DOL Obtains $80M for Sherwin-Williams Participants

February 21, 2013 (PLANSPONSOR.com) – The Department of Labor (DOL) has obtained $80 million for participants of Sherwin-Williams’ employee stock purchase and savings plan.  

According to the DOL, the paint company based in Cleveland, sought tax breaks at the expense of the worker benefit plan.

The agreement stems from an investigation by the department’s Employee Benefits Security Administration (EBSA) into whether Sherwin-Williams, seeking to take advantage of tax breaks, improperly managed the plan in violation of the Employee Retirement Income Security Act (ERISA). The settlement also requires Illinois-based GreatBanc Trust Co. to undergo an audit of its pension plan activities.

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Sherwin-Williams issued a statement saying it thinks the DOL’s claims are without merit and strongly disagrees with the allegation that employee stock ownership plan (ESOP) participants sustained losses of any kind as a result of these transactions. The company said its position is supported by internal audits, and audits by an independent third-party and the DOL. 

“Those who manage retirement plan assets are in a special position of trust and are required by law to always put the interests of plan participants ahead of anything else. That did not happen in this situation,” said acting Secretary of Labor Seth D. Harris. “This agreement rightfully restores money to the workers who’ve played by the rules, done the right thing and worked hard to save for a secure retirement.”  

“When fiduciaries expend retirement plan assets, they have to act with undivided loyalty to the plan participants and make sure that the plan receives full value for its money,” said Phyllis C. Borzi, assistant secretary of labor for EBSA. “The fiduciaries’ job is to manage plan investments to provide a secure retirement, not to help the plan sponsor secure tax breaks that are wholly disproportionate to the benefits actually provided to retirees.”

Two transactions came under scrutiny, one in 2003 and one in 2006, in which Sherwin-Williams and GreatBanc caused the plan to purchase specially designed stock issued by Sherwin-Williams solely for the purpose of the transactions. The investigation also examined whether the paint company had forwarded employee salary deferrals to their individual plan accounts appropriately and promptly.

As a result of Sherwin-Williams’ and GreatBanc’s violations of their fiduciary duties, as well as the design of the transactions, EBSA concluded that the stock purchases did not provide benefits to the plan and its participants that were commensurate with the amount the plan paid for the stock.

EBSA also found that the transactions were not primarily for the purpose of providing benefits to plan participants and did not promote employee ownership of Sherwin-Williams. At times, employee salary deferrals were not appropriately paid to the plan, EBSA said as a result of its investigation.

As a result of these findings, the department found Sherwin-Williams and GreatBanc liable for violations of ERISA. 

According to EBSA, Sherwin-Williams’ purpose in the transactions was to take advantage of substantial tax benefits designed to reward companies that provide their workers with significant stock ownership while, at the same time, ensuring that its employees did not actually receive stock or retirement benefits in amounts close to what the plan spent on the transactions or that the company claimed on its government filings.

In October 2011, Sherwin-Williams reached a settlement with the Internal Revenue Service (IRS) in connection with the transactions for excise tax and penalty claims. (That settlement did not address ERISA fiduciary violations or resolve the department’s concerns about Sherwin-Williams’ use of employee salary deferrals.)   

The settlement will result in payments of $80 million to current and former plan participants as well as to their beneficiaries. In addition, GreatBanc will audit its engagements involving plan investments in employer stock and submit a full report of that audit to the DOL.  

As of December 2011, the date of the most recent Form 5500 filing, the plan had 34,591 participants and $2.5 billion in assets.

Debt Levels Increase for Elderly

February 21, 2013 (PLANSPONSOR.com) American families headed by individuals age 75 and older increased their debt levels from 2007 to 2010.

These families have increases in the incidence of debt, the average amount of debt held and the percentage with debt payments greater than 40% of their income in 2010, according to research by the Employee Benefit Research Institute (EBRI). 

For families with head of households age 75 or older, the average debt level increased from $13,665 in 2007 to $27,409 in 2010, and the percentage of these families having debt increased from about 31% in 2007 to almost 39% percent in 2010.

In contrast, families headed by those with ages just before normal retirement age (55 to 64) and just after (65 to 74) had very small changes in debt levels, in some cases, they saw improvements. The average debt of all of those headed by individuals 55 and older stood at $75,082 in 2010, up more than $1,300 (in 2010 dollars) from 2007. However, the families found to have the highest levels of debt were those with heads ages 55 to 64, those most likely to still be working. Among those families with heads age 55 to 64, the average debt level was $107,060 in 2010, down from $112,075 in 2007.

The EBRI analysis notes that the driver of debt for families with a head of household age 55 or older was housing debt, which accounts for almost three-fourths of their debt payments.

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“These debt results are troubling as far as future retirement preparedness is concerned, in that the data indicate that American families approaching retirement or newly retired are more likely to have debt—and higher levels of debt—than past generations,” said Craig Copeland, senior research associate at EBRI and author of “Debt of the Elderly and Near Elderly, 1992-2010.”

“Older families that have taken on higher housing debt may well eventually have difficulty avoiding a major lifestyle change in living standards in retirement, certainly if they are planning to rely on their home as an income-producing asset,” said Copeland.

For all American families with heads of household age 55 or older, the percentage with debt held steady from 2007 to 2010, at roughly 63%. Furthermore, those with debt payments greater than 40% of income—a traditional threshold measure of debt load trouble—dropped to 8.5% in 2010 from almost 10% in 2007. However, debt payments as a share of income was virtually unchanged (from 10.8% in 2007 to more than 11% in 2010), while debt as a percentage of assets trended upward (from 7.4% in 2007 to 8.5 % in 2010).

EBRI’s analysis is published in the February EBRI Notes, “Debt of the Elderly and Near Elderly, 1992‒2010,” using the Federal Reserve Board’s Survey of Consumer Finances (SCF). This study also analyzes American families, defining the “near elderly” as those ages 55 to 64 and “elderly” as those 65 and above. The SCF examines debt payments relative to income and debt relative to assets. The report is available online at www.ebri.org

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