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A company did not breach its fiduciary duty or improperly deny benefits under the Employee Retirement Income Security Act (ERISA) by purchasing stock shares held by a former employee, according to the U.S. District Court for the Northern District of Illinois.
William O. Lee was a former participant in Holden Industries Inc.'s employee stock ownership plan (ESOP). Headquartered in Deerfield, Ill., Holden Industries is the parent organization of manufacturing companies. When Lee ended his employment in August 2012, his ESOP account contained 3,771 stock shares.
In October 2013, Holden exchanged Lee's stock for cash based on the most recent stock valuation in 2012. Holden then offered Lee a one-time payment of his entire account balance. Lee accepted, and Holden paid him $146,832. Later, however, Lee claimed that his shares should have been purchased at the higher stock valuation met in 2013. This higher valuation would have resulted in an additional $36,651.
Lee sued Holden, claiming violation of fiduciary duty under ERISA and arguing he should have been paid the "fair market value" of his stock at the time of the sale in 2013. Lee argued that the summary plan description of the ESOP supported his position.
Holden disagreed, stating that the plan itself, along with a subsequent amendment, allowed the stock valuation to be based on the most recent valuation date in 2012, rather than "fair market value."
In granting Holden's motion for summary judgment, the court reasoned that the governing document, the ESOP, gave Holden authority to control and manage the operation of the ESOP and the company was entitled to purchase stocks allocated to accounts held by inactive participants, such as Lee.
The court further noted that although the summary plan description stated that stock would be paid at fair market value, it contained several discrepancies compared to the plan. The court rejected Lee's argument that the summary plan description controlled, finding that it was only intended to communicate information to participants about the plan. The summary plan description itself is not a plan document, and the terms of the full plan continue to govern Lee's entitlements, according to the court.
Under the terms of the ESOP, Holden was authorized to purchase the shares allocated to Lee. Before the plan amendment was passed, the shares needed to be purchased at fair market value. However, after passage of the amendment, the value of shares was determined by the value set by the most recent stock valuation, which was in 2012. Having found that Holden acted both properly and reasonably, the court rejected Lee's claims.
Lee v. Holden Industries Inc., N.D. Ill., No. 1:15-cv-6405 (Nov. 16, 2016).
[SHRM members-only platform: SHRM Connect]
Professional Pointer: Summary plan descriptions of employee benefit plans are informational and do not constitute part of the plan. If there is a conflict, the plan will control. Under ERISA, employers have a fiduciary responsibility to provide accurate information about a benefit plan. However, a breach of fiduciary claim is only actionable where there is intent by the employer to disadvantage or deceive plan participants.
Nicole A. Young is an attorney with Kamer Zucker Abbott, the Worklaw® Network member firm in Las Vegas.
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