The AICPA believes that CPAs who perform valuation services for employee stock ownership plans (ESOPs) should not be defined as fiduciaries under the Employee Retirement Income Security Act (ERISA). Rather, the AICPA believes that the U.S. Department of Labor (DOL) should implement rules that would require appraisers of ESOPs to meet minimum qualification requirements, including holding relevant credentials and training, and comply with applicable professional valuation standards.
Background and Proposed Regulatory Action
The DOL has expressed concerns with the quality of a limited number of appraisals of ESOPs subject to ERISA, and that it lacks the authority to take legal action against ESOP appraisers. To address its concerns, in November 2010 the DOL proposed rules that would broaden the agency’s definition of a ERISA fiduciary to include persons who provide advice, or an appraisal or fairness opinion concerning the value of securities or other property.
In September 2011, the DOL withdrew its proposal and announced that it would re-propose its fiduciary rule. According to the DOL’s website, a new rule proposal is expected to be issued in July 2013.
AICPA Position on Regulatory Action
AICPA believes the DOL should not change the definition of fiduciary under ERISA. Specifically, the AICPA expressed significant concerns with the DOL’s original 2010 proposal, including that the proposal:
- Would create a conflict between a fiduciary’s strict duty of loyalty to plan participants and beneficiaries and professional appraisal standards, which require an appraiser to perform assignments with impartiality, objectivity and independence,
- Does not address the underlying issue of proper qualifications and standards for performing valuation services,
- Will increase the cost of valuation services for ESOP plans, and
- Will restrict the number of valuation specialists willing to do valuations for ESOP plans.
The AICPA recommended the DOL instead implement rules to ensure that only qualified individuals prepare ESOP valuations and that appraisers have proper qualifications and follow recognized valuation standards. The DOL’s rule should mirror other regulatory agencies regarding the regulation of appraisers.
Senator Kelly Ayotte (R-NH), with a bi-partisan group of several senators, introduced legislation in the last Congress (S. 1232) and again in February 2013 (S. 273) to modify the definition of fiduciaries under ERISA to specifically exclude ESOP appraisers.
AICPA Position on Legislation
The AICPA supports S.273.
Copy of Legislation
All major Congressional actions related to this are available on the Library of Congress's
THOMAS website by searching for S. 273 by bill number.
AICPA Comment Letters and Testimony to Department of Labor
April 12, 2011 AICPA FVS Executive Committee - Second Comment Letter to DOL on its Proposed Fiduciary Definition Rule
March 2, 2011 AICPA FVS Executive Committee Member Robert Reilly's Testimony at the DOL Employee Benefits Security Administration Hearing
January 25, 2011 AICPA FVS Executive Committee - First Comment Letter to DOL on its Proposed Fiduciary Definition Rule
AICPA Letters to Members of Congress
August 8, 2012 AICPA Letter to Senators Harkin and Enzi in Support of S.1232 (112th Congress bill sponsored by Senator Ayotte)
Diana Huntress Deem
Director, Congressional and Political Affairs
Senior Technical Manager, Forensic and Valuation Services