AICPA Opposes Potential Change in DOL Fiduciary Rule for Appraisers of Employee Stock Ownership Plans

July 18, 2013

Legislation has been introduced in the House and Senate that would prohibit the Department of Labor (DOL) from changing its definition of fiduciary under the Employee Retirement Income Security Act of 1974 (ERISA) to include appraisers of employee stock ownership plans (ESOPs).  The American Institute of CPAs (AICPA) welcomed this legislation because the DOL’s pending reissuance of its 2010 proposal is likely to include a fiduciary duty for appraisers of employee benefit plans. 

S. 273 was introduced by Senators Kelly Ayotte (R-NH), Roy Blunt (R-MO), Mary Landrieu (D-LA) and Mitch McConnell (R-KY).  H.R. 2041 was introduced by Representatives Brett Guthrie (R-KY), Lynn Jenkins (R-KS) and Dave Loebsack (D-IA).  Senator Ayotte wrote a letter on June 27 to her Senate colleagues asking them to support the bill.  In it she states that “this proposal is simply unnecessary.  If there are allegations of fraud or abuse associated with an ESOP, an aggrieved party is not without recourse, since that party may bring an action against the current ESOP fiduciary, the trustee.”  Senator Ayotte continues by explaining, “ERISA imposes a number of stringent duties on those who act as plan fiduciaries, including a duty of undivided loyalty, a duty to act for the exclusive purposes of providing plan benefits and defraying reasonable expenses of administering the plan, and a stringent duty of care.  Fiduciaries are personally liable for losses sustained by a plan that result from a violation of these duties.”

It is precisely that proposed duty of undivided loyalty to plan participants that AICPA believes is misplaced and inconsistent with established regulatory requirements.  In a letter dated July 10, 2013 to the Chairmen and Ranking Members of the relevant House and Senate committees, AICPA President and CEO Barry C. Melancon, CPA, CGMA, stated, “Many CPAs perform business valuation services for ESOPs by providing an independent, third-party objective appraisal of the stock of employer companies that sponsor ESOPs.  Many of these appraisals are also used for other purposes including satisfying the Internal Revenue Service (IRS) requirements related to the ESOP’s tax-exempt status.  The Internal Revenue Code (IRC) requires that ESOP valuations be obtained from an independent appraiser at least annually.  If the DOL were to redefine an ERISA fiduciary to include ESOP appraisers an inherent conflict would arise between the DOL and IRS requirements for ESOP appraisers.”

Melancon further stated, “The DOL also has not demonstrated a need for such a broad and far-reaching change from more than 35 years of established policy.  The DOL proposal is a draconian response to a very small number of deficient ESOP appraisals.”

The AICPA has repeatedly advocated that, rather than expand the definition, as proposed by the DOL, rules should be implemented to ensure that only qualified individuals prepare valuations for benefit plans and that individuals follow recognized valuation standards.  In our view, the DOL’s rule should mirror other regulatory agencies regarding the regulation of appraisers.