AICPA asks Congress to block change in DOL fiduciary rule for ESOP appraisers


The AICPA has endorsed legislation designed to block any proposal from the U.S. Department of Labor (DOL) that would change the definition of “fiduciary” as it applies to the valuation of employee stock ownership plans (ESOP). 

The DOL in recent years has sought to expand the definition of a fiduciary under the Employee Retirement Income Security Act (ERISA) to include independent appraisers of ESOPs. Such a change would pose a significant conflict of interest for CPAs who perform ESOP valuations, the AICPA says.

The AICPA expressed its support of bills S. 273 and H.R. 2041, which would block any such change, in a July 10 letter to members of Congress. Accountants who perform valuations for ESOP plans, in particular, are keeping a close eye on the legislation. That’s because there are more than 10,000 ESOPs in the United States and each of them is required to obtain an independent and objective valuation for annual reporting requirements of the DOL and the IRS. 

“If the DOL were to redefine an ERISA fiduciary to include ESOP appraisers, an inherent conflict would arise between the DOL and IRS requirements for ESOP appraisers,” AICPA President and CEO Barry Melancon, CPA, CGMA, wrote in the letter. “An ERISA fiduciary must act solely in the interest of plan participants and their beneficiaries and therefore cannot provide an independent, third-party objective perspective.”

The DOL in 2010 issued a proposal to alter the fiduciary requirements due to concerns with the quality of some ESOP appraisals. But the AICPA says a change isn’t warranted.

“The DOL has not demonstrated a need for such a broad and far-reaching change from more than 35 years of established policy,” Melancon wrote. “The DOL proposal is a draconian response to a very small number of deficient ESOP appraisals.”

The DOL withdrew its proposal in 2011, but has announced that it plans to repropose a similar rule later this year.

The AICPA suggests that, rather than expand the definition, as proposed by the DOL, rules should be implemented to ensure that only qualified individuals prepare valuations for benefit plans and that those individuals be required to follow recognized valuation standards. 

If adopted, the DOL’s proposed change would have a significant negative impact on ESOPs, according to J. Michael Keeling, president of The ESOP Association.

“First, appraisers would have to, assuming that they continued to engage in appraising ESOP stock, buy fiduciary insurance, a market that does not currently exist,” Keeling wrote in an email response to questions. “In the real world, the extra costs would be passed on to the ESOP companies.”

He added that many current appraisers would decide not to continue conducting ESOP appraisals because of new risks that would be created by the potential change. And he fears that the conflict of interest inherent in making appraisers fiduciaries would increase the threat that ESOPs face from litigation.

Studies have shown that as a retirement vehicle, ESOPs have higher returns than traditional retirement plans, but AICPA officials fear the DOL’s efforts would make this option much less appealing to business owners.

Chris Baysden ( ) is a JofA senior editor.

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