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Earlier this year, the Department of Labor (DOL) and GreatBanc Trust entered into a settlement agreement to resolve litigation related to an ESOP transaction involving Sierra Aluminum where GreatBanc served as the Trustee. As part of that settlement agreement, the DOL included a list of protocols that GreatBanc agreed to follow in future transactions.

Although the DOL mandated protocol arose in the context of a transaction, some of the items in the protocol can be viewed as a guideline of how the DOL expects ESOP Trustees to conduct their activities.

Of particular interest are the steps and the documentation that the DOL expects to see regarding the Trustee’s selection process of any independent valuation advisors to the Trust and the confirmation of the non-existence of conflicts of interest. Of further interest are the items and analyses that the DOL has suggested should be included in the valuation report of the independent advisor. These items and analyses may cause valuation firms to revamp their processes and reports. Finally of note is the requirement that the Trustee develop a detailed analysis of the valuation report and create a document record of its processes related to the evaluation of the valuation report.

Although the protocols in the agreement are not technically formal guidance from the DOL, the DOL is touting the agreement on its website. The unspoken implication is that the protocols have something to tell ESOP fiduciaries. In addition, many ESOP professionals appear to agree seeing the agreement as illustrative of what the DOL is expecting ESOP fiduciaries to be doing.

All of that said, ESOP fiduciaries may be best advised to review the protocols and determine whether there is a need to incorporate some of them into their standard practices where appropriate.