Sherwin-Williams Co., Cleveland, will put $80 million into its employee stock ownership plan to settle charges by the Department of Labor that it mismanaged the plan to take advantage of tax breaks.
As of Dec. 31, 2011, the plan had assets of $2.5 billion.
The plan's fiduciary service provider, GreatBanc Trust Co., was ordered to audit its pension plan activities as part of the settlement.
In a statement, Sherwin-Williams said the company “believes that the DOL claims are without merit and strongly disagrees with the allegation that the ESOP plan participants sustained losses of any kind as a result of these transactions.”
The company settled to avoid costly litigation, according to the statement.
An investigation by the Employee Benefits Security Administration focused on two transactions in 2003 and 2006, “in which Sherwin-Williams and GreatBanc caused the plan to purchase specially designed stock issued by Sherwin-Williams solely … to take advantage of substantial tax benefits” for providing the stock to employees, who “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,” according to an EBSA news release.
In October 2011, Sherwin-Williams settled with the Internal Revenue Service over those transactions. The EBSA investigation, which also looked at whether Sherwin-Williams handled employee salary deferrals to their accounts properly, focused on violations of fiduciary duty.
“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,” Phyllis C. Borzi, assistant secretary of labor for the EBSA, said in a statement.
The $80 million, one-time payment will result in an after-tax charge to earnings of $49.2 million for the fourth quarter of 2012.
Calls to Sherwin-Williams and GreatBanc Trust were not returned at press time.