By Paula Aven Gladych
The U.S. Department of Labor
is suing GreatBanc Trust Co. and Sierra Aluminum Co. in California for alleged violations of the Employee Retirement Income Security Act.
The DOL alleges that GreatBanc breached its fiduciary duty to the Sierra Aluminum Employee Stock Ownership Plan when it allowed the plan to pay more than fair market value for employer stock in June 2006. Sierra Aluminum, the ESOP’s sponsor, also is listed as a defendant in the suit for entering into an indemnification agreement with GreatBanc that violates ERISA
"Plan fiduciaries have an obligation to work solely in the interest of plan participants," said Assistant Secretary of Labor for Employee Benefits Security Phyllis Borzi. "When they fail to do so, the retirement security of workers is put in jeopardy, and we will take action to make plan participants whole."
The suit alleges that GreatBanc failed to adequately inquire into an appraiser's report that presented unrealistic and aggressively optimistic projections of Sierra Aluminum's future earnings and profitability. The company also failed to investigate the credibility of the assumptions, factual bases and adjustments to financial statements that the appraiser relied upon in preparing its report. The suit also alleges that GreatBanc asked the appraiser to revise its valuation
opinion to reconcile the ESOP's higher purchase price with the lower fair market value of the company stock.
Sierra Aluminum's indemnification agreement with GreatBanc violated ERISA to the extent that it would permit Sierra Aluminum to pay GreatBanc's losses, costs, expenses and damages unless and until a court enters an unappealable judgment that GreatBanc did not violate ERISA, according to the lawsuit. The complaint seeks to restore losses plus interest to the plan and to enjoin Sierra Aluminum from indemnifying GreatBanc.
Sierra Aluminum Co.'s principal place of business is in Riverside, Calif. The company produces extruded aluminum products for use in various industries such as construction and transportation. GreatBanc Trust Co. is based in Lisle, Ill. The ESOP currently has 322 participants.
Originally published on BenefitsPro.com