The U.S. Department of Labor and Cleveland-based Sherwin-Williams Co. have agreed to an $80 million settlement in which those funds are to be distributed to current and past participants of its employee stock purchase and savings plan.
This settlement comes after an investigation by the DOL's Employee Benefits Security Administration. This investigation examined whether Sherwin-Williams took advantage of tax breaks and improperly managed the plan, which is against the Employee Retirement Income Security Act. Illinois-based GreatBanc Trust Co. also must face an audit of its pension plan activities as part of the settlement.
"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," says acting Secretary of Labor Seth D. Harris. "That did not happen in this situation. 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."
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On a transaction in 2003 and a transaction in 2006, Sherwin-Williams and GreatBanc had the plan buy stock issued by Sherwin-William for the purpose of the transactions, the investigation finds. The DOL decided that the because of the violations surrounding fiduciary duties and design of the transactions, the purchases were not beneficial to the plan and its participants. In fact, the transactions were not primarily purchased in an effort to provide benefits to plan participants, and they failed to promote employee ownership of Sherwin-Williams. In some cases, employee salary deferrals were not appropriately paid to the plan. Thus, the DOL finds that Sherwin-Williams and GreatBanc are responsible and liable for violations of ERISA.
"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," says Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi. "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."
According to the DOL, Sherwin-Williams sought the transactions to take advantage of substantial tax benefits that reward companies for offering workers large stock ownership while seeing to it that its employees did not receive stock or retirement benefits in amounts near what the plan spent on the transactions or the company claimed in government filings. In October 2011, Sherwin-Williams and the Internal Revenue Service agreed to a settlement in October 2011 regarding the transactions for excise tax and penalty claims, but this settlement did not cover violations of fiduciary duty as required by ERISA or address the DOL's concerns about Sherwin-Williams' use of employee salary deferrals.
Sherwin-Williams believes that the DOL's claims are without merit and strongly disagrees with the allegation that ESOP plan participants sustained losses of any kind as a result of these transactions. According to a company statement, this position is supported by internal audits and audits by an independent third-party and the DOL.
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