ERISA Fiduciary Definition - Appraisers of Employee Stock Ownership Plans
Department of Labor Reportedly Drops Valuation from Fiduciary Rule
The AICPA has learned that the Department of Labor has dropped appraisers of employee stock ownership plans (ESOPs) from its proposed rule on the definition of a fiduciary. The original rule was issued in 2010 and would have included valuation providers in the definition of a fiduciary under the Employee Retirement Income Security Act (ERISA). The AICPA received a number of communications from members expressing concern with the proposal, and took those concerns to the DOL. The DOL withdrew the proposed rule in 2011 and is expected to reissue the new rule soon.
In March of 2011, Robert Reilly, CPA/ABV/CFF, and members of the AICPA’s Forensic and Valuation Services Executive Committee, testified on this issue before the DOL. In addition to the testimony, the AICPA submitted several comment letters and met directly with Department staff. AICPA’s concerns included that the proposed rule:
- 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,
- Did not address the underlying issue of proper qualifications and standards for performing valuation services,
- Would increase the cost of valuation services for ESOP plans, and
- Would restrict the number of valuation specialists willing to do valuations for ESOP plans.
The AICPA believed that a better solution would be to mirror rules developed by the IRS where individuals performing valuations for qualified plans would be required to have credentials and follow valuation standards.
In addition to the AICPA’s direct interactions with the DOL, the AICPA membership and state CPA societies participated in grass roots efforts in support of bipartisan Senate and House bills, S.273 and H.R. 2041, which specifically excluded valuation providers from the definition of fiduciary.
The AICPA believes the removal of valuation providers from the proposed rule is a positive outcome. Importantly, the DOL has expressed interest in working with the appraiser community to improve guidance for ESOP appraisers and AICPA looks forward to working with the Department to craft a solution that protects plan participants while not imposing an undue burden on plans or valuation providers.
To see past updates concerning the DOL's proposed rule to change the definition of the term "Fiduciary", visit the Advocacy - Federal Issues page.
Comments Issued on International Valuation Standards Council’s Illustrative Examples Chapter 1 – Bases of Value Exposure Draft
On March 31, 2014, the AICPA FVS Executive Committee issued a comment letter presenting its responses and concerns to certain questions for respondents raised in the first chapter of a rolling project to provide illustrative examples for many of the valuation concepts and principles discussed in the International Valuation Standards (IVS) Framework: Chapter 1 – Bases of Value. The primary concern with the exposure draft is the inconsistent terminology between the IVS Framework and existing terminology used in International Financial Reporting Standards, US GAAP, and the International Glossary of Business Valuation Terms. Download the comment letter to read the AICPA's responses and additional concerns.
AICPA Comments on Second Exposure Draft of The Appraisal Foundation's Valuation of Customer-Related Assets
On February 28, 2014, the AICPA FVS Executive Committee issued a comment letter issuing recommendations in response to The Appraisal Foundation’s second exposure draft of Valuation of Customer-Related Assets (VCRA). The discussion draft concludes that the valuation of customer-related assets is a complicated exercise that requires significant judgment. VCRA presents concepts on how to approach and apply the valuation process appropriate for customer-related assets. AICPA submitted comments on the initial discussion draft on August 31, 2012.
FVS Executive Committee Report Makes Recommendations to Help Improve Efficiencies of the Court System
The AICPA FVS Executive Committee has collaborated with the Institute for the Advancement of the American Legal System (IAALS) at the University of Denver in their efforts to improve the United States civil justice system’s ability to provide parties before the court with a speedy, inexpensive and just determination of every action, which is set forth in Rule One of the Federal Rules of Civil Procedure. The FVS Executive Committee and IAALS have written a report titled Another Voice: Financial Expert on Reducing Client Costs in Litigation. This document details the following five recommendations to maximize both the effectiveness and efficiency of financial expert witnesses’ use in the civil pretrial process.
- Judges should implement early and consistent active case management;
- Clients and attorneys should involve experts early in the process;
- Attorneys should target, focus and streamline expert depositions and discovery;
- Attorneys’ Daubert-like challenges should be appropriately targeted and acted upon promptly by the court; and
- Attorneys and the court should develop a process for the collaboration and cooperation of opposing experts where appropriate.