According to the DOL, the paint company, based in Cleveland, sought tax breaks at the expense of the worker benefit plan.
The agreement stems from an investigation by the department’s Employee Benefits Security Administration (EBSA) into whether Sherwin-Williams, seeking to take advantage of tax breaks, improperly managed the plan in violation of the Employee Retirement Income Security Act (ERISA). The settlement also requires Illinois-based GreatBanc Trust Co. to undergo an audit of its pension plan activities.
Sherwin-Williams issued a statement saying it believes that the DOL’s claims are without merit and strongly disagrees with the allegation that ESOP (employee stock ownership plan) participants sustained losses of any kind as a result of these transactions. The company said its position is supported by internal audits, and audits by an independent third-party and the DOL.
“Those who manage retirement plan assets are in a special position of trust and are required by law to always put the interests of plan participants ahead of anything else. That did not happen in this situation,” said acting Secretary of Labor Seth D. Harris. “This agreement rightfully restores money to the workers who’ve played by the rules, done the right thing and worked hard to save for a secure retirement.”
“When fiduciaries expend retirement plan assets, they have to act with undivided loyalty to the plan participants and make sure that the plan receives full value for its money,” said Phyllis C. Borzi, assistant secretary of labor for EBSA. “The fiduciaries’ job is to manage plan investments to provide a secure retirement, not to help the plan sponsor secure tax breaks that are wholly disproportionate to the benefits actually provided to retirees.”
Two transactions came under scrutiny, one in 2003 and one in 2006, in which Sherwin-Williams and GreatBanc caused the plan to purchase specially designed stock issued by Sherwin-Williams solely for the purpose of the transactions. The investigation also examined whether the paint company had forwarded employee salary deferrals appropriately and promptly to their individual plan accounts.
As a result of Sherwin-Williams’ and GreatBanc’s violations of their fiduciary duties and the design of the transactions, EBSA concluded that the stock purchases did not provide benefits to the plan and its participants that were commensurate with the amount the plan paid for the stock.
EBSA also found that the transactions were not primarily for the purpose of providing benefits to plan participants, and did not promote employee ownership of Sherwin-Williams. At times, employee salary deferrals were not appropriately paid to the plan, EBSA said as a result of its investigation.
As a result of these findings, the department found Sherwin-Williams and GreatBanc liable for violations of ERISA.
According to EBSA, Sherwin-Williams’ purpose in the transactions was to take advantage of substantial tax benefits designed to reward companies that provide their workers with significant stock ownership while, at the same time, ensuring that its employees did not actually receive stock or retirement benefits in amounts close to what the plan spent on the transactions or that the company claimed on its government filings.
In October 2011, Sherwin-Williams reached a settlement with the Internal Revenue Service (IRS) in connection with the transactions for excise tax and penalty claims. (That settlement did not address ERISA fiduciary violations or resolve the department’s concerns about Sherwin-Williams’ use of employee salary deferrals.)
The settlement will result in payments of $80 million to current and former plan participants as well as to their beneficiaries. In addition, GreatBanc will audit its engagements involving plan investments in employer stock and submit a full report of that audit to the department.
As of December 2011, the date of the most recent Form 5500 filing, the plan had 34,591 participants and $2.5 billion in assets.