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OEOC 21 st Annual Conference

OEOC 21 st Annual Conference. Marilyn Marchetti Senior Vice President GreatBanc Trust Company 630-572-5121 Growing Responsibilities of ESOP Trustees: Are Internal Trustees Too Risky?. The Draft Valuation Report – What do the Trustees do now? . -Trustees determine value

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OEOC 21 st Annual Conference

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  1. OEOC 21st Annual Conference Marilyn Marchetti Senior Vice President GreatBanc Trust Company 630-572-5121 Growing Responsibilities of ESOP Trustees: Are Internal Trustees Too Risky?

  2. The Draft Valuation Report –What do the Trustees do now? -Trustees determine value -Read and analyze report -Ask questions -Compare to prior year’s report -Keep written minutes -Get training on valuation standards -Have valuation team meet with trustees

  3. How can the Trustees monitor management? • -Meet with management on a regular basis • -Engage lawyer to represent the Trustees • -Compare financial results with projections • -Ask for projections, strategic plan, etc. • -Understand business • -Hire compensation consultant • -Attend Management meetings with valuation firm

  4. Executive Compensation – What Now? • -Independent Board of Directors form Compensation Committee • Hire ESOP Attorney to buffer internal trustees • -Have valuation firm review options, SARS, phantom stock for dilution impact and fairness • Understand performance goals • Hire compensation consultant for study

  5. Some one wants to purchase the Company. What do we do now? • -Removal of conflicted trustees • -Appointment of independent trustee • -Role of the Board of Directors • -Role of the Trustee • -Marketing the Company • -DOL/IRS Joint Statement

  6. How is a 100% ESOP Sub-S Corporation valued when considering a sale? • -Remove C Corp tax model • -Look at value build up over short, medium and long term periods • -Factor in legislative risk • -Facts and circumstances of Company

  7. Discretionary Trustee versus Directed Trustee – What is the difference? • -Directed: Trustee is given a written direction from an internal committee • -Discretionary: Trustee decides how to vote independently • -ERISA Override

  8. Pass through voting – How to do it right. • - No company drop off sites • -Collected by an independent party • -Confidential procedures • -Contains all material information

  9. LESSONS FROM AMSTED • Court will not substitute its judgment when Trustee is independent and experienced • Judicial review of Independent Trustee is highly deferential • Decision upheld unless independent trustee is found to have acted arbitrary or capricious

  10. DOL or IRS Audits: • Hire ESOP Counsel immediately • Carefully review documents to be produced • Produce documents off-site • Take it seriously

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