Rule change could threaten employee stock ownership plansBy DAVE SOLOMON
New Hampshire Union Leader
March 25. 2013 8:59PM
MANCHESTER - Turn any corner at the Admix building on Abby Road and you'll be reminded that the company is partly owned by its employees through an employee stock ownership plan, or ESOP.
There are banners that proclaim the manufacturer of industrial-sized mixers is "employee owned ... customer focused." Photographs of all 47 employees are mounted in the hallway under a sign that reads, "Meet the Admix CEOs."
Admix President Lou Beaudette, who founded Advanced Mixing Technologies in 1989, believes in employee ownership and fears the idea is threatened by the prospect of new federal regulations that could make such plans more costly to administer and therefore less likely to exist.
U.S. Sen. Kelly Ayotte, R-N.H., visited the plant on Monday to hear Beaudette's concerns and tell him and his employees that she would do everything she could to fight new regulations under consideration by the Department of Labor.
The issue centers on the appraisers who determine the value of shares given to employees, which can only be cashed in upon retirement or separation from the company. These are not like the shares of publicly traded companies that are sold on the stock market, where value is largely determined by what buyers are willing to pay.
When a privately held company like Admix decides to offer equity to its employees, someone has to determine what those shares are worth, based on the balance sheet of the company.
Having investigated a few cases of ESOP plans that went awry, the Department of Labor in 2010 proposed new rules that would require those appraisers to meet the same standards required of fiduciaries who control retirement plans as defined by the Employee Retirement Income Security Act (ERISA).
According to Beaudette, that would mean exposure to liability that most appraisers would shy away from, or they would have to charge a lot more for their services, making the plans more expensive to administer and drawing funds away from employees.
Rule initially withdrawn
The rule change prompted such an outcry in the ESOP community that it was withdrawn, but may be back again this year. In December, the DOL issued a statement saying a new draft of the proposal would be floated in 2013 and, "When people see the re-proposal, reasonable people with open minds will say the DOL listened."
The ESOP Association, a trade organization for companies that offer such plans, issued an alert to its members last month, warning that sources in the Department of Labor say the idea will resurface in July.
"If any regulation is finalized to make appraisers ERISA fiduciaries there will be extreme confusion over whether the appraiser or the trustees, and other current fiduciaries, make the decisions about acquisition of shares on behalf of average-pay employees. More troubling, it would leave private ESOP companies open to lawsuits by aggressive class action trial lawyers," according to the association.
It may seem arcane to the uninitiated, but it matters a lot to owner-employees at New Hampshire companies like Admix, Hypertherm in Hanover and Cirtronics in Milford, which are among companies in the state offering ESOP plans to their employees.
Ayotte said the DOL change is "a solution in search of a problem."
"The research shows that the vast majority of ESOPs are appropriately valued and have the assets to meet their obligations to the employees," she told a roomful of Admix managers on Monday before touring the plant.
She said it is possible the DOL will not revive the proposed rule, but if it does, she has filed legislation that would preclude it from taking effect. In February, she introduced S. 273, a bill to modify the definition of fiduciary under the ERISA to exclude appraisers of employee stock ownership plans, with co-sponsors Sen. Roy Blunt (R-Mo.), Mary L. Landrieu (D-La.) and Mitch McConnell (R-Ky.).
"If we do need the legislation, we are going to be building a bipartisan collation in support," she said.
At Admix, where employees own 44 percent of the company, Beaudette is looking at twice the expense to administer the ESOP program if the new rules take effect - rules he says are unnecessary.
"With 11,000 or more ESOPs in the country, there were a few that were mismanaged," he said. "Those are the ones that hit the media, whereas the good ones like ours go unnoticed."