ESOP Sponsor Settles Allegations of ERISA Violations With the DOL

The fiduciaries of a Utica, New York, employee stock ownership plan (ESOP) have agreed to take action to resolve allegations of Employee Retirement Income Security Act (ERISA) violations made by the Department of Labor (DOL).

An investigation by the DOL’s Employee Benefits Security Administration (EBSA) found the fiduciaries of the Mohawk Hospital Equipment Inc. ESOP paid themselves and family members excessive compensation for several years after they sold the company to the plan, according to an EBSA announcement. The regulator alleged that the excessive compensation violated ERISA when the fiduciaries enriched themselves and other family members at the expense of the plan and its participants, the employee owners of Mohawk Hospital Equipment.

According to the settlement, the plan fiduciaries will transfer stock valued at $431,000 for the benefit of the injured participants in the plan and pay the DOL a $43,100 penalty. They will also appoint an independent director and establish an independent compensation committee to set the salaries of the chief executive officer, chief financial officer (CFO), chief operating officer (COO) and other key employees. In addition, the CEO will resign as trustee of the ESOP and be replaced with an independent trustee to better advocate for the plan’s interests.

“Employee stock ownership plans can be part of well-structured retirement planning for workers, but the plans need to share in corporate success. Sellers cannot unload their shares to the employee stock ownership plan but still run the company for their own benefit,” said EBSA Regional Director Carol Hamilton in the announcement. “This resolution protects the rights and benefits of the program’s participants.”