MEETING OF INTERDISCIPLINARY ADVISORY COMMITTEE ON FIDUCIARY ISSUES. November 9, 2007

Transcription

1 MEETING OF INTERDISCIPLINARY ADVISORY COMMITTEE ON FIDUCIARY ISSUES November 9, 2007 A meeting of the Interdisciplinary Advisory Committee on Fiduciary Issues (the Committee ) was held on November 9, 2007 at the Venetian Hotel in Las Vegas, Nevada, in connection with the ESOP Association (the Association ) Two-Day Technical Conference pursuant to prior written notice to all members. In attendance were the members shown on the Attendance List attached as Exhibit A; also in attendance were the individuals listed on the Interested Parties document attached as Exhibit B. Judith L. Kornfeld, Chairperson of the Committee, acted as Chairperson; Stephen D. Smith, member of the Committee, acted as Secretary to record the proceedings. A quorum was present and acted throughout the meeting. Attached as Exhibit C is the preliminary agenda which was distributed by Ms. Kornfeld with the notice of the meeting. Ms. Kornfeld called the meeting to order at 7:35 a.m., local time. She called the attention of the Committee to the minutes of the Committee meeting held on May 15, 2007, a copy of which had been distributed to each member prior to the meeting. She then invited a representative of each of the other Association Advisory Committees to discuss the issues addressed at their respective meetings held the previous day, which issues are also applicable to the proceedings of this Committee. Legislative and Regulatory Affairs. Ms. Marilyn L. Marchetti, a representative of the Advisory Committee on Legislative and Regulatory Affairs (the Legislative Committee ) summarized the ESOP provisions of the proposed legislation being considered by the House Ways & Means Committee. She noted that, in essence, the legislation would make synthetic equity, as described in Section 409(p) of the Internal Revenue Code (the Code ), taxable to the holders thereof. Ms. Marchetti stated that the Legislative Committee was working on a strategy to effectively address the proposal. Ms. Marchetti further reported that the Department of Labor had issued a directive to its regional offices to charge ESOP fiduciaries with a breach of their duties under ERISA if the fiduciaries executed exempt loan documents which do not include the special language for loans from a party-in-interest. She further noted that the Cincinnati and Chicago Regional Offices were requiring ESOP trustees to revise all loan documents which contained such provisions. Lastly, Ms. Marchetti reported that the Treasury Department had, on an inquiry from a practitioner, taken the position that contractual price protection (which is typically included in many ESOP transactions and transactions which otherwise affect an ESOPs investment in employer securities) constitutes synthetic equity under Section 409(p) of the Code. This issue will be addressed by the Legislative Committee at its meeting in February, Advisory Committee on Plan Administration. Mr. Peter Prodoehl, a representative of the Advisory Committee on Plan Administration (the Administration Committee ), reported that his committee was completing its White Paper on the calculation of the cost basis of shares with the objective of publishing the document in the ESOP Report and submitting it to the Treasury Department. He also noted the Administration Committee intends to begin to produce a White

2 Paper which addresses the ESOP diversification requirements. Lastly, the Administrative Committee is working on a new edition of the Administration Handbook. Advisory Committee on Valuation. Mr. Robert J. Gross, a representative of the Advisory Committee on Valuation, reported that he was working on a project to address the sustainability of ESOPs. He further reported the Chairman of that committee requested input from members on 19 different questions relating to valuation issues, with the objective of creating written output on a number of technical issues. Advisory Committee on Finance. Ms. Mary Sullivan Josephs, a representative of the Advisory Committee on Finance (the Finance Committee ), provided an update on the credit markets. She further reported that the Finance Committee had formed a task force to address the issues associated with the efforts of auditors to review stock valuation reports. Ms. Josephs further reported that topics to be addressed at the annual repurchase obligation conference will be broadened to include ESOP sustainability. The objective will be to assist ESOP companies with management succession and corporate governance. The Chairperson noted this initiative is interdisciplinary in nature and that the Committee should be involved in planning for the conference. She requested input from the members on topics to be addressed. Advisory Committee on Ownership Culture. Mr. Jack Veale, a representative of the Advisory Committee on Ownership Culture, reported that the Association is working on a video for its 30 th anniversary. He also noted his committee would receive expanded speaking slots at the Annual Conference. Board of Directors Retreat. Mr. Peter Paquette reported on the first Board of Directors of ESOP Companies Conference which was held on October 2 and 3 in Chicago (the Board Conference ). The conference was quite successful; in fact, two Board Conferences, to be cochaired by Mr. Paquette and Mr. Alex Moss, will be held in Mr. Paquette distributed a report on the results of the Chicago conference, a copy of which is attached hereto as Exhibit D. A discussion ensued regarding possible overlap of topics at sustainability and Board Conferences. It was concluded that sustainability conference should be primarily for inside directors and fiduciaries, while Board Conference should be primarily for outside directors. Fiduciary Handbook. Mr. Ackerman reported that a majority of the chapters of the handbook had been submitted and that the editing process would soon commence. After discussion, it was determined that the handbook would be completed in the following stages: (i) completion of remaining chapters, (ii) editing the document for consistency in terms and format, and (iii) examination by members of this Committee who are internal trustees to confirm the handbook s readability and understandability. Messrs. Fischer and Kaplan volunteered to assist Mr. Ackerman with the editing process. Lastly, the Committee agreed that the handbook should be ready for publication by the Annual Conference. 2

3 Articles for ESOP Report. The Chairperson noted that no members had submitted articles for publication in the ESOP Report despite the fact space has been set aside. The Chairperson requested all members to consider submitting articles. Continuation and Structure of Committee. The Chairperson noted that the Association created the Committee on a two-year trial basis, which will expire in May She further reported there is general recognition in the Association that the Committee will continue after that date. The Chairperson then led a discussion regarding the future of the Committee. The following suggestions were put forth: Advisory Committee representatives should serve on a rotational basis. The maximum term of Advisory Committee representatives should be two years. The terms of internal trustees and members-at-large should not be limited to two years. The Association should provide training for members of boards of directors of small companies inasmuch as such training cannot be readily obtained through other sources. Future panel sessions at conferences should be devoted to training internal trustees and directors. The Chairman asked for volunteers to serve on a task force which would develop recommendations for the future structure and operations of the Committee. In addition to the Chairperson, Messrs. Moss and Smith and Ms. Brown volunteered to serve. Topics for 2008 Annual Conference. The Chairperson asked Committee members to provide suggestions for topics for the 2008 Annual Conference. Ms. Rose Marston, Ms. Darleen Brown and Mr. Joe Redman volunteered to work with the Chairperson to identify sessions for the 2008 Annual Conference which would be of particular interest to the Committee s constituents. There being no further business, the meeting was adjourned with the thanks of the Chairperson. Respectfully submitted, APPROVED: Stephen D. Smith, Recording Secretary Judith L. Kornfeld, Chairperson of the Committee 3

4 EXHIBIT A INTERDISCIPLINARY ADVISORY COMMITTEE ON FIDUCIARY ISSUES PRELIMINARY AGENDA Committee Meeting, 7:30 to 9:00 a.m. The Venetian, Las Vegas, NV I. General comments a. Introduction of members b. Approval of minutes from May 2007 meeting c. Employee Ownership Foundation and ESOP PAC II. Reports from other advisory committee meetings a. Legislative & Regulatory Affairs b. Administration c. Valuation d. Finance e. Ownership Culture III. Board of Directors Retreat a. Report on September, 2007 meeting Peter Paquette b. Planning for two meetings in 2008 Peter Paquette and Alex Moss IV. Update on Fiduciary Handbook David Ackerman V. Request for articles for TEA newsletter and magazine VI. Discussion - continuation and structure of this committee Committee Members VII. Discussion of future initiatives Committee Members

5

6

7

8

9