DOL Fines Sherwin-Williams $80M for Tax Violations

After conducting its investigation, the department concluded that as a result of Sherwin-Williams’ and GreatBanc’s violations of their fiduciary duties and the design of the transactions, the stock purchases did not provide benefits to the plan and its participants commensurate with the amount the plan paid for the stock, the transactions were not primarily for the purpose of providing benefits to plan participants, the transactions did not promote employee ownership of Sherwin-Williams and, at times, employee salary deferrals were not appropriately paid to the plan. As a result, the department concluded that Sherwin-Williams and GreatBanc were responsible and liable for violations of ERISA.

EBSA found that “Sherwin-Williams’ purpose in the transactions was to take advantage of substantial tax benefits designed to reward companies that provide their workers with significant stock ownership while, at the same time, ensuring that its employees 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.”

In October 2011, Sherwin-Williams reached a settlement with the IRS in connection with the transactions for excise tax and penalty claims, according to EBSA. The IRS settlement did not address violations of fiduciary duty under ERISA or resolve the department’s concerns relating to Sherwin-Williams’ use of employee salary deferrals.

The settlement will result in payments totaling $80 million to current and former participants in the plan as well as to their beneficiaries. In addition, GreatBanc will audit its engagements involving plan investments in employer stock and submit a full report of that audit to the department.

As of Dec. 31, 2011, the most recent Form 5500 filing, the plan had participants of 34,591 and assets of $2,496,931,983.