President Donald Trump this week received a letter from 27 influential members of the House of Representatives, urging him to rein in overzealous and unfair enforcement of regulations that apply to ESOP companies.
The letter offers powerful support for ESOP companies, at a time when that support is sorely needed. The Employee Benefits Security Administration (EBSA), a division of the Department of Labor, has a well- documented history of pursuing litigation against ESOP companies, while refusing to issue regulations that would offer those same ESOP companies a clear path to compliance.
The letter addresses this issue in its opening paragraph, stating that "the Department's practice of 'regulation through litigation' is harming small businesses and their employees."
The representatives add that the Labor Department has used "counter-productive enforcement tactics, including taking inconsistent legal positions," and that the Department's actions could threaten "the system Congress carefully crafted to encourage employee ownership." In addition to litigation, the letter notes, the department uses high-pressure tactics—such as prolonged investigations and the threat of legal action—against ESOP companies. One investigation went on so long that a company had difficulty securing financing for three years running. In another case, a small business was told terminate its ESOP or risk being sued by the department.
In another case, the department retained an independent valuation expert—then disregarded his findings and sued the company anyway.
Although the Labor Department —and EBSA specifically—are tasked with protecting the value of employees' retirement savings, the department's "policies are putting workers' savings at risk as the excessive cost of responding to the department ultimately reduce the value of ESOP companies," the House members wrote.