United States: DOL Enters Into Another Settlement Agreement With ESOP Trustee

Christopher K Buch is an Associate, Louis L Joseph is a Senior Counsel and Gregory K Brown is a Partner all in our Chicago office.


  • The U.S. Department of Labor (DOL) closed out 2017 by entering into yet another settlement agreement with the trustee of an employee stock ownership plan (ESOP).
  • The latest agreement (the Alpha Agreement) requires Alpha Investment Consulting Group LLC to follow certain policies and procedures when it serves as a trustee or other fiduciary of an ESOP.
  • This Holland & Knight alert outlines similarities and differences among the Alpha Agreement and three earlier agreements entered into by the DOL with ESOP trustees GreatBanc Trust Company (2014), First Bankers Trust Services (2017) and James F. Joyner III (2017).

The U.S. Department of Labor (DOL) closed out 2017 by entering into yet another settlement agreement with the trustee of an employee stock ownership plan (ESOP). The latest agreement (the Alpha Agreement) was entered on Dec. 27, 2017, in the U.S. District Court for the Eastern District of Wisconsin and requires Alpha Investment Consulting Group LLC (Alpha) to follow certain policies and procedures when it serves as a trustee or other fiduciary of an ESOP. The Alpha Agreement was completed as part of the resolution of a suit that the DOL brought against various individuals, trusts and Alpha for allegedly causing the Omni Resources Inc. Employee Stock Ownership Plan to purchase Omni Resources Inc. (Omni) stock for more than its fair market value.1

We previously described how the 2017 ESOP settlement agreement entered into between the DOL and First Bankers Trust Services Inc. (the FBTS Agreement) differs from the DOL's ESOP process agreement entered into between the DOL and GreatBanc Trust Company (the GBTC Agreement) in 2014. (See Holland & Knight's alert, " DOL Settlement Agreement Provides ESOP Transaction Guidance," Sept. 27, 2017.) We then discussed how the 2017 ESOP settlement agreement entered into between the DOL and James F. Joyner III (the Joyner Agreement) differs from both the FBTS Agreement and the GBTC Agreement. (See Holland & Knight's alert, " Further ESOP Transaction Guidance Set Forth in Latest DOL Settlement Agreement," Oct. 9, 2017.)

While each of the four agreements contain a number of similarities and some differences, on the whole the Alpha Agreement more closely resembles the FBTS Agreement than either the GBTC Agreement or the Joyner Agreement. In addition, the Alpha Agreement has two new provisions that are not present in any of the other three agreements mentioned herein.

New Items in Alpha Agreement

Requirement to Review Types of Financing Available

The Alpha Agreement requires the trustee to analyze and document in writing whether both seller financing and financial institution financing was considered in a proposed transaction, and whether the loans sought from financial institutions were within the amounts the financial institution was willing to loan. While each of the other three agreements (and the Alpha Agreement itself) requires trustees to review whether the terms of financing of a proposed transaction are market-based, commercially reasonable and in the best interests of an ESOP/ESOP's participants, none of the other three agreements require a trustee to take this additional step of analyzing the different levels of seller financing and financial institution financing funding the transaction.

It is unclear exactly why this provision was included in the Alpha Agreement. There is no mention in the complaint of any financial institution lending or whether such lending was considered. In other cases, the DOL has been concerned that a large amount of seller debt may indicate a failure to consider less costly senior debt or, conversely, might suggest that the ESOP transaction was flawed in such a way as to deter senior lenders from participating.2 Seller financing is an important, and often essential, feature of many ESOP transactions, and it is thus concerning that the DOL is directing ESOP fiduciaries to assess the relative roles of seller and senior debt in transaction financing without providing any substantive guidance as to exactly what aspects of such financing it sees as being problematic.

Requirement to Obtain Fairness Opinion

The Alpha Agreement also requires the trustee to undertake an independent analysis as to whether a fairness opinion is required in connection with a transaction. If the trustee determines that a fairness opinion is required and the trustee does not receive one, the trustee shall not proceed without such opinion.

This requirement may have been included based on the facts of the case to which the Alpha Agreement relates, as it is current industry practice for a trustee to obtain a fairness opinion prior to approving an ESOP transaction.


While we have outlined in this alert the items that are new in the Alpha Agreement, please visit Holland & Knight's website for an in-depth chart summarizing the terms and highlighting the similarities and differences among the four agreements.

As can be seen from the chart, the Alpha Agreement pulls some items directly from the FBTS Agreement, some items directly from the GBTC Agreement and does not include other items from the prior agreements. Now that the DOL has entered into four separate agreements with ESOP trustees, it would be interesting to hear the DOL's reasoning as to why certain items appear in some agreements and not in the others. Because the various terms contained in the ESOP agreements have been viewed by some as representing "best practices" for ESOP fiduciaries, it will be interesting to see whether consensus develops as to which provisions of the four agreements should be considered as truly representing "best practices" in the industry.

In our prior alerts, we have noted many areas where clarification or further explanation is needed with respect to the items contained in the ESOP agreements. None of these uncertainties have been clarified or further explained in the Alpha Agreement. In many instances, the unclear or ambiguous items that were present in the GBTC Agreement, FBTS Agreement and/or Joyner Agreement are present in the exact same form in the Alpha Agreement. Though each applicable agreement is binding only on the trustee referenced in such agreement, in order for the ESOP agreements to be truly useful to ESOP trustees and other industry participants, considerable clarification from the DOL is still needed.  


1 Acosta v. Mueller, et. al., E.D.Wi., Civil Action No. 2:13-cv-1302-PP, consent order entered Dec. 27, 2017.

2 The DOL appears to have taken the latter position in Allen v. GreatBanc Trust Co., 835 F.3d 670 (C.A. 7, 2016).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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