Court Upholds ESOP's Use of Year-Old Valuation to Process Distributions reviews the court's findings, including the fact that the correct valuation was used and that the cost to obtain a new Interim Valuation would run counter to The Exclusive Benefit Rule that provides that an ERISA fiduciary must act solely in the interest of the plan's participants and beneficiaries while defraying reasonable plan expenses:
The court found, however, that so long as defendants used the June 30, 2008 valuation for the distribution because it reasonably appeared to maximize returns for Plan participants under then-prevailing circumstances, they were justified in doing so. The court also concluded that there "can be no question that reliance on the June 30, 2008 valuation seemed to best serve Participant interests." A new valuation was expected to cost at least $20,000 practically a third of the plan sponsor's total value at the time. The court asserted that incurring over $20,000 in expenses for a new valuation, only a short time before the regularly scheduled valuation was set to take place, would run counter to defendants' statutory duty to defray administrative expenses. Accordingly, the court held that the plan sponsor acted in manner consistent with its fiduciary duty of loyalty by using the June 30, 2008 valuation as the basis for the distribution.
The court granted summary judgment to the plan sponsor. (McCabe v. Capital Mercury Apparel, S.D.N.Y. 2010)
The company took the position that the valuation remained an accurate representation of the company's financial position at the time of the distribution, and that another valuation was not required. Nonetheless, it is important to note that as it gets closer to the end of the plan year, it becomes more likely that the stock value may be "stale" and not deemed to be an accurate reflection of the actual stock value.
This entire situation can be generally be avoided if you have a well-planned Written ESOP Distribution Policy Document.
Court Condones Use of Prior Year Stock Valuation for Plan Distributions provides another review of the decision.