Acquisition from Ascensus Will Expand Principal’s ESOP Business

Deal will bring Principal's market representation to more than 2,000 ESOP plans and about 765,000 participants.

Principal Financial Group has announced an agreement to acquire the employee stock ownership plan business from Ascensus, further solidifying Principal’s leading position in the marketplace.

When the deal closes, which is expected by the end of the second quarter, Principal will add 800 ESOP plans and more than 165,000 participants. That will bring the retirement solutions provider’s total market representation to more than 2,000 ESOP plans and about 765,000 participants, according to the announcement. The firms did not disclose the terms of the deal.

The deal between Principal and Ascensus will merge two of the country’s largest ESOP providers by assets, according to the 2023 PLANSPONSOR DC Benchmarking Survey. Blue Ridge ESOP Associates currently administers 1,600 plans, according to the firm, in part from growth after a 2022 acquisition of Crowe LLP’s ESOP business.

Principal noted a growing market for ESOPs by companies in recent years, in part due to the tight labor market, for the acquisition. In research conducted by the National Center for Employee Ownership, a nonprofit membership association that supports the space, the group noted that employees with ESOP plans tend to believe they have an advantage in recruiting and retaining talent—with about 79% of such employers saying they do much better or somewhat better than competitors in recruiting and retainment.

“Hundreds of new ESOPs are formed every year, and companies that already have ESOPs continue to outperform their markets— one reason for that growth is the bench depth of the service providers in the field,” says Loren Rodgers, executive director of NCEO. “The acquisition of Ascensus’s ESOP business by the Principal Financial Group is a sign of the field’s health—I see it as an investment in the resources available to ESOP companies, and I’m delighted that there are still a dozen administration firms that have large ESOP client bases and deep expertise.”

Principal also cited additional products and tools as impetus for the purchase. That will include adding Ascensus’ ESOP economics consulting group and its Telescope software, which provides clients with a forecast of ESOP repurchase obligations and alternative options, according to Ascensus’ website.

“The acquisition positions us to offer greater value, enhanced services, and stronger products to our ESOP clients, and the integration of strong talent from Ascensus will be essential to support the growth of our ESOP business,” Andrew Matos, head of stock plan services for Retirement and Income Solutions at Principal, said in a statement.

For Ascensus, the sale happens just after it has been making acquisitions in other areas under new President Nick Good.

In April, the tax-advantaged solutions provider acquired Vanguard’s individual 401(k), Multiple Participant SEP and SIMPLE IRA Plans divisions. That followed the March acquisition of Mutual of Omaha’s 401(k) recordkeeping business, which Ascensus had been operating as a vendor, but then took over to manage the more than 2,300 retirement plans.

Principal’s acquisition also comes as the DOL reportedly nears a proposal on adequate consideration rules for ESOPs in coming months. The ESOP provider industry has been awaiting the proposal to help shape up a more public market for the appraisal of the shares in ESOP plans in part to protect from regulatory and litigation risk due to lack of benchmarking.

“It appears ESOPs are having a moment,” says NCEO’s Rodgers. “I keep hearing encouraging words not only from federal agencies and from members of Congress, but especially from state governments actively seeking to encourage employee ownership. They’ve seen the benefits to their constituents when employees own a share in the company, and they’re also seeing that rooting business ownership in communities makes those communities more resilient.”

PBGC Sues to Recover Losses Caused by Trustee’s Asset Transfer

The Pension Benefit Guaranty Corporation claims a shuttered California corporation’s CEO transferred plan assets to a business checking account.

The Pension Benefit Guaranty Corporation filed a complaint on May 17 against the CEO of Omni Vision International Inc., Jung Kee Kim caused the terminated defined benefit plan to transfer plan assets to a business checking account, causing the plan to suffer $311,699.51 in losses.

The PBGC, which took over as trustee of the cash balance plan in 2023, sued Kim to recover plan assets the corporation alleges he misappropriated as a plan trustee.

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Kim authorized a wire transfer of $141,767.20 from the plan’s Merrill Lynch trust account that was deposited into Omni Vision’s business checking account at Bank of America on February 27, 2018. Kim repeated wiring assets out of the plan multiple times in 2018 in different amounts, the complaint alleged. As a result of Kim’s violations, the plan lost at least $311,699.51 plus interest, according to the PBGC’s complaint.

Kim, who is also one of the plan’s four participants, breached his fiduciary duties under the Employee Retirement Income Security Act, causing the plan to engage in transfers not in the sole interest of plan participants and beneficiaries and not a prudent use of the plan’s assets, the PBGC wrote.

“Kim violated his fiduciary duty [under ERISA] to discharge his duties solely in the interest of participants and beneficiaries each time he caused the plan to transfer assets from the plan to Omni Vision for purposes other than exclusively providing benefits to plan participants and beneficiaries or paying reasonable plan expenses.”

In the complaint, the PBGC requests the court order Kim to restore all the plan’s losses as well as pre-judgment and post-judgment interest; restore to the plan any profits Kim enjoyed through use of assets of the plan, if any; and allow PBGC to offset benefits Kim is entitled to receive under the plan against the amount the court orders Kim to restore to the plan.

Omni Vision has ceased operations. Records show Omni Vision’s corporate bank accounts were liquidated in 2019, and neither corporate personnel nor an active business address can be located, PBGC wrote in the complaint.

When PBGC terminated the plan, benefits payable to participants and beneficiaries exceeded the amount of the plan’s assets by $483,464. The PBGC is authorized to commence proceedings to terminate a plan whenever the PBGC determines the plan will be unable to pay benefits when due and to make benefit payments to the participants and beneficiaries up to the regulatory limits.  

In 2017, the plan held $421,534 in retirement assets for four participants, according to the most recent regulatory filing to the Department of Labor, for the 2016 plan year.

The PBGC took over as the plan’s legal trustee, December 28, 2023.

Omni Vision established the plan to provide pension benefits to certain of the company’s employees, in 2007.

The lawsuit, in the U.S. District Court for the Central District of California, is Pension Benefit Guaranty Corporation, as statutory trustee of the Omni Vision International Inc Cash Balance Pan v. Jung Kee Kim (aka Nicholas Kim).

Representatives of the PBGC responded to a request for comment by email, noting the agency does not comment on ongoing litigation. Omni Vision representatives did not respond to a request for comment on the lawsuit.

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