The court found trustee Wilmington Trust “rushed its evaluation of the ESOP, failed to follow its own policies, and failed to adequately vet [other valuators’] conclusions.”
Following a bench trial in a complex employee stock ownership plan (ESOP) lawsuit, a district court has held that Wilmington Trust is liable for violating Section 1106(a)(1)(A) of the U.S. Code, but not liable for violating parts (a)(1)(B) or (b) of that section.
The lead plaintiff in the case is a former employee of Constellis Group, Inc., and a former participant in an employee stock ownership plan (ESOP) created and terminated by the private security firm. Defendant Wilmington Trust N.A. “was the trustee for the ESOP in connection with Constellis’ creation of the ESOP.”
Background included in the text of the decision, handed down by the U.S. District Court for the Eastern District of Virginia, shows that creating the ESOP involved the purchase of 100% of Constellis’ voting stock in December 2013. Less than a year after the ESOP was created, according to the decision, “all its stock was sold.”
Plaintiffs alleged that the 2013 purchase “involved transactions and payments prohibited by the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1106, resulting in the ESOP paying an inflated price for the Constellis stock.” Specifically, plaintiffs alleged that the $4,235 per share paid in 2013 “was not the fair market value of such stock, resulting in the ESOP overpaying for the stock by $103,862,000, which plaintiff seeks to recover for the ESOP.”
In the end the court ruled that Wilmington is liable for causing nearly $30 million in damages to the ESOP—far below what participants claimed they were entitled to, but a significant result nonetheless.
Case documents show the ESOP in question was created through an extensive process of projections and analysis, which included discussion of multiple potential approaches and wide swings in valuation projections made by contracted experts.
NEXT: The shortest lived ESOP on record?
The lengthy text of the decision outlines the recent history of the company, explaining how equity ownership had transitioned within the firm prior to its acquisition by another competitor. After some early shifts and reorganizations, the company approached its general counsel about forming a new ESOP in June of 2013. Leadership at the time apparently viewed the ESOP both “as an exit strategy while being consistent with the vision of Constellis as a company focused on taking care of its employees.”
The company leadership, according to the text of the decision, debated whether to pursue a traditional ESOP structure or a structure under which 90% of the shares would be sold to the ESOP, while the remaining 10% would be exchanged for “equity-like warrants.” The warrants would be “financial instruments entitling the sellers to buy back equity in Constellis at a designated price, known as the strike price, during a certain period of time.” This would allow the sellers as warrant holders to retain significant elements of control over the company, most notably the ability to appoint a majority of the board of directors. Under the proposed plan, the ESOP was to borrow from the sellers to buy their stock, meaning the sellers would also become the company’s creditors.
For its services as trustee, Wilmington charged Constellis a flat fee of $150,000 to be paid regardless of whether or not the ESOP transaction closed. If the transaction closed, the firm would also receive a minimum payment of approximately $80,000 per year in fees for serving as ongoing trustee. The court finds no evidence these were unreasonably assessed.
Problems arose when it came to the step of valuing the closely held company, according to the decision. One early estimate received by the firm pegged its value at just $165 million. However more generous estimates of $290 million and $345 million were also made, and the final settling price paid by the ESOP was close to the top end of these estimates. A significant portion of the bench trial was apparently spent dissecting the various methods used by various contracted experts to reach the final figure.
In the end the court found that Wilmington “rushed its evaluation of the Constellis ESOP, failed to follow its own policies, and failed to adequately vet [other valuators’] conclusions.” This became a pressing issue for employees when company leadership terminated the ESOP just seven months after its creation, during the subsequent sale of the company to another organization, ACADEMI, for a total purchase price of $281 million. The transaction resulted in the termination of the ESOP and thereby cemented significant participant losses compared with the previous valuations.
Mark L. Smith has joined Pentegra as the firm’s regional
director for its supplemental benefits and bank owned life insurance (BOLI)
business in Missouri, Iowa and Kansas.
Smith brings to Pentegra more than 36 years of
experience in the banking industry, which saw him lead various roles including
agricultural loan officer and vice president of lending. He also served as CEO
of community banks in Iowa and Missouri. Furthermore, Smith served as chairman
of the board for the Missouri Independent Bankers Association (MIBA).
“We are pleased to have such an extraordinarily and
accomplished industry veteran joining our team,” says Chuck Coldwell,
Pentegra’s vice president and national directorof Consulting and BOLI
Services. “Mark’s expertise and knowledge of the industry will be of great
benefit to our organization and will certainly help us expand our reach in
these key Midwestern states.”
Smith earned a bachelor’s degree from Iowa State University.
He is a fully licensed insurance agent.
NEXT: PSCA Establishes HSA Committee
PSCA Establishes HSA Committee
The Plan Sponsor
Council of America (PSCA) created a new committee to address Health Savings Accounts (HSAs) as they relate to plan management and participants’
overall financial wellness and retirement readiness.
The new committee will be
chaired by Tom Gordon, HR director, Total Rewards, Aon. Other preliminary committee members includeHeather Cambray of Greatland Corporation, Carla Nelson of Robert W. Baird &
Co., Pat Jarrett of Health Savings Administrators, Kelley Long of Financial
Finesse, and Karin Rettger of Principal Resource Group Inc.
“In the coming months, we
will look to refine the committee’s focus and add other interested members to
this committee,” explains Gordon. “Plan sponsors are always looking to
collaborate and gain better insight in order to help achieve optimal wellbeing
and performance for employees and the organization.”
Assets held in HSAs have
doubled since 2012 and are expected to continue to grow,
according to PSCA research. In fact, the House GOPs American Healthcare Act,
which is aiming to replace the Affordable Care Act, is designed to
increase HSA savings limits to match that of high deductible health plans (HDHP)
at $6,550 for an individual and $13,100 for a family.
NEXT: Hub Califronia
Hires Benefits Leader
Hub Califronia Hires Benefits
Leader
Martin Ryan has
joined Hub California as its new employee benefits market leaderfor northern
California. The firm is a wholly-owned subsidiary of HUB International Limited,
a global insurance brokerage, risk advisory and employee benefits firm.
His
tasks include overseeing all regional employee benefit producers and recruiting
new ones, while leading client service teams. He also will assist in
identifying regional specialists in wellness, communications, and data
analysis.
Most
recently, Ryan served as senior director of employee benefits consulting for
NFP, a national employee benefits and risk-management consultancy based in San Francisco, California.
There, he was responsible for the design and service of employee benefit plans,
HR programs, retirement plans and business insurance for employer groups of ten
to twenty thousand employees. Prior to joining NFP, Ryan owned his own benefits
consulting firm, Bay Benefits.
Ryan
earned his bachelor’s degree in finance from the University of Arizona. He has
served as legislative chair – NorCal for the National Association of Health
Underwriters as well as numerous HR and employee benefit advisory groups.
"HUB California is
dedicated to building a team of experts with local market specialization and
industry experience in Northern
California,” says Shannon Taylor, presidentof Western Regional Employee Benefits for HUB International.
“John Ryan's expertise in management, recruiting,
compliance, HR permutations and employee benefits plan design will provide our
clients with much needed consultative resources in this area, and will support
our employee benefits mission with value added solutions and innovative
products that are specific to this market. John is the right guy for this very
large job; he is a leader, a visionary and a pragmatist. I look forward to
working with him for years to come."
NEXT: MPI Hires Tech-Focused
Execs
MPI Hires Tech-Focused Execs
Markov Processes International (MPI), a provider of risk-management
analytics tools, announced the addition of two new executives, Rohtas Handa and Aleksey Matiychenko.
Both
will focus on product development and the integration of technology to enhance
current tools and devise new solutions.
Handa
joins MPI as executive vice president, head of Institutional Solutions. He will be
tasked with delivering MPI’s quantitative research and risk management
solutions including transparency of alternative investments to asset owners and
consultants. Throughout his career, Handa has worked with asset owners in the
U.S. and Europe to adopt various indices and quantitative risk tools. Before
joining MPI, he served as a partner at Optimal Asset Management, a boutique
asset-management firm specializing in providing factor-based investment
solutions to asset owners around the globe.
Matiychenko
joins as executive vice president, head of Transparency and Analytics. He will
oversee product development and delivery of MPI’s software, data and
analytical solutions. Prior to joining MPI, he founded Risk-AI, an
award-winning risk management technology and consulting firm with a focus on
hedge funds, fund-of-hedge-funds (FoHFs) and family offices.
There, he focused on enhancing the adoption of
applications through emerging technologies including cloud and mobile software.
Beforehand, Matiychenko served as vice president in the Risk Management and
Quantitative Research Group at Ivy Asset Management, a FoHFs within BNY Mellon.
“We are
proud to bring Rohtas and Aleksey on board,” says Michael Markov, CEOand co-founder. “These professionals are an
integral part of MPI’s next stage of growth and development as the leading
independent provider of solutions to the investment management community. Our
clients and partners will definitely benefit from their expertise and future
contributions.”
NEXT:The Standard Names VP of Strategic Accounts
The Standard Names New VP of Strategic Accounts
Standard Insurance Company has named Graeme Queen as the
second vice presidentof Strategic Account Services. He will focus on driving
service strategy for key employer group clients and leading the team responsible
for onboarding new customers. His tasks include responding to complex requests
for proposals and administering data feeds. He will also be responsible for
creating enrollment materials, as well as communications and technologies to
service customers.
Queen joined The Standard in 2008 as an IT manager and has
served in a number of IT leadership roles at The Standard supporting Claims
Processing, Retirement Plans, Employee Benefits and the Contact Center. Most
recently, he co-led the Voluntary Products program, which introduced The
Standard’s Supplemental products to the market. Prior to his time at The
Standard, Queen led an application development team at PacifiCorp and has
served in various IT, business and customer service roles.
Queen earned his bachelor’s degree in physics at the
University of Strathclyde in Glasgow, Scotland, and his master’s degree from
Portland State University.
“Graeme has demonstrated technical and market expertise that
will be critical in helping us achieve our National Account service strategy,”
says Todd Johnston, vice presidentof Customer Service and Shared Services. “He
is a valuable and important addition, and I am thrilled to have him join our
team.”
NEXT: Unified Trust Company Expands Retirement Services
Unified Trust Company Expands Retirement Services
National fiduciary-services provider Unified Trust Company
has announced a new line of business focusing on providing administrative
services for retirement plans. The Plan Administration and Service unit grew
out of the firm’s retirement plan consulting group. It will be led by Justin
Morgan who will serve as managing director overseeing plan administration and
recordkeeping services, while also providing leadership direction throughout
the firm’s defined contribution line of business.
The new unit will leverage tech-driven enhancements and
administration services in a values-driven culture, the firm says. Morgan’s
responsibilities include working with managers at Unified Trust Company to
maximize the efficiency and effectiveness of plan operation workflows with a
focus on high-touch service and participant outcomes.
Morgan is a Qualified Pension Administrator (QPA), Qualified
401(k) Administrator (QKA), Qualified Plan Financial Consultant (QPFC) and
Accredited Investment Fiduciary (AIF). He joined Unified Trust Company in 2005.
“Justin Morgan has a deep understanding of the complex
interplay of the plan sponsor’s day-to-day needs and the role of the retirement
plan adviser,” says Gregory Kasten, Founder and CEO of Unified Trust Company.
“I am confident his administrative group will work collaboratively to help both
advisers and plan sponsors, so more employees are on track to retire
successfully.”
Hooker & Holcombe, a provider of investment and
retirement plan consulting services, has hired Terrence Smith, Jr. as
consultant and practice leader for its retirement services group. Smith will be
responsible for direct oversight of the firm's defined contribution (DC),
recordkeeping and third-party administration (TPA) services.
With more than 20 years of industry experience, he is versed
in various aspects of DC plan design, investments and administration.
Prior to joining H&H, Smith was with USI Consulting
Group's Defined Contribution department where he served as assistant vice
president and account manager. Previous positions include managing director of
the DC group for Fidelity Investments; implementation manager for Wachovia
Bank; and client manager for Charles Schwab Retirement Plan Services.
Smith graduated from the University of Akron with a
bachelor's degree in business administration. He is a registered FINRA
representative and holds series 6 and 63 securities licenses. Smith also earned
Certified Pension Consultant (CPC), Qualified Plan Administrator (QPA),
Qualified 401(k) Administrator (QKA) and Chartered Financial Analyst (CFA)
designations. He is a member of the American Society of Pension Professionals
and Actuaries, and the CFA Society Hartford.
"I am confident that Terry's experience in the
retirement consulting industry, coupled with his commitment to achieving the
best client solution, will make him a valuable asset to our firm, our clients
and their participants," says the firm's president, Richard S. Sych.
Kevin
Burke has been hired as a senior
adviser with Churchill Asset Management,
a majority-owned affiliate of Nuveen.
Burke will be responsible for helping Churchill
develop middle-market private credit investment funds, and strategies designed
to meet the current income needs of institutional and high-net worth investors
across the globe.
Prior to joining Churchill, Burke served as
senior managing director of Antares Capital, where he led the firm’s loan syndication, sales and
trading division. During his 30-year career, he has held senior roles at GE
Capital and Bankers Trust (now Deutsche Bank). He’s also a member of the Board
of the Loan Syndications and Trading Association.
Churchill is led by a senior management and
investment team that has an average of more than 25 years of experience in
middle-market lending. Today, it has approximately $2.7 billion of committed
capital under management. Nuveen offers range of investment solutions designed
to secure the long-term financial goals of institutional and individual
investors.
Portland-based
investment firm Arnerich Massena has
promoted Corrie Oliva, CFA, to a
senior consultant position. She will be tasked with consulting corporate,
public, and not-for-profit organizations in Arnerich Massena’s institutional
group. She’s versed in various aspects of defined contribution (DC) and defined
benefit (DB) plan administration including investment menu design and
investment manager research.
Oliva
has more than 17 years of experience in the financial services industry. Prior
to joining Arnerich Massena, she served as the vice president of advisory
services for Northwest Capital Management and as a principal and consultant for
RVK. She graduated cum luade with a bachelor’s degree in business
administration with finance and real estate concentrations from the University
of San Diego. She earned her master’s degree in financial analysis from Portland
State University. She is member of the Portland Chapter of the CFA Society,
serving as the Membership/Education Chair of the Board of Directors. She also was
named one of Top Women Advisors MVP List in 2015 by the National Association of
Plan Advisors (NAPA).
“This
promotion is an acknowledgement of Corrie’s dedication to doing excellent work
for her clients,” says Terri Schwartz,
managing directorof Institutional Services. “Corrie has an
understanding of the retirement plan landscape and how to help plan sponsors
navigate through it effectively. She is a very skilled and knowledgeable
consultant.”
NEXT: intellicents Adds Financial Planning to Services Menu
intellicents Adds
Financial Planning to Services Menu
Formerly
Alliance Benefit Group Financial Services, intellicents
has added fee-based wealth management and financial planning to its services
menu with the addition of David Busselman.
A
previous employee of Charles Schwab, Busselman has more than 12 years of industry
experience primarily focusing on wealth management and retirement planning for
individual clients. He’s held various roles at Fidelity Investments.
“We
have 24 retirement plan clients covering almost 6,000 participants throughout
the Twin Cities,” explains Brad Arends,
CEO of intellicents. “A new client this past year required that we not only
provide retirement education and advice to their participant base, but actual
on-site financial planning services. David is our solution. We now plan to
introduce this service to our other area clients as part of our broader
financial wellness efforts; and we have already started the search for other
Certified Financial Planners in other locations like Mankato, Albert Lea, and
Rochester, Minnesota, Sioux Falls, South Dakota.; Des Moines, Iowa, and Kansas
City, Kansas, where we have a large population of 401(k) clients and
participants.”
Arends
anticipates on-site financial planning services to become part of intellicents’
core 401(k) participant service offering. “In fact, we are actively working to
develop a program that provides financial planning services as part of an
employer’s general voluntary benefits menu,” he says.
The
firm intellicents offers group insurance consulting, retirement plan design,
fiduciary investment consulting, and personal wealth management services.
“My training in the
branch system at Schwab was invaluable to my role here at intellicents; plus
their allmymoney financial wellness app really focuses the participant into
organizing his financial life and establishing a plan for successful financial
outcomes,” says Busselman. “A 401(k) participant can’t be expected to
contribute more money toward his retirement if he is maxed out on numerous
credit cards, doesn’t have a budget, and can’t balance his check book.”