It’s safe to say the ESOP Association (TEA) doesn’t appreciate the Department of Labor’s (DOL) habit of “regulation by litigation” and letting courts sort everything out.
“The Department of Labor has flouted Congress’ mandate within ERISA for nearly five decades.”
In a strongly worded release on Thursday, the national trade association representing companies with Employee Stock Ownership Plans and ESOP professionals petitioned the DOL “to undertake a long-delayed rulemaking essential to the formation and ongoing operation of ESOPs.”
Claiming the DOL has steadfastly refused to fulfill requirements of the Employee Retirement Income Security Act (ERISA) since the law’s 1974 inception, it further alleged that the department violated Congressional direction and stakeholders’ rights under the Administrative Procedure Act (APA) by not providing clear ESPOP guidance.
“The Department of Labor has flouted Congress’ mandate within ERISA for nearly five decades,” James Bonham, President and CEO of The ESOP Association, said in a statement. “On behalf of the millions of Americans with ownership in an ESOP, we have filed this petition to compel Secretary Walsh to undertake the rulemaking Congress directed in 1974, which was nearly completed in 1988 but has been mothballed ever since.”
That delay, Bonham claimed, created a regulatory vacuum and a “chilling effect” on ESOP formation and operation. While 6,247 companies offer ESPOPs covering 10 million employees, many businesses have turned away from the plans.
The ESOP Association has formally registered an APA petition with U.S. Labor Secretary Marty Walsh, who it says is required to provide a formal, written response to the petition. Should the DOL respond that it will not enter a formal notice and comment rulemaking process, a court may force the department to fulfill its responsibilities.
Example of ‘abuse’
In an example of what TEA alleged are “the DOL’s abusive regulatory tactics,” the department investigated Bowers + Kubota Consulting, an architectural and engineering firm based in Hawaii, claiming the ESOP acquired its employer’s stock for more than fair market value.
Bowers + Kubota’s founders refused to “cave to DOL pressure, and after several years prevailed on every argument advanced by DOL in federal court.”
TEA further said the federal judge presiding over the bench trial resoundingly struck down each of the government’s arguments and ruled that the defendants “did not violate any provision of ERISA with respect to the sale of the Company to the Company’s ESOP.”
The ESOP Association filed an amicus brief to recover the defendant’s legal fees from the government.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
