The American Institute of CPAs is pushing back against the Department of Labor’s proposed changes to the definition of the term “fiduciary.”
Robert Reilly, a member of the AICPA’s Forensic and Valuation Services Committee, testified against the proposed changes during a hearing Wednesday of the Department of Labor Employee Benefits Security Administration.
Reilly’s testimony discussed the fact that many CPAs perform business valuation services for many employee benefit plans, and said that treating the sponsor company valuation analyst as a fiduciary would be "disadvantageous to benefit plan participants." There are currently about 11,500 Employee Stock Option plans with over 10 million participants. Most ESOPS are offered in small businesses.
Reilly noted that the proposed change to the definition is incompatible with the Internal Revenue Service’s requirements for an independent appraisal of employer securities. He also said the proposed change does not address the underlying issue of proper qualifications and standards for performing valuation services and would increase the cost of valuation services for employee stock ownership plans. “The proposed change will restrict the number of valuation specialists willing to do valuations for ESOP plans,” said Reilly.
The AICPA is recommending that the Labor Department require all sponsor company valuations to be performed by professionally credentialed valuation analysts who would be required to prepare the valuations in compliance with generally accepted business valuation standards, similar to those standards encompassed in Section 170(f)(11)(E) of the Tax Code on qualified appraisers. Those standards include minimum education, experience and licensure or certification requirements. “We recommend the department establish similar minimum qualification requirements for employer stock valuations,” said Reilly. “If the department were to require similar requirements for the preparation of valuations for employee benefit plans then the risk of a plan receiving a poor quality appraisal would be substantially mitigated.”
The AICPA issued Statement on Standards for Valuation Services No. 1 in June of 2007, which established standards for AICPA members who are engaged to estimate the value of a business, business ownership interest, security, or intangible asset, Reilly noted.
“Since SSVS1 was issued, all other domestic valuation organizations have changed their valuation standards so that they are all significantly equivalent,” he added. “These standards outline minimum requirements for the development of an opinion of value and the reporting of that opinion. We believe the AICPA professional credentials and professional standards meet the current valuation analyst requirements of the Internal Revenue Code. In contrast, the definition of the sponsor company valuation analyst as a fiduciary is fundamentally in conflict with the independence requirements for valuation analyst in the Internal Revenue Code.”