne Booth continued drawing cash out of the company after the ESOP transaction, even though he no longer held any ownership interest. These withdrawals totaled at least $1.25 million. The company treated these withdrawals as payments from the ESOP to Wayne Booth, even though Booth’s withdrawals bore no relationship to the terms of the ESOP note, and the ESOP never received company shares in return for Booth’s withdrawals.

BAT Masonry Co. went out of business in mid-2012, rendering the shares held by the ESOP valueless. At this time Gregory Booth and Hinton started their own company, M.H. Masonry. M.H. Masonry employs many of the same employees as the now-defunct BAT Masonry, purchased equipment owned by BAT at a significant discount, and is located at the same address as BAT.

The lawsuit seeks to require each of the fiduciary defendants jointly and severally to restore all losses caused to the plan as a result of their fiduciary breaches. It further seeks disgorgement of any and all unjust enrichment that certain fiduciaries received as a result of their fiduciary breaches.

The DOL’s complaint can be viewed here.

Data & Research September 3, 2015

Half of American Workers Lack a Plan for Retirement

And 40% say they feel they are ill prepared for retirement because of inadequate savings.
Reported by

Fifty-five percent of American workers do not have a plan for their retirement, LifeCare and the Financial Planning Association (FPA) found in a survey. 

Sixty-seven percent of those not saving for retirement say they do not have the resources to do so after taking care of their everyday expenses, such as housing, transportation, food, household items, credit repayment and eldercare, and 24% do not have any idea of how to begin.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

While American workers seem to feel confident about their short-term finances, their outlook on the long term is shaky. Sixty-two percent believe they have a good handle on housing costs, debt management (61%) and saving/spending (56%). When asked what they would speak to a certified financial planner about, 56% said to figure out how much they need to save for a comfortable retirement, 50% pointed to retirement preparedness and 40% noted how much to save in a 401(k) plan.

American workers are split in their opinions towards saving, with 25% saying saving and spending is a source of confidence and 26% saying it is a source of stress. Forty percent say they feel they are ill prepared for retirement because of inadequate savings.

While 60% of respondents are in the key savings ages of 45 to 64, 55% do not have a plan in place for retirement. Among the 45% who do have a plan in place for retirement, only 20% are working with a financial planner.

Nonetheless, 83% believe that working with a financial adviser would be beneficial, but misconceptions prevent them from doing so. The biggest one is that they cannot afford one (cited by 44%), followed by no idea of what a financial planner does (17%), thinking that they do not have enough assets (15%) and thinking their financial situation is not complex (13%).

Nearly half of those surveyed (48%) were automatically enrolled into their employer’s retirement plan. However, LifeCare and FPA said, American workers should not rely solely on their retirement plan. They should be saving additional money outside of the plan.

The report is based on a survey of 1,389 American workers conducted between June 15 and July 10. The full findings of the “2015 LifeCare/FPA Financial Confidence of American Workers Survey” can be downloaded here.

«