A trio of lawmakers in Congress have introduced a bill in the House that would modify the definition of fiduciary under the Employee Retirement Income Security Act of 1974 to make clear that appraisers of employee stock ownership plans are not fiduciaries under ERISA.
The bipartisan bill, H.R. 2041, was introduced Monday by Reps. Brett S. Guthrie, R-Ky., David Loebsack, D-Iowa, and Lynn Jenkins, R-Kan. It is the companion bill to S. 273, which was introduced by Senator Kelly Ayotte, R-N.H., in February. The bills come in response to a proposed regulation from the Department of Labor mandating that all private ESOP company appraisers be ERISA fiduciaries.
While the original proposal was withdrawn, if any regulation were finalized to make appraisers ERISA fiduciaries, the lawmakers contend that it would lead to confusion over whether the appraiser or the trustees, and other current fiduciaries, make the decisions about acquisition of shares on behalf of average pay employees. The proposed regulation would also leave private ESOP companies open to lawsuits by aggressive class action trial lawyers. Labor Department officials plan to issue a new proposal later this year, and it is expected they will not alter the proposed regulation's mandate that all appraisers of ESOP stock be ERISA fiduciaries.
The legislation to prevent ESOP appraisers from being considered ERISA fiduciaries has received support from the American Institute of CPAs and the ESOP Association, a trade association of companies with employee stock ownership plans.
“Many CPAs perform business valuation services and many of these CPAs regularly value the stock of employer corporations that sponsor ESOPs,” said AICPA president and CEO Barry Melancon in a statement. “Like its companion bill in the Senate (S. 273), H.R. 2041 would modify the definition of ‘fiduciary’ to make clear that employee stock ownership plan appraisers are specifically excluded. Rather than expand the definition, as proposed by the U.S. Department of Labor, 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. We support the goal of protecting the interests of plan participants and beneficiaries of employee benefit plans. Requiring valuation analysts to have specialized training, credentials and to adhere to professional standards would protect participants and beneficiaries in a cost-effective manner.”
ESOP Association president J. Michael Keeling also issued a statement of support for the bill. “The DOL needs to wake up to the fact that private company ESOPs have tremendous positive records of sustaining jobs as evidenced during the Great Recession,” he said. “As we’ve said before, research proves that ESOPs, and companies with other forms of employee stock ownership, provide more sustainable employment. According to the 2010 General Social Survey, employee stock owned companies laid off employees at a rate of 2.6 percent in 2010, whereas the rate for conventionally owned companies was 12.1 percent. Bottom-line, ESOP companies’ employees, in the aggregate, save Uncle Sam $7 for every dollar Uncle Sam spent promoting employee ownership.”
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