We know that the duties imposed on ESOP Trustees are high, with their fiduciary obligations having been described as among the highest known to the law. ESOP Trustees are subject and legally bound to fiduciary standards outlined in the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). At Applied Economics, we fully understand the responsibilities undertaken by ESOP Trustees. We design every ESOP to meet the specific needs of the business owner, the company and its employees. We represent ESOP Trustees and aid them in evaluating, analyzing and negotiating the ESOP purchase. We have history with a broad group of ESOP Trustees who place their confidence and trust in us. Our credentialed and experienced staff provides ESOP Trustees with professional advice for a variety of purposes including ESOP formation, ESOP Feasibility Studies, Annual ESOP Update Valuations, Fairness Opinions, Litigation Support & DOL Challenges and M&A Advisory.
Applied Economics may be retained by an ESOP Trustee to conduct an “ESOP Feasibility Study.” The purpose of the Feasibility Study is to arm the ESOP Trustee with the information they need in order to convey value expectations and employee benefit profiles to the business owner. The Feasibility Study is complex with multiple moving parts. We strive to simplify the process and clearly communicate with our clients. The Feasibility Study answers many critical questions such as: what is the Company’s current valuation? What can an ESOP transaction look like? Does the ESOP accomplish the goals of the owner, the company and its employees?
At Applied Economics, our typical Feasibility Study incorporates multiple scenarios in order to paint a clear picture for the ESOP Trustee. This honeycomb illustrates some of the key components of the Feasibility Study.
ESOPs are required to be valued at least once annually for ESOP administration purposes. We know that establishing the annual ESOP price is one of the ESOP Trustee’s most visible and fundamental duties. Applied Economics works closely with the ESOP Trustee to assist them with determining the price, which is ultimately the price that employee participants are paid.
As with any valuation, it is important the valuator understands the company’s industry, key value drivers, growth opportunities, challenges and competitive advantages. With over 20 years in business, we have valued over 3,000 businesses for a variety of purposes. It is highly likely that we have your required industry experience. We can provide examples and client references upon request.
For a list of common ESOP-related valuation questions and answers please click here.
ESOP Trustees often require a fairness opinion. Fairness Opinions not only help the ESOP Trustee make their investment decisions regarding the purchase or sale of ESOP securities, but also provides legal protection under the “Business Judgment Rule.” ESOP Trustees must ensure that the ESOP is not paying more than, or receiving less than, fair market value. At Applied Economics, we have a dedicated “Commitment Committee” that analyzes the fairness of a given transaction. Our Commitment Committee meets regularly and is always abreast to the details of a transaction. There must be unanimous consent of our Committeemen Committee in order for Applied Economics to issue a Fairness Opinion. Additionally, prior to accepting a Fairness Opinion engagement, we have a checklist that must be completed prior to our firm’s engagement.
ESOPs exist in a regulated world. The Department of Labor (“DOL”) has oversight and enforcement authority. Plaintiffs may bring suit alleging abuses, fraud, or a host of other grievances. The DOL may audit an ESOP at any time once an ESOP is established. For new ESOP transactions, the DOL has audit and enforcement authority for a period of 7 years after the ESOP transaction closes. During this window, the DOL may challenge the fairness of the ESOP purchase and allege that the ESOP Trustee caused a prohibited transaction in paying more than fair market value for the securities.
Our professionals have deep experience in defending ESOP Trustees and the Board against such challenges. We have successfully defended numerous complaints and can share client testimonials upon request. If you are facing a legal challenge or audit, please contact us so that we may help you.
An existing ESOP-owned company may be acquisitive or may be looking to sell to an outside party. In these situations, the ESOP Trustee has fiduciary responsibilities to see that the ESOP is being treated fairly relative to other parties and that the ESOP is not damaged.
Applied Economics advises ESOP Trustees and helps negotiate transactions.