Compliance December 28, 2021

Chicago Consultant Faces New ESOP Lawsuit

The complaint claims ERISA violations against the company for allegedly deflating the plan’s value.   

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Retirement plan participants invested in the West Monroe defined contribution (DC) employee stock ownership plan (ESOP) allege that plan fiduciaries improperly appraised the company at a deflated valuation that undervalued employees’ shares.

According to a complaint filed in the U.S. District Court for the District of Illinois, the plaintiffs allege that Chicago-based digital consulting firm West Monroe, as well as several of its committees, violated provisions of the Employee Retirement Income Security Act (ERISA) by failing to act in the interests of participants invested in the company ESOP.

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The plan invested primarily in the stock of West Monroe Partners, according to court documents. The plaintiffs allege that plan participants who cashed out company stock holdings were shortchanged by distributions from plan fiduciaries managing the plan.

The company was appraised by the defendants in April, and the value was pegged at $515.18 million as of year-end 2020, according to court documents, or $515.18 per share. The defendants used the April valuation to repurchase almost 28,000 shares of company stock from the plan at the alleged discounted price, according to the complaint, from the accounts of the plaintiff and class members.

“As a result, the defendants cashed the plaintiff and class members out of the plan for well below the fair value of their shares,” the complaint states. “Within weeks, the company would reveal that its stock’s true fair value was almost five times higher.”

According to the suit, this lower valuation led to employees who cashed out of the plan to receive well below the fair market value for shares, according to court documents. 

“The defendants’ April 2021 valuation was neither careful, skillful, prudent, nor diligent, and it grossly undervalued the company stock held in the plan,” the complaint states.

After West Monroe completed the distributions and stock buybacks, the company revealed in October that it had sold 50% of the total shares to a third-party investor, MSD Partners, for a price nearly five times higher than was paid out to retirement plan participants, according to court documents. The suit says the deal valued West Monroe at approximately $2.5 billion, or $2,500 per share, as the price disclosed for the shares sold.

“This new valuation did not come out of thin air,” the complaint states. “Long before the deal closed, the defendants’ preparations to sell half of the company would have alerted them that company stock was worth much more than $515.18 per share.”

Additionally, while West Monroe allegedly deflated the value of the ESOP participants’ stock, it enabled the company’s leaders to take advantage of the discount, the complaint states. Months before making the distributions to employees, the company created an additional avenue for senior leaders to benefit by allowing them to buy additional shares of company stock at the lower valuation, according to court documents. 

“The defendants thus allowed the company and its senior leaders to buy more stock at the same deflated price used to cash out [plan participants], just before the company announced the leap in valuation,” the complaint states. “As a result, West Monroe and its senior leaders captured exorbitant profits.”

West Monroe declined comment for this article.

Products December 28, 2021

HealthyHive Introduces Adviser HSA Educational Program

The program provides health savings account educational tools to help expand an adviser’s knowledge about the intersection of health, wellness and finances.

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HealthyHive, a digital education and consulting platform, has launched a new education program providing retirement-focused advisers with comprehensive health savings account (HSA) education, as well as educational content they can share with their clients.

HSAs present significant opportunities for retirement plan advisers, but they are often not being framed as specialized retirement vehicles, says HealthyHive founder and CEO Carl Hall. In reality, Hall says, HSAs can be a powerful complement to traditional 401(k) plans and individuals’ personal savings, resulting in better retirement outcomes and less stress about paying for health care later in life.

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HSA industry assets under management are estimated to reach almost $100 billion this year, with about a third of the assets being held in investments. As HSA investments continue to grow, HealtyHive’s goal is to help advisers learn more about the inner workings of HSAs, providing for increased adoption and more efficient usage.

As it stands now, advisers don’t understand enough about HSAs, and the average person knows even less about what the accounts are and what they can do, says James Tavares, HealthyHive business development director. He notes that HealthyHive provides tools that can deliver HSA education and consultation and incentivize efficient health care consumption by providing price transparency expertise to fiduciaries and retirement plan advisers.

The first step of the educational program consists of short education and training videos that explain specific topics about HSAs. Information is shared via webinars, regulatory updates, blog posts, tips and insights. The next step of the program explains how an HSA benefits from a unique and powerful triple tax advantage.  

The goal of a financial adviser, broadly speaking, is to help make sure that when people retire, they don’t run out of money, Tavares says. Having an account where the money can be put aside, grown and spent without paying taxes extends the shelf life of what’s been saved. To this end, one tool within the educational program helps to quantify and visualize the tax savings for both advisers and clients.

After entering in some basic information, such as how many years until retirement, current account value and future healthcare spending expectations, advisers can show a client how many additional years of healthcare spending can be gained by funding an HSA.

The third step of the educational program is meant to teach a client how to become a more empowered healthcare consumer when spending from an HSA, Tavares says. The tool gives a transparent look at the cost for medical and dental procedures and is designed to show the importance of shopping around to get the best price for the service. It also gives examples of how much money can be made from investing what HSA assets over a long time horizon.

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