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Fifth Circuit Addresses ERISA Fiduciary Duty of Appointing Fiduciary to Monitor an Appointed Fiduciary

The U.S. Court of Appeals for the Fifth Circuit, which includes Texas, upheld a district court judgment that the former owner of a privately-held company engaged in a prohibited transaction and breached his fiduciary duties of loyalty and prudence when selling shares of company stock to his former company’s leveraged employee stock ownership plan (“ESOP”) at prices in excess of the stock’s fair market value. Specifically, the court found that the owner influenced the outcome of the appraiser’s valuation of the stock to achieve a higher stock price, which resulted in the ESOP overpaying for the stock. The Fifth Circuit disagreed with the district court’s holding that the owner, who was also a trustee of the ESOP, breached his fiduciary duty to monitor the other two plan trustees whom he had appointed and whom he knew had breached their duties of loyalty and care. Perez v. Bruister, No. 14-60811 (5th… Continue Reading

IRS Memorandum Regarding “Excludable Employees” for Coverage Testing and the ADP Test

The IRS issued a memorandum providing examples of acceptable interpretations of who may be counted as “excludable employees” for purposes of coverage testing under Code Section 410(b)(4)(B) and performing the ADP test under Code Section 401(k)(3). An “excludable employee” may include an employee (i) until the date on which he or she attains age 21 and completes one year of service, (ii) through the earlier of the date six months after he or she attains age 21 and completes one year of service or the first day of the first plan year after he or she attains age 21 and completes one year of service, or (iii) through the date on which he or she attains age 21 and completes one year of service and any additional waiting period specified in the plan. Note that the IRS memorandum cannot be used or cited as precedent. The IRS memorandum is available here.

May 2016
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