DOL's New Proposed Conflict of Interest Regulation Excludes ESOP Appraisers

In 2010, the Department of Labor proposed regulations that would have made ESOP appraisers plan fiduciaries. On April 14, it issued a new proposed rule that specifically excludes ESOP appraisers from fiduciary status. The rule's list of "carve-outs" includes "the provision of an appraisal, fairness opinion or a statement of value to an ESOP regarding employer securities" (p. 31). In its discussion of this change, the Department cited the comments it had received.

The memo discussing the rule is clear that the Department still has concerns about the potential for flawed valuations during ESOP transactions and that it may propose a separate regulatory approach to ESOP valuations: "Although the Department remains concerned about valuation advice concerning an ESOP's purchase of employer stock and about a plan's reliance on that advice, the Department has concluded that the concerns regarding valuations of closely held employer stock in ESOP transactions raise unique issues that are more appropriately addressed in a separate regulatory initiative." (p 32). The Department also addressed this concern in the fiduciary process agreement it reached in the Sierra Aluminum case (see the NCEO publication The DOL Fiduciary Process Agreement for ESOP Transactions).

The Web site of the Employee Benefits Security Administration of the DOL has a number of resources on the new proposed regulation, including an FAQ, a fact sheet, a news release, and a number of analytical reports.