NCEO Signs Letter to FASB on ESOP Disclosure Requirements

The NCEO signed a letter to the Financial Accounting Standards Board (FASB) (PDF) in collaboration with the ESOP Association and Employee-Owned S Corporations of America. The letter argues for carving private companies out of new rules that may require the disclosure of information in their ESOP audit reports filed with Form 5500 about the significant assumptions and methodologies used in the valuation of the company's stock.

The letter explains our concerns and requests that private ESOP companies and other companies where qualified retirement savings plans may own a meaningful portion of the company be exempted from this rule.

FASB adopted Accounting Standards Update (ASU) 2011-04, intended, as we understand it, to require companies to disclose the significant assumptions and methodologies used in the valuation of company securities that are not publicly traded. The wording of the rule may have the effect of requiring that privately held companies to provide a footnote in their ESOP audit reports filed with Form 5500 that would provide information such as the weighted average cost of capital, operating margins, revenue growth rates, and other information. Since the information in Form 5500 is publicly available to competitors or possible hostile acquirers, the letter states that ASU 2011-04 "could cause companies to terminate ESOPs and discourage other companies from adopting them. Decades of research suggests that this would reduce job creation, damage retirement security, and weaken companies."