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.