First Bankers Suspends Services for New ESOPs

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Jacklyn Wille and Carmen Castro-Pagan

First Bankers Trust Services is suspending its services for transactions related to newly formed employee stock ownership plans, according to a letter from the company’s president obtained by Bloomberg BNA.

The May 8 letter comes about a month after the company was hit with a $9.5 million judgment in a Department of Labor lawsuit challenging its role in a stock transaction for New Jersey construction company SJP Group Inc. The letter, signed by First Bankers President Brian Ippensen, cites the “recent SJP litigation” as a factor driving the company’s decision to halt its services for new ESOP transactions.

“These are certainly unsettling times for ESOP fiduciaries and the community as a whole,” Ippensen wrote in the one-page letter.

First Bankers’ publicly traded parent company, First Bankers Trustshares, Inc., told shareholders on April 28 that if the trust company loses its appeal in this case, earnings could be impacted by up to 37 cents a share.

In addition to the SJP litigation, the trust company is also facing DOL lawsuits over its involvement in stock plan deals for auto parts manufacturer Sonnax Industries Inc., denim maker Maran Inc. and metal manufacturer Rembar Co. In each case, the trust company is accused of facilitating stock purchases based on flawed valuations that caused workers to overpay for the stock of their employers.

The trust company will continue servicing its existing clients and accepting “successor trustee relationships” with ESOP companies that aren’t currently clients, according to Ippensen’s letter.

Ippensen confirmed to Bloomberg BNA that First Bankers will suspend its services for newly formed ESOPs. He declined to comment further on the company’s decision, other than to say that First Bankers has striven to follow the limited guidance on ESOP transactions that the Department of Labor has issued.

First Bankers isn’t the only ESOP fiduciary to be plagued by litigation. In recent months, the department has filed enforcement actions targeting Evolve Bank & Trust, Fiduciary Trust Services Inc. and Lubbock National Bank. A DOL lawsuit against GreatBanc Trust Co. settled for more than $5 million in 2014, and the department reached a $1.25 million settlement with PBI Bank Inc. in a similar action in 2015.

The DOL is intent on eliminating ESOPs altogether, J. Michael Keeling, president of the Washington-based ESOP Association, told Bloomberg BNA via email.

“I can’t comment specifically on a case with which I am not fully familiar,” Keeling said of the First Bankers decision. “But, in general, it appears the Department of Labor’s intent is to shut down prominent ERISA advisory firms and trustee companies in order to eliminate ESOPs.”

Keeling added that the DOL has been advancing legal theories that would “constitute the death knell of ESOPs” if they’re accepted by the courts.

A DOL spokesman declined to comment for this story.

To contact the reporters on this story: Jacklyn Wille in Washington at jwille@bna.com; Carmen Castro-Pagan in Washington at ccastro-pagan@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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