Department of Labor Holds Hearing on ESOP Appraiser and Other Fiduciary Proposals

The U.S. Department of Labor held hearings on its proposed fiduciary regulations, which, among other things, would define ESOP appraisers as fiduciaries. Assistant Secretary of Labor for the Employee Benefits Security Administration (EBSA) Phyllis Borzi said she saw no conflict between naming the ESOP appraiser as a fiduciary and having the ESOP trustee be a fiduciary as well. Borzi said the appraiser's job would be to find the right value, not to find the best value for the ESOP, as some commenters suggested a fiduciary role for appraisers would imply. (The ESOP fiduciary's task when buying shares from a non-ESOP owner, as defined by law, is not to pay more than fair market value.) Timothy Hauser of EBSA suggested the proposed regulations might be rewritten to provide that the appraiser's job was simply to find the correct fair market value.

Borzi also said that the DOL's experience was that having an appraisal done by a large established firm was no guarantee and that many of the department's actions were against such institutions. Borzi and other DOL officials said that under current law, the ESOP fiduciary does not have the capacity to fully assess valuations and that, as DOL's Alan Liebowitz said, the person doing the valuation is "essentially unreachable in any enforcement process." Having them meet professional standards would suffice, he indicated.

The proposal has met with considerable criticism from the ESOP community. The hearings did not provide any final answers as to what the DOL will do. Borzi said she expects the rule to be finalized by the end of the year. Meanwhile, some ESOP companies and consultants are contacting their congressional representatives about the issue, urging them to contact the department.