The ESOP Association Petitions U.S. Department of Labor to Undertake Congressionally Mandated Rulemaking

The ESOP Association (TEA), the national trade association representing companies with Employee Stock Ownership Plans (ESOPs) and ESOP professionals,exercised rights under the Administrative Procedure Act to petition the U.S. Department of Labor (DOL) to undertake a long-delayed rulemaking essential to the formation and ongoing operation of ESOPs. Since 1974, the Department of Labor has steadfastly refused to fulfill requirements of the Employee Retirement Income Security Act (ERISA) in violation of Congressional direction and stakeholders’ rights under the Administrative Procedure Act (APA).

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“The Department of Labor has flouted Congress’ mandate within ERISA for nearly five decades. On behalf of the millions of Americans with ownership in an ESOP, we have filed this petition to compel Secretary Walsh to undertake the rulemaking Congress directed in 1974, which was nearly completed in 1988 but has been mothballed ever since,” said James Bonham, President and CEO of The ESOP Association. “The Labor Department has failed to follow Congress’ requirements, and the regulatory vacuum has created a chilling effect on ESOP formation and operation that has effectively denied millions of Americans the opportunity for a better retirement and ownership in the place where they work.”

Employee Stock Ownership Plans (ESOPs) were created by Congress to provide a vehicle by which a company’s employees could obtain an ownership stake in their employer through a Qualified Retirement Plan (QRP). Today, more than 6,247 companies are fully or partially owned by more than 10 million employees through an ESOP. However, because ESOPs are stuck in a regulatory no-man’s land, countless businesses have turned away from an ESOP due to the DOL’s failure to provide clear regulation and guidance as Congress directed. Instead, DOL has pursued a strategy of “regulation by litigation”, undertaking thousands of investigations and filing lawsuits against ESOP trustees and founders.

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The APA was enacted to specifically prevent government agencies from regulatory abuses like the DOL’s approach to regulating ESOPs.  Accordingly, The ESOP Association has formally registered an APA petition with U.S. Labor Secretary Marty Walsh, who is required to provide a formal, written response to the petition. Should the DOL respond that it will not enter a formal notice and comment rulemaking process, a court may force the Department to fulfill its responsibilities.

In its petition, The ESOP Association stated “The Department’s unchecked, ex post facto approach to regulation has been devastating: it has sown confusion, emboldened and expanded an opportunistic class action plaintiffs’ bar, driven up insurance costs, and pushed insurers out of the market. At bottom, the Department’s policies have discouraged companies from establishing new ESOPs, driven others to dissolve their ESOPs, and prevented innumerable American workers from building wealth through equity as Congress intended. Employers, ESOP fiduciaries, and, most importantly, current and future ESOP participants, need the Department to regulate as Congress directed 50 years ago—transparently, prospectively, and with stakeholder input—so that American workers can reap the rewards that ESOPs provide.”

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