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Presently, the trustee of an employee stock ownership plan (an “ESOP”) has a fiduciary responsibility under ERISA to value shares of the underlying sponsoring company on at least an annual basis and at the time shares are purchased or sold.  To fulfill this duty, the trustee must utilize a qualified business valuation expert to aid the trustee in determining the value of the underlying company and its stock.  


The Department of Labor previously proposed regulations that would specifically treat appraisers providing valuations to an ESOP as a “fiduciary” under ERISA.  While the proposed regulations were withdrawn, the Department of Labor has been indicating for quite some time that they would be reissuing the rules treating an appraiser to an ESOP as a fiduciary in a reformulated regulation.


Officials from the Department of Labor have indicated they are reformulating the rules in response to the many concerns raised about the previously proposed regulations.  Nonetheless, if the regulations are reintroduced in a manner that treats ESOP appraisers as fiduciaries, it could have a crippling impact on ESOPs.  Not only will the change heighten the appraiser’s obligations to the ESOP and the ESOP’s participants and beneficiaries, it will create confusion as to which party (the Trustee or the appraiser) ultimately has the responsibility to determine the value of the sponsoring company’s shares of stock.  Making this change will significantly raise the obligations on and risks to the appraiser; thus, ultimately increasing their fees and the costs of operating an ESOP.


ESOPs were created and provided with special tax benefits in order to encourage businesses to share ownership with their employees.  Simply put, imposing these new rules will make it harder and more expensive to form and operate an ESOP.  


The good news is that a new bill (H.R. 2041) was introduced in the House of Representatives on Monday by Representatives Brett Guthrie, Republican-Kentucky, David Loebsack, Democrat-Iowa, and Lynn Jenkins, Republican-Kansas. This bi-partisan bill is a companion to a bill (S. 273) introduced in the Senate in February by Senator Kelly Ayotte, Republican-New Hampshire.  The bills, if ultimately approved and signed into law, would specifically exclude ESOP appraisers from being treated as fiduciaries under ERISA. 


We think these proposed bills make sense.  If you agree, we encourage you to let your Senators and Congressmen/women know you are in support of these bills.