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Government Affairs – Department of Labor Proposed Regulation on the Definition of a Fiduciary

Government Affairs – Department of Labor (DOL) Proposed Regulation on the Definition of a Fiduciary

 The following are posts related to the DOL’s proposed regulation on the definition of a fiduciary.

November 14, 2013

News: Justice Department Asks Supreme Court to Reverse Circuit Courts’ Pro-ESOP Position

ESOP Association News

The ESOP Association sent out the following press release. We are sharing with readers here.

For Immediate Release: November 14, 2013

Justice Department Asks Supreme Court to Reverse Circuit Courts’ Pro-ESOP Position

November 14, 2013 (Washington, DC) – In a disappointing turn of events, the Obama Administration has once again taken a negative position in regard to employee stock ownership plans (ESOPs).

Early in 2013, the Supreme Court asked the Solicitor General to comment on technical questions regarding stock-drop cases and to assess whether these types of cases should be brought to the attention of the Court. In a rather strange move, the Solicitor General asked the Court to focus only on a matter concerning ESOP plan fiduciaries, and whether they are entitled to the presumption that they have acted in the best interests of plan participants by investing in company stock.

“Congress, and former Presidents, has consistently encouraged ESOPs for over 30 years,” said ESOP Association President, J. Michael Keeling. “The presumption that ESOP plan fiduciaries act prudently when company stock is the ESOP’s primary asset was decided by the Third Circuit in Moench V. Robertson,  a 1995 case that plaintiffs won, making it clear bad actors do not prevail but also acknowledging Congress has endorsed ESOPs and Presidents have signed pro-ESOP laws. This pro-ESOP Moench position has been upheld by a majority of Federal courts for years, and one can only presume from the Solicitor General’s question of Moench that the Justice Department is looking to harm ESOPs.”

There is concern that if the Supreme Court agrees with the Administration, there will be a rise in lawsuits challenging ESOP companies. Numerous anti-ESOP lawsuits would do harm to ESOP companies and their employee owners.

“Since 2010, the ESOP community has been fighting a proposed regulation from the Department of Labor regarding the definition of an ESOP fiduciary. The Solicitor General’s attack on ESOPs is one more dig from an Administration that has demonstrated negative views of employee ownership as evidenced by its budget proposal justifying the reversal of a pro-ESOP tax law because, according to the Administration, employees working for companies with more than 10 – 15 employees are incapable of understanding how their actions impact their company. It’s counter-intuitive to hear the Administration preach about creating jobs and then try to take away a proven policy that sustains jobs,” stated Mr. Keeling.

For those that are curious, the Justice Department Brief: Brief

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The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy. More information: website – www.esopassociation.org and blog – www.esopassociationblog.org.

 September 24, 2013

September 2013, Update on the DOL

ESOP Association President, J. Michael Keeling, provides members with an update on the Department of Labor’s proposed regulation on the definition of fiduciary.

For those interested, the letter from Congressman Rokita and Congressman Loebsack to the DOL that Mr. Keeling refers to in the video update is here: Letter to DOL September2013.

http://youtu.be/2gqdxAqXgeA

August 1, 2013

Senators Send Letter to New DOL Secretary Regarding Proposed Rule on the Definition of a Fiduciary

On July 25, 2013, Senators Mitch McConnell (R-KY), John Thune (R-SD), Kelly Ayotte (R-NH), and Roy Blunt (R-MO), sent a letter to the just confirmed new Labor Secretary, Thomas Perez, about the Department’s proposed regulation that would mandate all private ESOP company appraisers be ERISA fiduciaries.

In the letter, the Senators state:  “We cannot overstate the detrimental effect the 2010 proposed regulation would have on private ESOP companies that have a successful record of maintaining much needed jobs and providing generous retirement benefits for part-time, low-wage, and middle class workers. The Labor Department’s efforts to expand the definition of fiduciary to include independent ESOP appraisers will only hurt the very employees it seeks to protect.”

“We thank Senators McConnell, Thune, Ayotte, and Blunt for their strong support of ESOPs and for taking this step in emphasizing to the DOL just how harmful this proposed regulation is to the ESOP community,” said ESOP Association President, J. Michael Keeling. “These Senators are major leaders in the U.S. Senate — Senator McConnell, the Republican Leader; Senator Thune, Chair of the Senate Republican Conference; and Senator Blunt, Vice Chair of the Senate Republican Conference. And of course, Senator Ayotte, who first took up the ESOP cause protesting the DOL proposal, has now become a national figure in American politics.”

Click here to read the full letter – Letter to DOL.

July 19, 2013

AICPA Supports Bills to Block Change in DOL Fiduciary Rule for Appraisers of ESOPs

We received the following email from the American Institute of CPAs (AICPA) earlier this week and wanted to share. From their website, the AICPA is the world’s largest member association representing the accounting profession, with nearly 386,000 members in 128 countries and a 125-year heritage of serving the public interest. The email follows:

The American Institute of CPAs wrote Congress on July 10 in support of legislation (S. 273 and H.R. 2041) that would block the U.S. Department of Labor’s (DOL) 2010 proposal to change its definition of fiduciary under the Employee Retirement Income Security Act of 1974 to include appraisers of employee stock ownership plans (ESOPs).  The AICPA has repeatedly argued that, rather than expand the definition, as proposed by DOL, rules should be implemented to ensure that only qualified individuals prepare valuations for benefit plans and that individuals follow recognized valuation standards.

The AICPA’s letter to Congress is below.

July 10, 2013

The Honorable Tom Harkin

Chairman, Health Education Labor and

Pensions Committee

United States Senate

Washington, DC  20510

The Honorable Lamar Alexander

Ranking Member, Health Education Labor and Pensions Committee United States Senate Washington, DC  20510

The Honorable John Kline

Chairman, Education and Workforce Committee United States House of Representatives

Washington, DC  20515

The Honorable George Miller

Ranking Member, Education and Workforce Committee United States House of Representatives Washington, DC  20515

RE: S. 273 and H.R. 2041

Dear Chairman Harkin, Ranking Member Alexander, Chairman Kline and Ranking Member Miller:

On behalf of the nearly 386,000 members of the American Institute of Certified Public Accountants (AICPA), I am writing to encourage you to cosponsor S. 273/H.R. 2041, a bill that would prohibit the Department of Labor (DOL) from moving forward on its re-proposal to expand the definition of a fiduciary under the Employee Retirement Income Security Act (ERISA) to include independent appraisers of Employee Stock Ownership Plans (ESOPs).

Many CPAs perform business valuation services for ESOPs by providing an independent, third-party objective appraisal of the stock of employer companies that sponsor ESOPs.  Many of these appraisals are also used for other purposes including satisfying the Internal Revenue Service (IRS) requirements related to the ESOP’s tax-exempt status.  The Internal Revenue Code (IRC) requires that ESOP valuations be obtained from an independent appraiser at least annually.  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.  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 has not demonstrated a need for such a broad and far-reaching change from more than 35 years of established policy.  The DOL proposal is a draconian response to a very small number of deficient ESOP appraisals. In testimony before Congress and responses to Congressional inquiries and private requests from the AICPA, the DOL has provided only a few cases of deficient appraisals over the past 20 years out of tens of thousands of ESOP appraisals performed annually.  Further, our analysis of the DOL cases involving CPAs found that in the vast majority of these cases the courts found the appraisers’ work to be satisfactory but that the plan trustee improperly used the work of the appraiser.

The DOL has announced plans to re-issue its previous 2010 proposal later this year.  The AICPA is concerned that the new proposal will essentially mirror the previous proposal and, if finalized, will unnecessarily subject all ESOP appraisers to an increased legal liability and require them to purchase expensive fiduciary liability insurance.  This would, in turn, increase the costs to all ESOP plans and reduce the amount available for participants and beneficiaries.

The DOL’s concerns with the quality of ESOP appraisals could be addressed with a far more targeted solution. Unlike other federal agencies including the IRS and Small Business Administration (SBA), the DOL, does not have any minimum requirements or standards for appraisers.  The AICPA and other stakeholders have suggested in comment letters and testimony that the DOL implement rules to ensure that only properly qualified individuals perform ESOP valuations and those individuals follow recognized valuation standards. Requiring ESOP appraisers to have specialized training, credentials, and to adhere to professional standards would protect participants and beneficiaries in a cost effective manner.  This approach would be consistent with the IRS and SBA rules for appraisals and thus avoid the potential for conflicting requirements across federal agencies.

The AICPA fully supports the goal of protecting the interests of plan participants and beneficiaries of employee benefit plans.  Ensuring the quality of sponsor company valuations is critical to making prudent decisions regarding plan investments.

Thank you for considering cosponsorship of S.273/H.R. 2041.  Please feel free to contact Diana Huntress Deem, Director, Congressional and Political Affairs Team at 202.434.9276 if you have any questions.

Sincerely,

Barry C. Melancon, CPA, CGMA

President and CEO

cc:

Members of the Senate Health Education Labor and Pensions Committee Members of the House Education and Workforce Committee

July 8, 2013

Senator Kelly Ayotte Seeks Cosponsors for S. 273

On February 11, 2013, Senator Kelly Ayotte (R-NH) introduced S. 273, a bill to modify the definition of fiduciary under the Employee Retirement Income Security Act of 1974 to exclude appraisers of employee stock ownership plans (ESOPs). This bill is a response to the Department of Labor’s (DOL) proposed anti-ESOP regulation mandating all private ESOP company appraisers be ERISA fiduciaries.

The bill is cosponsored by:

Senator Roy Blunt (R-MO)

Senator Susan M. Collins (R-ME)

Senator Amy Klobuchar (D-MN)

Senator Mary L. Landrieu (D-LA)

Senator Mitch McConnell (R-KY)

On June 27, 2013, Senator Ayotte sent the following Dear Colleague letter regarding S. 273 seeking cosponsors.

Ayotte Dear Colleague Ltr 1

Ayotte Dear Colleague Ltr 2

You can also view the letter here: Dear Colleague Letter.

For additional information about S. 273, please see:

Senator Kelly Ayotte speaking to The ESOP Association’s New England Chapter’s Super Regional Board of Directors/Trustees Conference

Senator Kelly Ayotte Renews Work to Protect Employee Ownership: Introduces Pro-ESOP Bill, S. 273

June 17, 2013

Senator Kelly Ayotte Speaks to New England ESOP Association Members

ESOP Association News

The following release was sent out by The ESOP Association today. We’re sharing here with readers.

For Immediate Release: June 17, 2013

Senator Kelly Ayotte Speaks to New England ESOP Association Members

June 17, 2013 (Washington, DC) – Speaking to a gathering of ESOP Association members, Senator Kelly Ayotte (R-NH) once more renewed her promise to protect ESOPs (employee stock ownership plans) and employee ownership in America. The Senator was also presented with the 2013 ESOP Advocate of the Year Award by The ESOP Association’s New England Chapter members. The Award was presented at the Chapter’s Super Regional Board of Directors/Trustee Conference held in Nashua, NH on June 14, 2013.

In February 2013, Senator Ayotte introduced pro-ESOP bill, S. 273, a bill to modify the definition of fiduciary under the Employee Retirement Income Security Act (ERISA) of 1974 to exclude appraisers of ESOPs. This bill is a response to the Department of Labor’s proposed anti-ESOP regulation mandating all private ESOP company appraisers be ERISA fiduciaries.

“The ESOP Association is proud to recognize Senator Kelly Ayotte as the New England Chapter’s 2013 ESOP Advocate of the Year. Senator Ayotte is a strong advocate for the ESOP cause, and the Association, along with New England Chapter members, is grateful for the commitment Senator Ayotte has shown in supporting employee-owned companies,” said ESOP Association President, J. Michael Keeling.

A video of the Senator’s remarks is below. Thanks to ESOP Association member, Chuck Coyne, ASA, Managing Director, Empire Valuation Consultants, LLC, in Hartford, CT for sharing the video link – http://www.youtube.com/watch?feature=player_embedded&v=E5WAUcpQ0Io.

May 17, 2013

News: Pro-ESOP Bill Introduced in the House; Bill Aims to Protect ESOPs

ESOP Association News

The ESOP Association sent out the following press release this afternoon. We are sharing with readers here.

For Immediate Release: May 17, 2013

For More Information: Amy Gwiazdowski, 202/293-2971, amy AT esopassociation.org

Pro-ESOP Bill Introduced in the House; Bill Aims to Protect ESOPs 

May 17, 2013 (Washington, DC) – Congressmen Brett S. Guthrie (R-KY), David Loebsack (D-IA), and Congresswoman Lynn Jenkins (R-KS) introduced H.R. 2041, a bill to modify the definition of fiduciary under the Employee Retirement Income Security Act of 1974 to make clear appraisers of employee stock ownership plans (ESOPs) are not ERISA fiduciaries.

H.R. 2041 is the companion bill to S. 273 introduced by Senator Kelly Ayotte in February 2013. This bill is a response to the Department of Labor’s (DOL) proposed anti-ESOP regulation mandating all private ESOP company appraisers be ERISA fiduciaries.

While the original proposal was withdrawn, if any regulation was finalized to make appraisers ERISA fiduciaries, there would be extreme confusion over whether the appraiser or the trustee[s], and other current fiduciaries, make the decisions about acquisition of shares on behalf of average pay employees. More troubling, it would leave private ESOP companies open to lawsuits by aggressive class action trial lawyers. Leaders at the DOL say a new proposal will be issued sometime in 2013. It is expected DOL will not alter the proposed regulation’s mandate that all appraisers of ESOP stock be ERISA fiduciaries.

“The DOL needs to wake up to the fact that private company ESOPs have tremendous positive records of sustaining jobs as evidenced during the Great Recession. As we’ve said before, research proves that ESOPs, and companies with other forms of employee stock ownership, provide more sustainable employment. According to the 2010 General Social Survey, employee stock owned companies laid off employees at a rate of 2.6% in 2010, whereas the rate for conventionally-owned companies was 12.1%. Bottom-line, ESOP companies’ employees, in the aggregate, save Uncle Sam $7 for every dollar Uncle Sam spent promoting employee ownership,” stated ESOP Association President, J. Michael Keeling.

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The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy. More information: website – www.esopassociation.org and blog – www.esopassociationblog.org.

February 13, 2013

NEWS: Senator Kelly Ayotte Renews Work to Protect Employee Ownership: Introduces Pro-ESOP Bill, S. 273

The following press release was sent out by The ESOP Association on Wednesday, February 13, 2013. We wanted to share the information with readers.

For Immediate Release: February 13, 2013

For More Information: Amy Gwiazdowski, amy AT esopassociation.org

Senator Kelly Ayotte Renews Work to Protect Employee Ownership: Introduces Pro-ESOP Bill, S. 273 

February 13, 2013 (Washington, DC) – Senator Kelly Ayotte (R-NH) introduced S. 273, a bill to modify the definition of fiduciary under the Employee Retirement Income Security Act of 1974 to exclude appraisers of employee stock ownership plans (ESOPs). The bill is co-sponsored by Senators Roy Blunt (R-MO), Mary L. Landrieu (D-LA), and Mitch McConnell (R-KY).

This bill is a response to the Department of Labor’s (DOL) proposed anti-ESOP regulation mandating all private ESOP company appraisers be ERISA fiduciaries.

While the original proposal was withdrawn, if any regulation was finalized to make appraisers ERISA fiduciaries there would be extreme confusion over whether the appraiser or the trustee[s], and other current fiduciaries, make the decisions about acquisition of shares on behalf of average pay employees. More troubling, it would leave private ESOP companies open to lawsuits by aggressive class action trial lawyers. Leaders at the DOL say a new proposal will be issued in July 2013. It is expected DOL will not alter the proposed regulation’s mandate that all appraisers of ESOP stock be ERISA fiduciaries.

“We’re very pleased to see Senator Ayotte not back down from protecting the best jobs policy, and the best deficit reduction policy, in Federal law,” said ESOP Association President, J. Michael Keeling. “The DOL needs to wake up to the fact that private company ESOPs have tremendous positive records of sustaining jobs as evidenced during the Great Recession. According to the General Social Survey of 2010, employer stock owned companies laid off employees at a rate of less than 3% whereas conventionally-owned companies laid off employees at a rate of more than 12% during the Great Recession. Bottom-line, ESOP companies’ employees, in the aggregate, were saving Uncle Sam $7 for every dollar Uncle Sam spent promoting employee ownership.”

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The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy. More information: website – www.esopassociation.org and blog – www.esopassociationblog.org.

January 17, 2013

American Bar Association Section on Taxation Sends Letter to DOL on Definition of a Fiduciary

The American Bar Association Section on Taxation sent a letter in December 2012 to Assistant Secretary of Labor, the Honorable Phyllis C. Borzi, discussing the DOL’s proposed regulation on the definition of a fiduciary. The letter makes a number of recommendations to the proposed regulation including information on valuation which would impact ESOP companies. The recommendation states: “We recommend that Final Regulations provide that a person who provides advice, or an appraisal or fairness opinion, concerning the value of securities or other property (“Valuation Information”), including with regard to employer securities, without providing any advice regarding whether to consummate a proposed transaction, even where rendered in connection with an acquisition or disposition of such property (e.g., by an ESOP) will not be a fiduciary.” (Information found on page 3 of letter.)

“While the DOL continues to pursue the proposed regulation on the definition of a fiduciary, comments such as this one from the American Bar Association filter in opposing the regulation and pointing out flaws in the DOL’s thinking. One has to wonder why the DOL is being so persistent in pushing this regulation,” said ESOP Association President, J. Michael Keeling.

September 4, 2012

The American Institute of CPAs (AICPA) Seeks Support for S. 1232

S. 1232, introduced by Senator Kelly Ayotte (R-NH) in June 2011, is a bill to modify the definition of fiduciary under the Employee Retirement Income Security Act of 1974 to exclude appraisers of employee stock ownership plans. This bill is a response to the Department of Labor’s (DOL) proposed anti-ESOP regulation mandating all private ESOP company appraisers be ERISA fiduciaries.  If the proposed regulation were to be finalized as is, there would be extreme confusion over whether the appraiser or the trustee[s] and other current fiduciaries make the decisions about acquisition of shares, and most troubling, would leave private ESOP companies open to lawsuits. More information can be found here.

On August, 9, 2012, the President and CEO of AICPA, Barry C. Melancan, CPA, CGMA, wrote to Senators Tom Harkin and Mike Enzi to ask for their support of S. 1232. Senator Harkin is Chair of the Senate Committee on Health, Education, Labor and Pensions and Senator Enzi a Ranking Member. The letter states:

“…the DOL’s 2010 proposed definition of fiduciary, which would contradict more than 35 years of accepted practice, will not solve the agency’s quality concerns regarding a limited number of ESOP appraisals. Rather, it takes a one-size-fits-all approach to correct an admittedly small potential problem which would benefit from a far more specific solution.”

“We have said it over and over again, but the DOL does not want to listen. The officials at DOL need to wake up to the fact that private company ESOPs have tremendous positive records of creating jobs that are locally controlled in high performing companies.  ESOPs are good for employees, companies, and our communities,” said ESOP Association President J. Michael Keeling. “While a new version of the regulation has not been proposed yet in 2012, the DOL continues to state that ESOPs will be closely examined and incorrect valuations are of particular concern. DOL officials refuse to listen and we have heard they have no intent to alter their views toward ESOPs. We thank the AICPA for their support of S. 1232 and ask members of The ESOP Association to reach out to their Senators and ask for their support of this bill.”

July 27, 2012

Does the current DOL care what Congress thinks about ESOPs? Apparently not.

On July 26, 2012, Mabel Capolongo, Director of Enforcement for the Department of Labor’s (DOL) Employee Benefits Security Administration, blasted ESOPs because retiring shareholders were selling their stock to the ESOP!

Duh. This is precisely what Congress has endorsed and encouraged since 1984 — to have exiting shareholders of private companies transfer ownership of productive assets to average pay employees in a leveraged ESOP transaction. (Prime example: Internal Revenue Code Section 1042.)

For example, Congress, right or wrong, eliminated some incentives between 1986-1995 that encouraged large, publicly traded companies to establish ESOPs, but the Congress and six former Presidents have consistently affirmed special laws to encourage the creation and operation of ESOPs in private companies, including a major expansion of ESOPs by enacting law in 1998 encouraging ESOPs in S corporations.

Today, it is estimated that 95% of ESOPs created and operating were formed because an existing shareholder sold shares to an ESOP, when it became time for him/her to leave from the company, usually because of age.

It seems DOL wants the existing shareholder not to help create broadened ownership but to liquidate his/her business, or sell it to a private equity firm, or a competitor, resulting in lost jobs!

Meanwhile, there is 35 years worth of overwhelming evidence that private ESOP companies are more productive, more profitable, and more sustainable, providing locally-controlled jobs, compared to similar private companies not employee owned.

Evidence is also clear that during the Great Recession employee stock owned companies laid off employee at a rate of less than 3% while traditionally owned companies laid off employees at a rate greater than 12%.

“The ESOP community wants to work cooperatively with regulators at DOL but having a top DOL official express alarm that exiting shareholders of private companies are selling the stock to an ESOP makes cooperation hard. The expression of dismay by Ms. Capolongo about exiting shareholders selling stock to ESOPs to the benefit of the employees, the company, and American communities demonstrates the Department has no regard for laws encouraging ESOP creation and operation,” said ESOP Association President J. Michael Keeling.

If you would like to read additional comments about the DOL’s enforcement project, read the Jul 17, 2012 issue of the BNA’s Daily Tax Report. The article can be found on page G-6.

July 19, 2012

Legislative Alert – S. 1232 Needs Co-Sponsors

This email went out to ESOP Association members this morning. We want to share the information with blog readers.

July 19, 2012

Dear ESOP Association Member:

No member of Congress has stood up for ESOPs in its struggles with the Department of Labor more than Senator Kelly Ayotte of New Hampshire.

Our information is that the Department of Labor is not responding to the ESOP community’s protests about its proposal to mandate appraisers of ESOP stock be ESOP fiduciaries.  In fact, it seems, by reports from certain Association members that the Department’s auditors are claiming appraisals using methodologies once “okay” are not right because they did not take into consideration the Great Recession of 2009 when doing appraisals before 2009!

In other words, the DOL audit position seems to be a tool to make a case that “many” ESOP appraisals are flim flam.

Senator Ayotte’s bill S. 1232 would stop the DOL proposal by making it clear, in law, that ESOP appraisers are not ERISA fiduciaries.

She understands, as the former Attorney General of the State of New Hampshire, that if DOL “wins”, ESOP companies will be harassed by lawsuits by those disagreeing with the value of ESOP shares, as she knows that there are attorneys looking to bring lawsuits against ESOP companies.

Senator Ayotte wants more U.S. Senators to join her efforts by co-sponsoring S. 1232.  So far six Senators have joined her to protect ESOPs: Senators Roy Blunt (R-MO), Scott Brown (R-MA), Susan Collins (R-ME), Mary Landrieu (D-LA), Mitch McConnell (R-KY), and Olympia Snowe (R-ME).

If you live in any state other than Maine, we respectfully request you contact your Senator with a letter respectfully requesting s/he join with Senator Ayotte as a co-sponsor of S. 1232.

Below is a suggested letter:

“Dear Senator ____________________________:

[I][We] are [Position] at [Name of Company].

[Name of Company] is owned [XX%] by an employee stock ownership plan, or ESOP.  So, employees at [Name of Company] are owners as well.

We are concerned that a Department of Labor proposal will harm [Name of Company] by mandating that the individual valuing our stock every year, or when our ESOP acquires shares from retiring, disabled, the survivors of a deceased employee, or someone who has left employment, be an ERISA fiduciary.

Sounds innocent, but the Internal Revenue Code mandates the appraiser be independent of all parties involved with an ESOP, whereas the law on ERISA fiduciaries mandates a fiduciary only act on behalf of ESOP participants.

On top to this potential legal conflict, if the appraiser of our stock is an ERISA fiduciary, then our costs will go up, depress the share value of employees’ stock, and expose [Name of Company] to class action lawsuits any time anyone disagrees with the share value.

Senator Ayotte’s bill just plainly states “ESOP appraisers are not ERISA fiduciaries.”

She knows the track record of ESOPs, the best retirement savings and jobs program in America – for example, the General Social Survey 2010 evidenced that during the Great Recession of 2009, employee stock owned companies laid off employees at a rate less than 3%, while conventionally owned companies laid off companies at a rate of 12% plus.  Data shows ESOP companies like [Name of Company] are more productive, more profitable, and more sustainable, providing jobs controlled in the USA.

Thus [I][we] respectfully ask that you consider joining Senator Ayotte and co-sponsor

S. 1232.

Sincerely,

Name[s]”

To learn your Senators’ address, go to www.senate.gov, click on box, upper right hand corner “Find your Senators,” and click your state.

If you have a relationship with any staff member of a Senator, email the above if you wish.  A letter is more likely to be reviewed.

Let me know if you have any questions.

Sincerely,

J. Michael Keeling

President, CAE

The ESOP Association

June 27, 2012

Department of Labor’s ESOP Tune Isn’t Changing

The Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) has not yet released a new version of its proposed regulation on the definition of a fiduciary but officials at the EBSA are still focused on ESOPs. (See the June 25, 2012 blog post on reaction of U.S. Senator to indications DOL will not be altering its proposal to mandate all ESOP appraisers be ERISA fiduciaries.) According to an article in the June 12, 2012 edition of the Daily Tax Report, Assistant Secretary of Labor for EBSA, Phyllis C. Borzi, said the EBSA will be focusing on enforcement projects having to do with employee benefit plan contributions in the coming months.

There are several national enforcement projects EBSA will focus on in 2012, concerning ESOPs specifically though, the article states the following: “The Employee Stock Ownership Plans Project, which identifies and corrects violations of ERISA in connection with ESOPs, such as incorrect valuation of employer securities and refinancing of ESOP loans.”

“The fact that Ms. Borzi is naming ESOPs specifically in the list of enforcement projects for 2012 illustrates that there are dark clouds over ESOPs at DOL and its proposal to make all ESOP appraisers ERISA fiduciaries,” said ESOP Association President J. Michael Keeling.

June 25, 2012

ESOP Super Champion, Senator Kelly Ayotte, Seeks Allies to Protect ESOPs; Sends Out Dear Colleague Letter on S. 1232

Senator Kelly Ayotte (R-NH)

Senator Kelly Ayotte (R-NH) has sent a Dear Colleague letter to her Senate colleagues seeking co-sponsors for her pro-ESOP bill, S. 1232 — “a bill to modify the definition of fiduciary under the Employee Retirement Income Security Act of 1974 to exclude appraisers of employee stock ownership plans.”

Senator Ayotte’s letter discusses how S. 1232 (S. 1232 was introduced June 20, 2011) would prohibit the Department of Labor (DOL) from moving forward with its proposed regulation on the definition of a fiduciary. Her letter goes on to state that the proposed regulation would not only hurt ESOPs already in place but would jeopardize the creation of new ESOPs, result in the purchase of additional insurance coverages, the need to employ specialized counsel to deal with the new regulation, and expose ESOP companies and fiduciaries to unnecessary litigation. Her letter goes on to say that not only is the proposed regulation a hindrance to a program that is providing retirement benefits to employees, the proposed regulation is also an unnecessary step as there are rules already in place to correct ERISA violations. From the letter, “S. 1232 prohibits the DOL from moving forward on this proposal by creating an explicit exemption for ESOP appraisals from ERISA’s stringent fiduciary requirements. It is a pro-small business solution and simply codifies what has been in practice for over 35 years.”

Current co-sponsors of S. 1232 include: Senator Roy Blunt (R-MO), Senator Scott Brown (R-MA), Senator Susan Collins (R-ME), Senator Mary Landrieu (D-LA), Senator Mitch McConnell (R-KY), and Senator Olympia Snowe (R-ME).

Additional information about S. 1232 can be found on the Association’s website here and here.

As the Association has mentioned in previous newsletters and on the Association’s blog, the DOL is not backing down on its ESOP stance (See page 5 of the June 2012 issue — Department of Labor’s ESOP Tune Isn’t Changing — for more information. The June issue is available in the members only section of the Association’s website.).

Senator Ayotte’s spokesperson indicated that the Senator feels the DOL is not listening to the ESOP companies’ protests about its proposal which at this time is on “hold” at the Department. Statements by DOL officials indicate no intent to alter its aforementioned proposal with regard to ESOPs.

“The DOL continues to state that ESOPs will be closely examined and incorrect valuations are of particular concern as officials in the DOL’s Employee Benefits Security Administration have repeatedly stated,” said ESOP Association President J. Michael Keeling. “We thank the Senator for taking the lead on this issue. The DOL needs to wake up to the fact that private company ESOPs have tremendous positive records of creating jobs that are locally controlled in high performing companies.  ESOPs are good for employees, companies, and our communities. The ESOP community needs to ask Senators to join Senator Ayotte and her current co-sponsors.”

June 19, 2012

How You Can Make a Difference = Advocacy Work for ESOPs

In June 2012, J. Michael Keeling, ESOP Association president, sat down to talk about why advocacy work is important to the ESOP community and how you, as employee owners, can make a difference in the discussion. We wanted to share that video with you today.

The framework of his presentation is a respected poll of senior Congressional staffers and top DC lobbyists that unveils what influences staff recommendations to members of Congress when they make major decisions, such as what tax benefits to eliminate in a tax reform bill.

May 15, 2012

We’d like to Share a Message from Senator Mitch McConnell

At The ESOP Association’s 35th Annual Conference in Washington, DC, Senator Mitch McConnell (R-KY) delivered, by video, a message to ESOP Association members during the Employee Ownership Foundation Luncheon on May 10th.

A long-time advocate for ESOP companies in Kentucky, Senator McConnell’s message to Association members encouraged everyone to talk to their member of Congress about ESOPs and employee ownership. He specifically cited figures from the 2010 General Social Survey proving employee stock ownership companies were more than four times less likely to lay off employees than conventionally owned firms during the 2009 recession. The Employee Ownership Foundation is the primary funding source for questions on the survey about employee ownership in the U.S.

“We thank Senator McConnell for taping this message to members of The ESOP Association,” said ESOP Association J. Michael Keeling. “It’s important for us, as a community, to remember how vital it is to share information with members of Congress that proves employee stock ownership is good for America.”

The video of the Senator’s remarks is now available on The ESOP Association’s YouTube Channel. You can also watch the video below.

May 7, 2012

Want to know more about tax reform and the DOL’s proposed regulation on the definition of a fiduciary?

If so, we have two videos for you. With the 2012 Annual Conference taking place May 10 and 11, 2012 in Washington, DC, we know many Association members will be meeting with members of Congress. These are two topics that may come up in discussions. Take a look and find out what you need to know.

April 24, 2012

ESOPs and the Department of Labor’s Proposed Regulation on the Definition of a Fiduciary

While the Department of Labor announced in late 2011 that it would issue a new version of the proposed regulation revising the definition of ERISA fiduciaries in January 2012, nothing has been forthcoming. However, that doesn’t mean the ESOP community can relax.

J. Michael Keeling, president of The ESOP Association, took time to talk about the proposed regulation and what to expect in the coming months.

Take a look.

December 2, 2011

ESOP Company Congressional Visits

Many of our members have shared with us pictures and information from their meetings with members of Congress. We thank them for taking the time to setup these meetings and make that all important connection with their member of Congress.

Today, we wanted to share with you information from a visit hosted by ESOP Association member, Restek Corporation located in Bellafonte, PA. The company hosted a meeting with Congressman Glenn Thompson (R-PA) on Wednesday, November 23, 2011.

Mike Shuey, Customer Service, Domestic Supervisor for Restek Corporation shared this email with us after the visit:

“Hello all. The visit was excellent. We presented him and his assistant with a folder full of company, ESOP and Capitol Hill information for review. We thanked him for supporting H.R. 1244, gave him a sheet to address the Secretary of Labor and he gave us a list of Senators to address our ESOP concerns and questions with so Restek will put together a team in the near future for that. I attached most of the documents we presented to him and his assistant. As soon as I get our pictures I’ll send them to you. Thank you all for your support and help. Have a great Thanksgiving!!!!!!!”

Mike’s thank you all was both to the national office and the Pennsylvania/Delaware Chapter leaders in particular, Alice Simons of SES Advisors, Inc. in Philadelphia, PA. He also included several documents which are great examples of what to share with your member of Congress during a company visit and we wanted to share those with you here. (Click on the title to open the document.)

Restek Agenda

Reference Sheet on the DOL proposed regulation on the definition of a fiduciary

Summary of HR 1244 

Summary of S 1512

Summary of S 1232  

Information from The ESOP Association on Tax Reform

As J. Michael Keeling said, “Restek did professional work on this visit. They’re a true model and the entire ESOP community thanks Mike, Restek and our Pennsylvania/Delaware Chapter for the effective, true grassroots advocacy.”

Take a look at the above and feel free to use these as examples in putting together your company visits.

As many of you know, there are several resources on The ESOP Association’s website to help in setting up a Congressional meeting.

The 2011 Fall Congressional Company Visit Kit

The Fall 2011 Fall Advocacy Kit

And if you’re looking for the most recent legislative developments, you can find emails and links under the ESOP Bulletin link.

As always, if there are questions, please email us at govrel@esopassociation.org.

Got a visit to share? Drop us a comment and tell us about it.

November 28, 2011

Phyllis Borzi, Assistant Secretary of Labor, Employee Benefits Security Administration, Receives Letter from the U.S. House Committee on Education and the Workforce

On November 18, 2011, the U.S. House Committee on Education and the Workforce sent a letter to Assistant Secretary of Labor, Employee Benefits Security Administration, Phyllis Borzi, in regard to the Department of Labor’s (DOL) proposed regulation on the definition of a fiduciary and her testimony given at a July 26, 2011 Committee hearing. The hearing, “Redefining Fiduciary: Assessing the Impact of the Labor Department’s Proposal on Workers and Retirees,” was held to examine the Department’s proposed regulation on the definition of a fiduciary. If you would like to view of a copy of the letter, click the following – Committee on the Education and Workforce Letter to the Honorable Phyllis Borzi.

We’ve talk about the DOL’s proposed regulation on the blog numerous times. If you would like a re-cap, please visit this page. This page contains information on the proposal going back to November 2010 when The ESOP Association and its members began protesting the regulation. The regulation, as of September 2011, has been withdrawn but the DOL has stated it will issue a new proposal in early 2012. The fact that the letter, dated November 18, 2011, was sent after the withdrawal of the proposals sends a strong message that concerns about the impact of this proposal have not been alleviated by the DOL.

The letter to Assistant Secretary Borzi, signed by the Committee on Education and the Workforce Chair, John Kline (R-MN), and Chair of the Subcommittee on Health, Employment, Labor and Pensions, Phil Roe (R-TN), states, in addition to pointing out that the proposal should be published with a full economic analysis, that “The empirical rationale for proposed changes to the regulation has not been forthcoming.” A list of questions regarding the problems the DOL wishes to solve with the proposed regulation was posed to Assistant Secretary Borzi. It was also pointed out that earlier in 2011 the Committee had sent Assistant Secretary Borzi a letter and additional requests for information after her testimony to the Committee. Those requests for information were answered late and incompletely in the opinion of the Committee.

Among the list of 12 questions regarding the proposal was an ESOP related question under the section of questions marked “Scope of the Purported Problem:”

“3. Similarly, how many enforcement actions have been brought against ESOP trustees that have hinged on faulty valuations? What have been the outcomes of these cases?”

Congressman Todd Rokita (R-IN), in early 2011, sent a letter to Assistant Secretary Borzi about the proposed regulation regarding information on faulty valuations and asking for clarification from the Department. As the Association stated in a blog post of May 24, 2011, (Note: you will need to scroll down to the May 24th entry.) — DOL is moving to establish the “details” of what is a correct private ESOP company appraisal as opposed to having the transparency to say, “We do not like the way nearly all ESOPs are valued by appraisers that claim to be good appraisers, who probably do all the appraisals of the ESOP companies who are members of The ESOP Association.” If you would to read a copy of the response from the DOL’s EBSA to Congressman Rokita, click the following Congress Rokita and EBSA exhange on ESOPs.

On May 23rd of this year, the Association wrote to the Office of Management and Budget about the proposed regulation pointing out that in preparing and issuing the proposed regulation that ESOP appraisers be ERISA fiduciaries, the DOL ignored Executive Order 13563 from the White House about how to develop and issue regulations. This Executive Order guides Executive Branch agencies to only issue regulations, or to at least use a process in developing regulations, that does not impose harsh burdens on business — especially small businesses. The Association’s letter to the Administrator of the Office of Information and Regulatory Affairs, Mr. Cass R. Sunstein, stated that the DOL’s proposed regulation did not meet the standards set in the Executive Order. If you would like to read a copy of the Association’s letter, click the following ESOP Association’s Letter to Office of Information and Regulatory Affairs.

The letter from the Committee on Education of the Workforce echoes many of the Association’s thoughts in regard to the proposed regulation and its impact on small businesses and the burdens that will be placed on the companies trying to provide retirement security for their employees.

Obviously, we’ll be watching and reporting on the outcome of this when information is available.

November 18, 2011

Senator Snowe’s Address to the New England Chapter of The ESOP Association

On November 16th, we posted ESOP Association President, J. Michael Keeling’s speech to the attendees of the 2011 Las Vegas Conference and Trade Show held November 3 – 4, in Las Vegas, NV. In the speech, he mentions a message from Senator Olympia Snowe, which was delivered to the Association’s New England Chapter at the Chapter’s October 2011 meeting. Today we want to share that video with you.

In this video, Senator Snowe reviews her knowledge of ESOP companies in Maine, her work to protect ESOPs from the pernicious DOL proposal, her work in supporting legislation to create more private company ESOPs, and her pledge as a member of the Senate tax committee to work to keep all ESOP tax laws intact during the tax reform work of Congress.

Her remarks about her knowledge of ESOP companies in Maine providing locally-controlled jobs is solid evidence that personal, and consistent “back home” interaction between ESOP companies and representatives in Congress will develop the voice the ESOP community needs when Congress reviews tax laws and ESOP tax incentives.

November 16, 2011

Know the Game Plan: Execute It. Win!

Note: Following are remarks ESOP Association President J. Michael Keeling delivered at the Association’s 2011 Las Vegas Conference and Trade Show held at Caesars Palace in Las Vegas, NV on November 3 – 4, 2011.

   “More productive, more profitable, more sustainable, providing locally-controlled jobs.”

Remember these words. These words need to be our ESOP community’s message to decision makers and thought leaders during these challenging political times.

There is ample, overwhelming evidence that in the vast majority of cases, the vast majority of mainstream, main street, private ESOP companies are: “More productive, more profitable, more sustainable, providing locally-controlled jobs.”

   Now, let me review issues facing your ESOP company, your employee owners, and for some of you, your ESOP clients.

Before I do, let me repeat what I have said to 15 of our 18 ESOP Association Chapters since late August: Everything I say has been said on our blog, on our Facebook page, on our LinkedIn page, and in our newsletter. If you prefer not to listen, please read the blog.  If something develops at 9 AM in the morning impacting, or potentially impacting ESOPs and employee owners, we report it and opine on it by 10:30 AM.

Our number one challenge this year has been to defeat, and/or to alter the Department of Labor’s October 22, 2010 proposal that appraisers of your ESOP stock be ERISA fiduciaries. In fact it was here, at the 20th Las Vegas Conference and Trade Show, that our campaign to stop the DOL proposal began.

We’ve made progress, and I do add that many last year felt that we, the ESOP community, would not be able to effectively stand against the DOL proposal. They were wrong; but the campaign is not over. DOL will re-propose the regulation in early 2012. Let me say that some claim the DOL will never re-propose the regulation; others say it will be re-proposed almost identical to its original provision that ESOP appraisers be ERISA fiduciaries.

I say why do we care what the future is with regard to what DOL may or may not do? Let us prepare for the worst. Let us continue to be strong in our opposition to the original proposal until we see a new proposal with a different approach. Why take a chance and let our guard down?

There is still a minority in our community that wonder why we do care. Their view is that the DOL proposal would only be a pain in your-know-where for appraisers, not the ESOP companies that have to retain appraisers each year.

Let me be clear: If your appraiser is an ERISA fiduciary your company will be a sitting duck for lawsuits motivated by former disgruntled employees teaming up with local plaintiff law firms.

I’ll explain. In my 30 some odd years working around ESOP companies, I’ve seen that the most common reason a private ESOP company is sued is due to a former senior executive who has been asked to leave the company seeking revenge. In every town and city in America, in Marion, IN, Salina, KS, Waco, TX, and so on, there are local attorneys who are promoting their services on cable and local TV. Now don’t get me wrong, I’m an attorney by training and this is not attorney bashing, just telling you what you all know — in today’s society companies are being sued often, and the attorneys’ bringing the lawsuits are always looking for new reasons to do so.

So, I can predict that if your ESOP company appraiser is an ERISA fiduciary, that lawyer responding to a former disgruntled employee will go through the litany of potential claims — age, sex, religion, etc., and if the DOL proposal becomes final, saying, “Ah, have you ever disagreed with the valuation?” The aggrieved former employee will probably say, “You betcha.” And the lawyer will say, “We have a lawsuit.”

Now, ESOP companies usually win lawsuits; but the average ESOP private company does not have the time, the resources, or the money to go through pre-trial motions, depositions, etc., and will likely settle for $50,000 to $250,000; a good payday for plaintiff lawyers on main street USA.

So, we need to stop the DOL proposal.

Here is a concern I have. The proposed DOL rule also impacts 401(k) plans and IRAs. Now, k plans and IRAs are much bigger in our economy than ESOPs. Loosely, I would call it the Wall Street crowd that is involved with the trillions and trillions of dollars involved with k plans and IRAs.  And while it took the Wall Street world a little longer than the lean and mean ESOP community to realize the threat the DOL proposal could mean to their k plans, their IRAs, and their k and IRA customers, once galvanized, candidly, their footprint is bigger than ours.

We have to remain vocal as some think the re-proposed DOL proposal will take care of the k and IRA concerns, but continue to harm ESOPs.

And as a side bar, I know many ESOP advocates have written to their members of Congress about the DOL proposal’s potential negative impact on ESOPs, but have received letters back mentioning k plans and IRAs, but nothing about ESOPs. I did a column in the ESOP Report that should you get such a letter, respectfully, but with clarity, write, call, email again noting that you appreciate hearing about the k and IRA issues, but you inquired about the ESOP issues in the DOL proposal.

Moving this report to the legislative sector, there is a bill pending in the U.S. Senate that would stop the DOL proposal dead in its tracks.

On June 20th of this year, Senator Kelly Ayotte of New Hampshire introduced S. 1232, which would amend ERISA Title I with clear cut language that the law excludes making appraisers of ESOPs fiduciaries.

The story of how Senator Ayotte, elected in the fall of 2010, took the bold step of making sure ESOPs are protected in law from this disturbing DOL proposal is a wonderful example of how true grassroots advocacy by ESOP companies can make the difference in making sure ESOP law remains supportive of your ESOP.

Here is the story: I was driving down the New York Thruway in a thunderstorm, and the blue tooth rang on my smart phone. I answered, and it was a staff person with Senator Ayotte who said the Senator was going to introduce a bill to stop the negative ESOP proposal put forth by DOL.

Let me assure you at that point I had never met Senator Ayotte, nor the staff person who called me.

Prior to that moment, I had never talked to anyone in the Senator’s office.

The ESOP Association plays by the rules, and a few weeks after that call and the introduction of S. 1232, I signed up for a dinner with Senator Ayotte to support her re-election.

At the dinner, I went up to Senator Ayotte and introduced myself as President of The ESOP Association.

She, without hesitation said to me, “Yes, I visited with my New Hampshire ESOP companies and they made clear to me how harmful that DOL proposal would be to their companies, and I decided not to let that happen.”

What is the message? It’s not some hired gun in Washington, D.C. that is going to make sure Congress, nor a Federal agency, doesn’t harm your ESOP, our ESOP cause — in fact if I had walked into the Senator’s office prior to the advocacy work of our New Hampshire ESOP companies, she would probably have had me arrested by the Capitol Hill police. It’s you, and you, and you, and your employees who will save ESOPs from misguided ESOP cynics in Washington, D.C. who think ESOP tax laws are rip-offs.

And she has been joined by other powerful Senators, such as the leader of the Senate Republicans, Senator McConnell of Kentucky and Senator Blunt of Missouri to name two.

But let us continue on the legislative discussion.

As I travel around our nation — I have visited 15 of the Association’s 18 Chapters since the last week of August — I hear over and over —- “Oh, what about tax reform? Congress is going to take away ESOP tax benefits.  Congress will tax S ESOPs. What can we do?  How can we stop tax reform?”

Folks, the ESOP community is not going to stop tax reform.  President Obama is for tax reform.  The Republicans running for President are for tax reform.  Democrats and Republican in Congress are for tax reform. The academics are for tax reform.  The think tanks, left and right, are for tax reform.

THERE WILL BE TAX REFORM.

But do not fear tax reform.  Have a game plan for tax reform.  Execute the game plan. And the game plan can be summed up with the true adage, “The best defense is a good offense.”

I don’t know how many of you watched the Cowboys-Eagles game last Sunday night, but after the Eagles scored two touchdowns, I said to myself, “Gosh, the Cowboys need to hold onto the ball; they need to generate some offense to keep the Eagles off the field.” Well for those who watched, you know that for the Cowboys it was three and out, and the Eagles just kept getting the ball back to score until it seemed they were tired of scoring at will.

Let me explain why a good offense is our best defense when Congress does tax reform. Let me say I spell out what I am about to say in the September 2011 ESOP Report.

How does Congress, or better the House Ways and Means Committee, the House tax committee, which under our Constitution has to originate all tax bills, decide what to put in a tax bill?

The decision is not what you see on TV, or in an 8th grade civics book. A small group of men and women who serve on the Ways and Means Committee meet in a private session behind closed doors.  They often are just the members of the party in control of the Committee — currently the Republicans.

When they sit down, they’re often given summary sheets of what the Chair, at this time Congressman Dave Camp of Michigan, wants in the big tax bill, in our case a big tax reform bill.  Sometimes, the Chair provides options on the summary sheets; sometimes he says the sheets represent his proposed bill.

Before he has the staff pass out the sheets, he has reviewed all possible options with the staff, who are experts in tax law.

Now the chances are very high that on those sheets, say page 28, or page 59, or 109, there will be listed ESOP tax benefits as possible items to take out of the tax code in order to use the “new” revenue to lower Federal tax rates, the announced goal of tax reform.

If a member of the Committee, in that closed meeting, does not raise her or his hand saying, “I don’t want those anti-ESOP provisions in this bill,” then the anti-ESOP provisions will stay in the bill, will be voted on by the full Committee, with the Chair winning what came from the closed meeting.  But if someone raises her or his hand, and says, “I don’t want to see those ESOP provisions in this bill,” and three or four other members, not knowing the details but knowing they have publicly taken a position with their ESOP constituents that indicates support of ESOPs, say “I agree with Congressperson X,” then the provision will be dropped, and will not be included in the bill presented for a public vote in the Committee.

Now, even if only one party is in the closed room, the Chair will usually take the same sheets and ask the top member of the minority party if his people have any problems with what is in the bill. On minor provisions, if that top minority member says some of his people don’t like the ESOP provisions, they will be dropped.

I can tell you that over the years I have stood outside the closed room and have had a member who was in the closed room come out and say, “I tried to help your cause, but no one joined me.” And I have found out after some digging that member said nothing about the cause I was interested in.

So, how do we, ESOP advocates, get someone to say, “I don’t support the negative ESOP proposals,” and have others chime in with verbal support of that position?

We do it by having a good offense, that, prior to the small group of members sitting down in the closed room going over staff recommendations, has motivated members to publicly take a stand for ESOPs, for ESOP companies in their districts, by openly supporting legislation to expand ESOPs in America, to make operating an ESOP more attractive in America.

The specific tactic is to have a pro-ESOP bill introduced BEFORE the tax reform legislative process begins.  And it’s to have many members of Congress co-sponsor that pro-ESOP bill BEFORE the tax reform legislative process begins.

This is why there are these effort to have more members of Congress sponsor H.R. 1244 in the House and S. 1512 in the Senate.

We are making good progress with having men and women of Congress take the pro-ESOP stance by co-sponsoring H.R. 1244 and S. 1512. The bills are endorsed by both our Association and the Employee-Owned S Corporations of America, and both have members working directly, personally, with their members of Congress to sign up supporters.

As of today, 56 members of the House are sponsoring H.R. 1244. This House bill was introduced last March. The record number of House members co-sponsoring a pro-ESOP bill was 123 in 1993. Our goal should be to reach 100 plus by the end of 2012.  More important, 15 members of the Congressional Committee that will develop the tax reform bill, be it in 2012, 2013, or 2014, the House Ways and Means Committee, are supporting H.R. 1244. We need a solid two thirds of the members of Ways and Means to be supporters to protect ESOP law in tax reform, to enhance the possibility of one, two, three of those members holding their hands up to say do not hurt ESOPs.

And, by the way, if we could have that display of support for H.R. 1244, we might defy conventional wisdom and have pro-ESOP tax incentives added to the tax reform bill, such as permitting owners of S stock to utilize IRC 1042 like owners of C stock have done since 1984.

Now the Senate bill, S. 1512, was not introduced until this past September, but already there are ten Senators on board, a good mix of Republicans and Democrats, including three members of the Senate tax committee, Finance. We need 15 supporters on that Committee to win.

I know many of you, probably the overwhelming majority of you who hear me say these things think, “So what, Congress is dysfunctional and full of baloney.”

Let me be a contrarian — with regard to smaller public policy issues, which, whether we like it or not, ESOP policy fits into this category.

While it may be true that on big issues the gridlock and petty posturing in D.C. is super annoying, on small issues the process of legislation still works as it always has — bi-partisan support is doable, and essential.

Decisions on most issues in Congress, with input from the Executive Branch, are like most decisions made by small groups, defined as ten to 25 members of Congress. These people serve on the same committee or subcommittee. They get to know one another. They know about their colleagues’ family, sports likes and dislikes, they talk about the  weather, travel, and the trials and tribulations of life, such as being in a traffic jam trying to get to work, that we all do with our co-workers.

Think of your own co-workers. I doubt you really love all of your co-workers; or really agree with everything they believe in. But you work together; you accomplish mutual tasks; you are human beings and thus do not demonize your co-workers.

So on ESOP issues there is still reason to educate and persuade your members of Congress to be pro-ESOP, be it in supporting pro-ESOP legislation, or defending ESOPs in the tax reform process.

I admit our national mood is different, and faith in our democracy and in our Federal government wanes.

There are two developments in the past decade that are making our government less functional than in the 20th Century.

One is the 24-7 news networks pandering to those who have either the right wing view, or the left wing view. Unlike the 20th Century news outlets that were no more than three TV networks, and thus tried to be balanced in order to obtain ad revenue, now a cable news network can get enough ad money by proving it reaches all the conservatives, or it reaches all the liberals. In turn, those who can’t stand the Democrats, listen to good things about Republicans. And those who can’t stand Republican values listen only to good things about Democrats.

In the process, the metric becomes, “Who will win the next election?”

For example, the day Colonel Gadhafi fled Tripoli one network was not focused on the fact there were thousands of tons of mustard gas that his regime controlled, thousands of shoulder held rockets that are perfect to shoot down commercial airliners. What was this TV network focused on? It kept saying that after the commercial break its panel of top advisors of political experts was going to discuss whether this overthrow would help President Obama get re-elected?  My thought was, “Who cares? What about the mustard gas, the rockets, and the influence of the jihadists in Libya?”

In other words, these elected officials, who want to go on these cable news shows want to show that he or she is “solid” with the hard core group he or she belongs to. So, on the big issues, like debt, taxes, spending, they cannot budge after yelling about the other view on their favorite cable network.

Another development that has made compromise on the big issues near impossible is social media.

I grew up in East Texas, and it was the Old South.  The view to impeach Chief Justice Warren was strong due to his leading the Supreme Court to declare a person with dark skin could go to school with a blue-eyed, white skinned person.  Many thought former President Eisenhower was a Communist, and former President Johnson had orchestrated the murder of at least eight political opponents.

But these extreme views pretty much stayed in East Texas, and those in East Texas who had these views didn’t connect with someone in Maine, Minnesota, Montana, and so on who might think the same way.

Today, when someone posts on her or his Facebook page, or similar social network, that President Obama is a Communist-Muslim, which of course is a huge contradiction, no one can be both, there are people in all 50 states that read this, and are likely to believe it.

So the never ending 24-7 cable news pandering to those with set views, left or right, and social media linking conspiracy theorists, makes it look as if the nation is just about extremes and will never come together.

My son played soccer as a youth — he was a good soccer player. For a few years, his coach was a true Italian. I don’t mean a second or third generation Italian, but a real Italian who was in America working for the World Bank.

When things weren’t going well for the team, or just so-so, he would often say in exasperation — “I am so ‘foostrated;’ I am so ‘foostrated.’”

Well, I am foostrated.

The President goes all over the nation touting a “jobs” bill to get our economy back on track, putting more Americans back to work. Most people say, “Didn’t we have a ‘jobs’ bill in 2009?”

Meanwhile, the leader of the Republicans, Speaker of the House John Boehner, says we need to cut the C corporate tax rate and that will create jobs.  Today, most main street businesses are not C corporations and are pass-through organizations. Cutting the C corporate rate might help the big multi-national U.S. corporations, but not main street businesses like in this ballroom today.

Now, don’t get me wrong. I’m not anti-big business. Many of the ESOP companies in this room rely on big business as the major purchasers of their goods and services. Nearly 50% of Americans work for big business.

But I am foostrated because neither the leader of the Democrats, nor the Republicans, realizes this nation has a proven jobs policy. It is modest. It could be bigger, but it does in the vast majority of instances, create jobs in companies that are more productive, more profitable, more sustainable, and providing locally-controlled jobs.

That’s right — our national policy to promote employee ownership through the ESOP model is the proven jobs policy.

I suspect ESOP advocates are like me and are foostrated when national leaders never mention ESOPs as a successful jobs policy.

Now I know there are many articles and so-called “experts” that blast ESOPs as flim-flam. A few years back I reviewed these anti-ESOP articles, and discovered nearly all, if not all in recent years, were written by lawyers for law journals, or law students for law school publications. None were written by qualified social scientists like we had speak to us yesterday as Kelso Fellows. It’s foostrating to see law judges quote these non-qualified lawyers acting like social scientists, when the work by social scientists proves overwhelmingly most private ESOP companies are more productive, more profitable, and more sustainable, providing locally-controlled jobs.

What do we do? We look in the mirror, and we don’t point fingers blaming “others.” It’s in our hands to implant the true message with our national leaders that ESOP policy is a good jobs policy creating companies that are more productive, more profitable, more sustainable, and providing locally- controlled jobs.

And I have proof that what I just said is true. We can make the difference, as our ESOP advocates in New England have done with the Senator Olympia Snowe, the senior Senator from Maine. Please see the message Senator Snowe delivered to the New England Chapter’s Annual Conference two weeks ago in Portland, Maine.

   [At this point in Mr. Keeling’s remarks, a seven minute video was shown of remarks by Senator Snowe reviewing her knowledge of ESOP companies in Maine, her work to protect ESOPs from the pernicious DOL proposal, her work in supporting legislation to create more private company ESOPs, and her pledge as a member of the Senate tax committee to work to keep all ESOP tax laws intact during the tax reform work of Congress. The video will be available on The ESOP Association’s YouTube Channel.]

So there is the proof that grassroots, personal, human, contact that lays out the story of an ESOP company, backed up with materials showing the macro data supporting ESOP policy, not an astroturf, mass email campaign, can persuade elected officials that ESOPs are a good jobs policy, and good for the employees, the company, the community, and our nation.

It’s up to us to convince decision makers that ESOPs are more productive, more profitable, more sustainable, providing locally-controlled jobs.

When we do, we will preserve, and enhance your ESOP for your employees and your company, and for America. We can overcome.

Thank you.

November 8, 2011

ESOP Supporters – Do You Know Who Supported the ESOP Community in the Fight Against the DOL’s Proposed Fiduciary Regulation?

If you attended the Association’s Las Vegas Conference and Trade Show last week, you probably heard ESOP Association President J. Michael Keeling’s speech on what the Association is doing in the government relations arena. We’ll be posting a Conference re-cap but thought we would share this list as the first part of the wrap-up.

Below is a list of members of Congress who have sent letters or made statements questioning the Department of Labor’s (DOL) proposed regulation that would have made ESOP appraisers ERISA fiduciaries. Thirteen members of the House of Representatives and nine members of the Senate are listed below. If your member of Congress is listed, please consider sending a letter thanking them for their support of employee ownership through ESOPs.

House of Representatives

Rep. Leonard L. Boswell (IA-D-3rd)

Rep. Charles Boustany (LA-R-7th)

Rep. Bruce Braley (IA-D-1st)

Rep. Larry Bucshon (IN-R-8th)

Rep. Geoff Davis (KY-R-4th)

Rep. Brett Guthrie (KY-R-2nd)

Rep. Maurice D. Hinchey (NY-D-22nd)

Rep. Dave Loebsack (IA-D-2nd)

Rep. David McKinley (WV-R-1st)

Rep. Alan Nunnelee (MS-R-1st)

Rep. Martha Roby (AL-R-2nd)

Rep. Todd Rokita (IN-R-4th)

Rep. Todd Young (IN-R-9th)

Senate

Sen. Kelly Ayotte (NH-R)

Sen. Roy Blunt (MO-R)

Sen. Scott P. Brown (MA-R)

Sen. Susan M. Collins (ME-R)

Sen. Mary L. Landrieu (LA-D)

Sen. Patrick Leahy (VT-D)

Sen. Mitch McConnell (KY-R)

Sen. Bernie Sanders (VT-I)

Sen. Olympia J. Snowe (ME-R)

November 1, 2011

Department of Labor Delays Action on Proposed Regulation on Definition of a Fiduciary; Congressional Push Against DOL Proposal

Leading up to the Las Vegas Conference and Trade Show, November 3 – 4, 2011, we’ll be posting government affairs information that will be discussed at the Conference. Today, an update on the DOL’s proposed regulation on the definition of a fiduciary.

Since late October 2010, The ESOP Association, and the ESOP community, has protest­ed vigorously against the Department of Labor’s (DOL) proposed regulation to make all appraisers of private ESOP company stock ERISA fiduciaries. On September 19, 2011, the DOL issued a press release announcing it would issue a new version of the regula­tion revising the definition of ERISA fiduciaries in January 2012, and begin the com­ment period, in essence, all over again. You can read the DOL press release here.

The DOL press release hints at leaving in the provision making ESOP appraisers ERISA fiduciaries when they value stock being acquired by a private company. In the opinion of The ESOP Association and many others, such an outcome would dry up ESOP transactions, the number of ESOPs would dwindle, the community’s voice in D.C. would be weaker, and ESOP benefits would be devastated. ESOP advocates were encouraged to continue to bring concerns about this proposed regulation to the atten­tion of members of Congress.

Then, on September 29, 2011, the Chair of the House Committee on Appropriations’ Subcommittee on Labor, Health and Human Services, Education, and Related Services, Congressman Denny Rehberg [R-MT], introduced a DOL appropriations bill for Fiscal Year 2012, among other Federal agencies, which contains the following provision:

“Section 109. None of the funds made available by this Act may be used to pro­mulgate or implement a final rule amending…the definition of the term ‘fiducia­ry’…including the proposed rulemaking published by the…Department of Labor on October 22, 2010…”

The reference is to the DOL’s proposed rule. Introduction of this bill does not mean the DOL proposal will go away, because a proposed bill is not necessarily going to be on the President’s desk for signing into law. Use this link for more information about H.R. 3070, the House appropriations bill for DOL funding.

We thank Congressman Rehberg for standing up to the DOL. We know his proposal was motivated by concerns over the proposed rule’s impact on k plans and IRAs as well as ESOPs. But his action, just as Senator Kelly Ayotte’s [R-NH] introduction of S. 1232 in June of this year, is a strong signal to DOL and its officials that they, when re-proposing the October 22, 2010 regulation, should not come close to what was in the original pro­posal. In fact, Congressman Rehberg’s proposal in this appropriations bill for FY 2012 is a pretty strong signal to DOL to just walk away from its original proposal 100%.

The ESOP Association will keep you posted on this regulatory proposal, and other efforts to stop the DOL from mandating that appraisers of private ESOP company stock be ERISA fiduciaries with bulletins, postings on its blog, Facebook page, and LinkedIn group.

Contact govrel@esopassociation.org if you have questions or stop by the Conference and Trade Show registration desk and ask for ESOP Association President, J. Michael Keeling.

NOTE: Mr. Keeling will be giving a legislative update at the Conference and Trade Show at the Friday, November 4th luncheon. Check your app schedule for time and location.

October 31, 2011

Legislative Information: Pro-ESOP Bill — S. 1232

Leading up to the Las Vegas Conference and Trade Show, November 3 – 4, 2011, we’ll be posting government affairs information that will be discussed at the Conference. Today, and update on S. 1232.

On June 6, 2011, Senator Kelly Ayotte (R-NH) introduced S. 1232, a bill to modify the definition of fiduciary under the Employee Retirement Income Security Act of 1974 to exclude appraisers of employee stock ownership plans.  The bill is co-sponsored by Senators Olympia Snowe (R-ME), Susan Collins (R-ME), Scott Brown (R-MA), and Mary Landrieu (D-LA).

This bill is a response to the Department of Labor’s (DOL) proposed anti-ESOP regulation mandating all private ESOP company appraisers be ERISA fiduciaries.  If the proposed regulation were to be finalized as is, there would be extreme confusion over whether the appraiser or the trustee[s] and other current fiduciaries make the decisions about acquisition of shares, and most troubling, would leave private ESOP companies open to lawsuits.

“We’re very pleased to see Senator Ayotte take the lead on this issue,” said ESOP Association President, J. Michael Keeling.  “The DOL needs to wake up to the fact that private company ESOPs have tremendous positive records of creating jobs that are locally controlled in high performing companies.  ESOPs are good for employees, companies, and our communities.”

Current co-sponsors:

Senator Roy Blunt (R-MO)

Senator Scott P. Brown (R-MA)

Senator Susan M. Collins (R-ME)

Senator Mary L. Landrieu (D-LA)

Senator Mitch McConnell (R-KY)

Senator Olympia J. Snowe (R-ME)

October 17, 2011

Be Respectful: But Be Respected as Well

The following article originally ran in the September 2011 issue of the ESOP Report, the newsletter of The ESOP Association, as the Washington Report column. Archived issues of the ESOP Report can be found in the members only section of the Association’s website.

The ESOP brand among members of Congress who have visited with ESOP companies, or have welcomed ESOP delegations to their Washington offices, is ESOP people are hard working, good Americans, who are civil — in other words, the ESOP brand is just the opposite of the screamers and the insulters.  [Why people think salt is more effective than a little bit of sugar is hard to understand.]

But, in the ESOP community’s fight against the negative ESOP proposal from the Department of Labor (DOL) to make all appraisers of private company ERISA fiduciaries, many ESOP advocates are disappointed with the answers they are receiving from offices of both Senators and members of the House of Representatives in response to their respectful requests that their representative stand up for the pro-ESOP position and against the DOL position.

A brief note of explanation is needed for those not following this campaign closely before setting out what needs to be done by those who are disappointed with the answers they are receiving from their elected Federal officials.

The October 22, 2010, DOL announced a proposal that would redefine who is an ERISA fiduciary, not just appraisers of ESOPs, but anyone who gives advice about where to invest 401(k) money, including what investments to offer, where to put the money the employee invests, and what the employees do with the money, and anyone who does a similar task for those who are setting up, or investing in an Individual Retirement Account, or IRA.

Of the three areas of retirement savings — ESOPs, 401(k)s, and IRAs — the number of ESOPs, and the amount of money in ESOPs, and the number of persons who work in the ESOP service provider arena, is very small compared to the number of persons participating in 401(k)s and IRAs, the amount of money in 401(k) and IRAs, and the number of persons who provide services to 401(k) and IRA participants.

While it took the financial advisor firms, the k plan service providers, the banks holding IRAs, stock brokerage firms with thousands and thousands of people working with clients with IRAs and/or k plans, much longer to wake up to the danger of the DOL proposal than it did the ESOP community — being smaller means often leaner and more nimble — once awake, the k and IRA world have much heavier advocacy power than the ESOP community.

Plus the arguments for stopping the DOL proposal with regard to who is a fiduciary to k plans and IRAs are in several respects very different from the arguments for stopping the DOL ESOP appraiser proposal.  [In some respects they are the same: lack of data supporting the proposed regulation, increase service provider fees, and blatant ignoring of what other Federal agencies, such as the IRS in the ESOP arena, and SEC in the banking/financial arena, do in this area even though there is a Presidential order that agencies coordinate their regulations.]

So what is the point of this column?

In brief, many ESOP advocates have reported to the national office they wrote, or visited, with their elected officials about the DOL proposal, and the response from those officials was about the k and IRA issues, not the ESOP issues.  Some responses are very strong noting the member of Congress is doing all s/he can to stop the bad DOL “k and IRA” proposal.  It is easy to see that the ESOP advocate receiving such a response wants to scream, “I wrote about ESOPs; not k and IRAs!”

Most ESOP advocates have in turn passed along their disappointment with a statement that “what do you expect” from these do nothing, know nothing, silly members of Congress we have these days.

Well, while the cable news that leans to the left says that about Republican members of Congress, and the cable news channel that leans to the right says the same about Democratic members of Congress, the fact is that getting disgusted will not win for the ESOP position.

So, we are adding to our advocacy kit a suggested “second” communication for the ESOP advocates to the member of Congress who has not understood what the ESOP advocate wrote about in the first instance — the ESOP message.

The second letter will be respectful, but will make it clear: an ESOP advocate with an ESOP company deserves to have her/his concerns respectfully considered.

[Candidly, a letter or message from a member of Congress missing the mark is all about bad staff work, but we have to be respectful of staff people as well.]

In other words, the ESOP brand of being civil and respectful will be honored always; but by gosh, what ESOPs do for employees and their companies, and their communities, needs to be respected.

September 29, 2011

ESOP Bulletin – More Positive News on Stopping DOL’s Fiduciary Proposal

Today, the Chair of the House Committee on Appropriations’ Subcommittee on Labor, Health and Human Services, Education, and Related Services, Congressman Denny Rehberg [R-MT], introduced an appropriations bill for the Department of Labor for the Fiscal Year 2012, among other Federal agencies, which contains the following provision:

“Section 109.  None of the funds made available by this Act may be used to promulgate or implement a final rule amending…the definition of the term ‘fiduciary’…including the proposed rulemaking published by the…Department of Labor on October 22, 2010…”

The reference is to the proposed rule that The ESOP Association and its members have been protesting since last year because it would have mandated that all appraisers of private company ESOP stock be ERISA fiduciaries.

The www.esopassociationblog.org has set forth in many instances why the DOL proposal would have been a bad blow to ESOP creation and operation.

Introduction of this bill does not mean — go here for information on the bill; a formal bill number will be released on September 30, 2011 — the DOL proposal will go away, because a proposed bill is not necessarily going to be on the President’s desk for signing into law.

But we thank Congressman Rehberg for standing up against the DOL.  We know his proposal was motivated by concerns over the proposed rule’s impact on k plans and IRAs as well as ESOPs.  But his action, just as Senator Kelly Ayotte’s [R-NH] introduction of S. 1232 in June of this year, is a strong signal to DOL and its officials that they, when re-proposing the October 22, 2010 regulation, should not come close to what was in the original proposal.  In fact, Congressman Rehberg’s proposal in this Appropriations bill for FY 2012 DOL spending is a pretty strong signal to DOL to just walk away from its original proposal 100%.

The ESOP Association will keep you posted on this legislation, and other efforts to stop the DOL 2010 proposal mandating that appraisers of private ESOP company stock be ERISA fiduciaries with bulletins, and postings on its blog, Facebook page, and LinkedIn group.

Contact govrelATesopassociation.org if you have questions.

Monday, September 19, 2011

DOL Backs Off Proposed Fiduciary Regulation; To Issue New Version in Early 2012

BUT, Game Not Over!

Since late October 2010, The ESOP Association, and the ESOP community, has protested vigorously against the Department of Labor’s (DOL) proposed regulation to make all appraisers of private ESOP company stock ERISA fiduciaries. Today, the DOL issued a press release announcing that it would issue a new version of the regulation revising the definition of ERISA fiduciaries in January 2012, and begin the comment period, in essence, all over again.

This news is a good trend line for pro-ESOP voices. On October 22, 2010, to use an analogy, when the “game” started, the ESOP community was already down two touchdowns. Today, we can say we’re at half time, and we’re tied going into the locker room.

But, there is still plenty of play in the months leading up to 2012 and beyond. For example, the DOL press release hints at leaving in the provision making ESOP appraisers ERISA fiduciaries when they value stock being acquired by a private company. Read the release here.

Such an outcome would dry up ESOP transactions in our view, and soon the number of ESOPs would dwindle, our voice in DC would be weaker, and ESOP benefits would be devastated.

So, do not back off; continue to bring concerns about this proposed regulation to the attention of members of Congress.

Clearly our message will be precise when the new proposed regulation is issued in early 2012. We will post suggested messages — for letter, telephone call, or if you have email green light from a staff member of your Senators and Congress person’s offices, for an email — on our website, blog, and social media sites, as well as in our Advocacy and Congressional Visit Kits.

PS: Just a note of some pride from this corner. The DOL press release cites the Department’s desire to comply with a White House directive issued in January 2011. The ESOP Association, to our knowledge, was the first to develop a point by point analysis why the October 22, 2010, DOL proposed regulation did not conform to the President’s Executive Order, in a communication to the Office of Management and Budget. Click here to read our June 6, 2011 post – Is the DOL Ignoring the Obama Administration?

Wednesday, September 14, 2011

Indiana Freshman Congressman Speaks Out for ESOPs, Strongly

Congressman Rokita (R-IN) Drills Deep on Labor Department’s Lack of Data Supporting Proposed Appraiser/Fiduciary Rule

On July 26, 2011, the House Committee on Education and the Workforce’s Subcommittee on Health, Employment, Labor, and Pensions (HELP) held an oversight hearing on the Department of Labor’s (DOL) proposed regulation to mandate that all appraisers of private ESOP company stock be ERISA fiduciaries.

Both Republican and Democratic members asked sharp questions, ranging from concerns about the impact on IRAs and 401(k) plans to ESOPs in private companies.

But without question, the inquiries about the proposal that hit home for the ESOP community were from freshman Indiana Congressman Todd Rokita (4th District).  His questions stemmed from his disappointment to a letter he received from Secretary of Labor Hilda Solis.  In May 2011, he asked for the Department to be more specific as to the extent of “bad” appraisals of ESOP companies.  He pointed out that up to the time of his writing, all the Department had said in justifying its position was, “Many ESOP appraisals were wrong.”  In short, he was asking how “many” is “many.”

Later in May, Secretary Solis answered his inquiry citing six law suits involving “bad” valuations as evidence that the proposed regulation was justified.  One case dated from the early 90s involving a Mafia family and real estate.  Two other cases were from the mid-90s.  Only one was a recent case.

On July 26, Congressman Rokita was persistent in asking the Assistant Secretary of Labor, Phyllis Borzi, whose sub-department of the DOL, the Employee Security Benefits Administration (EBSA), issued the proposed regulation, to quantify the problem.  He pointed out that six cases over nearly 20 years was not evidence of “many.”  Additionally, he pointed out that probably since 1990 most likely 100,000 ESOP appraisals had been done, and the best EBSA could do was cite six?

ESOP advocates have in testimony, in letters, and verbally, expressed many problems with the DOL proposal; and several members of the HELP Committee, such as Representatives Roby (R-AL), Loebsack (D-IA), and Tierney (D-MA) raised questions critical of the DOL proposal.

But perhaps most frustrating is the charge that the ESOP world is full of flimflammers, shysters, and enablers of bad valuations that do not benefit employee owners.  Congressman Rokita put his finger on the shallowness of this claim by the Department.

Friday, September 02, 2011

The ESOP Project

A few of you out there may have heard of the Department of Labor (DOL) ESOP Project. If you’re an ESOP Report reader, you’ll note it was briefly mentioned in the Advisory Committee on Valuation column in the August 2011 issue. (You can find the ESOP Report online in the members only section of the Association’s website.)

We bring it up here because of an article in the August 18, 2011 Daily Tax Report titled, “Failure to Offset Mutual Fund Fees Tops List of Provider Errors, Official Says.” The article in a general wrap-up of retirement plan topics and one happens to be the DOL’s ESOP Project.

Article re-cap: The most common problems with ESOPs, according to Jeffrey A. Monhart, acting director of the Office of Enforcement in DOL’s Employee Benefits Security Administration (EBSA), are unrealistic growth projections and improper discount rates. It also mentioned improper ESOP loan transactions relying on acceleration clauses that are not allowed under DOL rules as another problem. Another problem noted is failure to provide diversification when participants reach 55 with 10 years of service.

These comments expose the “hidden” intent of DOL’s proposal making an ESOP appraiser an ERISA fiduciary. It sets forth that DOL officials do not accept professional judgments of qualified appraisers with regard to discounts and economic projections. The truth is valuing a non-marketable asset will never be precise, and clearly all qualified appraisers have legitimate disagreements over discounts and economic projections. Supposedly in a recent DOL audit, in a position reported to the Association, the DOL thinks failure to predict the Great Recession resulted in a violation of ERISA. DOL’s EBSA team seems to be saying, “We have the final correct answers on all ESOP appraisals. If our views are not followed, there is an ERISA violation.”

The ESOP community has to keep opposing the proposed regulation.

The following links are from The ESOP Association’s old blog and do not have direct links to posts.

Friday, August 12, 2011

Wall Street Journal Editorial Questions DOL Proposed Fiduciary Regulation

The Friday, August 12, 2011 edition of The Wall Street Journal ran an editorial titled, “The Borzi Savings Bomb,” questioning the Department of Labor’s (DOL) proposed rule on the definition of a fiduciary including making all appraisers of private ESOP companies ERISA fiduciaries.

If you haven’t seen it, the major thrust of the editorial is that the DOL hasn’t justified the need for the regulation.

We’ve said from the beginning:

DOL’s proposal to mandate all appraisers of private ESOP company’s shares are ERISA fiduciaries is NOT just to police rogue, fly by night, unqualified persons performing ESOP appraisals.

We’ve asked for proof and received none. Congressman Todd Rokita (R-IN) has asked for proof and received noneThe Wall Street Journal has asked for proof and received none.

To propose a regulation that will have major consequences for the entire retirement industry — and especially the ESOP community — without proof the rule is needed is, well, we’ve never been able to wrap our heads around the DOL’s thought process. And it seems we aren’t the only ones.

You can read the full editorial on the House Education and the Workforce Committee website.

The editorial on The Wall Street Journal website is here.  You will need a Journal account to read it online.

The editorial refers to a recent House Education and the Workforce Committee hearing held on July 26th where several members of Congress strongly questioned the value of and need for the proposed regulation. You can find additional information about the hearing here.  You can find our thoughts on the outcome here.

Wednesday, August 10, 2011

Letters to the Department of Labor

During this year’s Annual Conference in Washington, D.C., many ESOP Association members paid visits to Capital Hill to meet with their members of Congress to discuss ESOPs and employee ownership. Among the numerous discussions that took place, the Department of Labor’s (DOL) proposed regulation to make appraisers fiduciaries was also on the agenda. Several members of Congress including: Senator Susan M. Collins (R-ME); Senator Scott P. Brown, (R-MA); Senator Kelly Ayotte (R-NH); Congressman David Loebsack (D-IA); Congressman Leonard Boswell (D-IA); Congressman Bruce Braley (D-IA); Congressman Todd Rokita (R-IN); Congressman Todd Young (R-IN); Congressman Brett Guthrie (R-KY); Congressman Larry Bucshon (R-IN); Congressman David McKinley (R-WV); and Congressman Alan Nunnelee (R-MS) have written to the U.S. Secretary of Labor, Hilda L. Solis, in regard to the proposed regulation. Many, if not all, of these letters came out of meetings with ESOP company representatives.

We want to thank members in New England and Iowa that made these letters happen. By taking the time to meet with members and explain how this proposed rule will affect small businesses directly they have garnered the attention of their representatives who have taken action on their behalf. As we have stated in prior emails and blog posts, the DOL seems set on its position in regard to valuation firms. We need to have more ESOP companies step up and ask their members of Congress to protest and question the proposed regulation to the DOL. See the blog on August Recess – Time to Setup a Meeting with Your Member of Congress.

Additionally, if you have received a reply from your members of Congress in regard to a letter to the DOL, please let us know. This list above is far from complete and we know many companies have been working with their members of Congress on this issue. If you would like information on how to ask your member of Congress to send a letter to the DOL, please visit the Association’s website for additional information.

Thursday, July 28, 2011

Congressional Hearing Thoughts on DOL Proposed Regulation

The following is a legislative bulletin which was sent to all members of The ESOP Association recently. In our efforts to keep everyone informed, we are sharing the bulletin here on the blog.

 Congressional Hearing Confirms DOL Proposal to Make Appraisers of ESOP Stock is Not to Stop “Rogue,” “Fly by Night,” Unqualified Appraisers, but Mainstream ESOP Appraisers, One of Whom Probably Appraises Your ESOP Stock!

 On July 26, Assistant Secretary Phyllis Borzi, head of the Department of Labor’s Employee Security Benefits Administration (EBSA), during testimony to the Subcommittee on Health, Employment, Labor, and Pensions of the House Education and Workforce Committee confirmed what The ESOP Association has said from the day the proposed regulation was published:

DOL’s proposal to mandate all appraisers of private ESOP company’s shares are ERISA fiduciaries is NOT just to police rogue, fly by night, unqualified persons performing ESOP appraisals.

During her testimony, in response to a question, Secretary Borzi made clear that she and her agency had found that prominent ESOP appraisers are often using “wrong methodologies” when appraising ESOP stock.

MESSAGE: If the DOL proposal mandating that all ESOP private company appraisers be ERISA fiduciaries as proposed, not only will your company pay more for an appraisal, the chances are high that a DOL audit will deem your ESOP share value to be a violation of ERISA, or such a claim will be made by plaintiff lawyers.

The ESOP community must continue its protests to members of Congress about this DOL proposed regulation.

If your Representative or Senators have already protested, thank her or him again; and ask if they have heard anything from DOL indicating a willingness to alter the proposed regulation. If Senators, ask that they consider cosponsoring the Ayotte et al bill, S. 1232, stopping the DOL regulation in its tracks.

If you have no evidence that your Representative or Senators have contacted the DOL, and you have contacted their offices already, call and ask if you can expect a response. [Dial 202.224.3121, and ask the operator to connect you to the member’s office.]

If you have not yet contacted your Representative or Senators, please considering doing so. Click here for suggested letter that can also be used as a phone script.

Remember: it is your ESOP in the line of fire. Not some weird ESOP outlier company!!!

Wednesday, July 27, 2011

Part IV – To Everyone Who Cares About ESOPs…

PART IV

To Everyone Who Cares About ESOPs…

 A recent article written by Nina Wasow, an associate attorney with Lewis, Feinberg, Lee, Renaker & Jackson in Oakland, CA which appeared in a July 12, 2011 issue of Pensions & Benefits Reporter, spells outthe truth about how the DOL proposal to make private ESOP company appraisers ERISA fiduciaries will harm private ESOP companies.

The author unexplainably creates several myths and in a series of blog posts over the next few days, we’ll be examining each. Today:

  • Myth number four: ESOPs are big business.

Citing NCEO data selectively, the author ignores that 99% of ESOPs are closely held, private businesses, and that probably 90% plus have fewer than 500 employees, thus meeting the definition of small businesses.

It would be a shame if a proposal that hurts one of the best job policies in America is sacrificed to satisfy the desire of some plaintiff law firms to be able to sue more ESOP companies.

You can read the outrageous article by going to BNA’s Pensions and Benefits website.   All BNA material is copyrighted and you will have to login and pay to obtain the article.  An ERISA law firm probably has a subscription to Pension & Benefits Reporter, and you can ask for your lawyers to share on a client-attorney basis, or summarize the article for you.  The article is in the July 12, 2011 issue, pages 1308 to 1311.

Share your concerns about this article that is circulating on the Hill with staffers who handle ERISA issues with your members of Congress.

Comments? Let’s hear them!

Tuesday, July 26, 2011

Part III – To Everyone Who Cares About ESOPs…

PART III

To Everyone Who Cares About ESOPs…

         A recent article written by Nina Wasow, an associate attorney with Lewis, Feinberg, Lee, Renaker & Jackson in Oakland, CA which appeared in a July 12, 2011 issue of Pensions & Benefits Reporter, spells out the truth about how the DOL proposal to make private ESOP company appraisers ERISA fiduciaries will harm private ESOP companies.

The author unexplainably creates several myths and in a series of blog posts over the next few days, we’ll be examining each. Today:

  • Myth number three: Appraisers can be ERISA fiduciaries and still be independent.

No one, but officials at DOL, think appraisers can be ERISA fiduciaries and still be independent, in conflict with law, and appraisal standards set by the Congressionally sanctioned Appraiser Standards Board [see blog post here].

[In making the claim that appraisers can be independent and be ERISA fiduciaries, the author makes a snarky reference in a footnote to a comment from Dave Fitz-Gerald, an employee owner of ESOP Association member, Carris Reels in Proctor, VT.  Guess the author could not fathom that a real live ESOP company executive might be protesting.  Dave is President of the Association’s New England Chapter and a member of the Executive Committee of the State and Regional Chapter Council.]

You can read the outrageous article by going to BNA’s Pensions and Benefits website.   All BNA material is copyrighted and you will have to login and pay to obtain the article.  An ERISA law firm probably has a subscription to Pension & Benefits Reporter, and you can ask for your lawyers to share on a client-attorney basis, or summarize the article for you.  The article is in the July 12, 2011 issue, pages 1308 to 1311.

Share your concerns about this article that is circulating on the Hill with staffers who handle ERISA issues with your members of Congress.

Comments? Let’s hear them!

Monday, July 25, 2011

Part II – To Everyone Who Cares About ESOPs…

PART II

To Everyone Who Cares About ESOPs…

         A recent article written by Nina Wasow, an associate attorney with Lewis, Feinberg, Lee, Renaker & Jackson in Oakland, CA which appeared in a July 12, 2011 issue of Pensions & Benefits Reporter, spells outthe truth about how the DOL proposal to make private ESOP company appraisers ERISA fiduciaries will harm private ESOP companies.

The author unexplainably creates several myths and in a series of blog posts over the next few days, we’ll be examining each. Today:

  • Myth number two: There are many, many flim flam appraisals that will be stopped if the DOL proposal is adopted, and the bad actors will stop cheating employees out of their retirement funds.

          The author, which is active in suing ESOP companies — just won a “whopping” $2 million lawsuit against an ESOP company in Arkansas and will split its proceeds with two other firms — blasts The ESOP Association for saying to DOL, “Where is the scandal?” by citing seven lawsuits since 1993 that found the valuation of ESOP shares to be woefully wrong.  Let’s see, since 1993 there have probably been around 25,000 appraisals of private company ESOP stock, meaning that the author’s cites have a flim flam in 3/100th of the appraisals.  What a scandal!  There have been many more malpractice cases against trial lawyers since 1993 than against private ESOP companies.

As side note, the author notes several cases in making her point that this proposed regulation would be in line with current case law and cites seven (Yes, a total of SEVEN cases!); two she cites twice. You would think if this problem of bad valuations was so wide spread, more than seven cases would be used as examples or at least cite a general number to provide a larger scope of the problem.

          It seems that the plaintiffs’ lawyers have finally heard what The ESOP Association has been saying from day one about the proposal — it will give the plaintiffs’ firms more business.  Isn’t it odd that the author acts like the desire is to give DOL more enforcement power to lower the number of bad ESOPs when if that were true the law firms would have fewer lawsuits to bring.  I doubt the law firms hustling to sue ESOP companies really want to eliminate their business opportunities.  We think that they doth protest too much.

You can read the outrageous article by going to BNA’s Pensions and Benefits website.   All BNA material is copyrighted and you will have to login and pay to obtain the article.  An ERISA law firm probably has a subscription to Pension & Benefits Reporter, and you can ask for your lawyers to share on a client-attorney basis, or summarize the article for you.  The article is in the July 12, 2011 issue, pages 1308 to 1311.

Share your concerns about this article that is circulating on the Hill with staffers who handle ERISA issues with your members of Congress.

Comments? Let’s hear them!

Friday, July 22, 2011

Part I – To Everyone Who Cares About ESOPs…

PART I

To Everyone Who Cares About ESOPs…

         A recent article written by Nina Wasow, an associate attorney with Lewis, Feinberg, Lee, Renaker & Jackson in Oakland, CA which appeared in a July 12, 2011 issue of Pensions & Benefits Reporter, spells outthe truth about how the DOL proposal to make private ESOP company appraisers ERISA fiduciaries will harm private ESOP companies.

The author unexplainably creates several myths and in a series of blog posts over the next few days, we’ll be examining each. Today:

  • Myth number one: Protests against DOL’s proposal are the result of the powerful, inside the beltway ESOP lobbying machine compared to the author’s pure desire to help employees.

Give me a break! The powerful ESOP lobbying machine compared to the trial lawyers — note ESOP PAC contributes about $140,000 in a two year election cycle to its true friends on the Hill, while the author’s association, and big law firms contributed $234 million in the last election cycle according to public records obtained by the Center for Responsive Politics.

I have trouble shedding crocodile tears for the poor trial lawyers fighting to save employees from evil ESOP advocates when the trial lawyers probably have more influence with their big donations to Federal office holders than any group in America.

You can read the outrageous article by going to BNA’s Pensions and Benefits website.   All BNA material is copyrighted and you will have to login and pay to obtain the article.  An ERISA law firm probably has a subscription to Pension & Benefits Reporter, and you can ask for your lawyers to share on a client-attorney basis, or summarize the article for you.  The article is in the July 12, 2011 issue, pages 1308 to 1311.

Share your concerns about this article that is circulating on the Hill with staffers who handle ERISA issues with your members of Congress.

Comments? Let’s hear them!

Wednesday, July 06, 2011

DOL Problem: Is Bad Getting Worse?

This article ran as the Washington Report column in the June 2011 issue of the ESOP Report, the newsletter of The ESOP Association.

 Maybe this column will sound like a little “fussin,’” but some ESOP advocates still think what the Department of Labor (DOL) is doing with its proposed regulation making all ESOP appraisers fiduciaries is a minor problem that will be handled once the regulation is finalized. It is not a minor problem, and the seeming agenda that the current DOL agency called the Employee Benefits Security Administration (EBSA) has for ESOPs grows darker. At the same time, this agency and its leadership seems to continue to hide what its goals are for its new “attitude” towards ESOPs.

Let’s start with what everyone seems to know: the proposed regulation states that all ESOP appraisers be ERISA fiduciaries. The formal justification set forth by DOL officials, including the Secretary of Labor, is that EBSA had this special task force reviewing ESOP transactions and found that “many” ESOPs were overvalued, and it was the most “common” problem with private company ESOPs. These statements about private company ESOPs have been repeated over and over by DOL officials in the form letters to members of Congress and in interviews with media, and at seminars of ERISA service providers.

We have also seen on several occasions DOL officials say, on the record, that while they are pondering alterations to the proposed regulation’s impact on 401(k) plans and IRAs, the proposed regulation on ESOP appraisers is set, with no changes anticipated.

Both, the citation that there is some kind of nationwide scandal involving private company ESOPs, and that no changes will be made in the proposal’s impact on ESOPs, gave rise to the ESOP community wanting to have the details so the community could assist DOL in proper enforcement. Also to have the regulation be more in sync with what other Federal agencies do to ensure appraisals of non-marketable properties are in accord with professional appraisal standards. So the ESOP community made suggestions for enforcement enhancement, and continued to ask what the definition of “many” is — 5%, 10%, 20%, 50%, etc? DOL has never responded to the offer to cooperate, or to define “many.”

But a letter to a freshman Congressman from Indiana, Todd Rokita (R-IN), from Secretary of Labor Hilda Solis, that was of course written in the office of the Assistant Secretary of Labor for EBSA, gave a hint as to the true agenda of DOL. The letter justified the proposed regulation by citing cases where appraisals were made using valuation theories that candidly are debated among qualified professional appraisers, and under ERISA law can be argued both ways. The letter in several instances cited as an overvaluation an appraisal that took a position on share value in one of these gray areas, that experts debate, that resulted in a higher share value. The letter thus implies that unless the appraiser always gives the lowest value it violates ERISA.

But this letter to Congressman Rokita is not the only piece of evidence of what is the intent of DOL in its campaign against ESOP appraisals. The ESOP Association is hearing report after report that appraisal approaches that have been blessed in DOL and IRS audits of ESOPs for the past 35 years are now being labeled as overvaluation that result in the ESOP being labeled a prohibited transaction. Reports are coming in that a DOL auditor will leave a room to call Washington D.C. DOL offices to learn what the “correct” value should be. In every instance, the D.C. office responds the correct value is always the lower value. In many instances, the ESOP company had an independent outside trustee, and used a very well known appraisal firm with years of ESOP appraisal experience.

Bottom line: If the ESOP community does not stand with people in Congress, such as Senators Ayotte, Snowe, Brown, Collins, and Landrieu who know what the ESOP means in keeping locally controlled jobs that provide good benefits in their states, the ESOP community will be deemed as weak, the number of ESOPs will shrink, and candidly, preserving ESOP tax benefits will be unlikely. The ESOP community cannot afford to abandon its Congressional allies, as it cannot afford to have fewer ESOPs, and thus a smaller voice in the days ahead.

Monday, June 27, 2011

DOL’s Claim that an Appraiser can be an ERISA Fiduciary and still be Independent

At the Department of Labor’s (DOL) public hearings on the anti-ESOP proposal that appraisers of private company ESOP stock automatically be ERISA fiduciaries, DOL top EBSA (Employee Benefits Security Administration) officials scoffed at claims from private sector witnesses that an appraiser could not be independent, and at the same time, be an ERISA fiduciary. Phrases like, “I just don’t get it” were thrown out by DOL leaders at the hearing when this seeming contradiction of being independent and being an ERISA fiduciary was raised.

Well, maybe it’s time for ESOP advocates to say back to the DOL, “We just don’t get it” when “You just don’t get it.”

Congress authorized the Appraisal Standards Board in 1989 as the source of appraisal standards. On June 15, 2011, the Chair of the Appraisal Standards Board wrote to the DOL EBSA saying that there was no way an appraiser could be independent and also be a fiduciary. CLICK HERE to read the letter.

But noted in our blog post – Is the DOL Ignoring the Obama Administration? - the EBSA does not seem to care what the White House and OMB have ordered in terms of promulgating regulations.  It is no surprise that ESBA doesn’t really care what a Congressionally authorized group to set appraisal standards thinks either. Guess EBSA top leaders just “don’t get” what the White House and the Appraisal Standards Board say.

If you are dialoguing with your member of Congress about the DOL attack on ESOPs, here is another piece of evidence that what DOL is proposing has no support in rational reading of law, Executive Order, or in current appraiser standards.

Wednesday, June 22, 2011

Senator Kelly Ayotte Introduces Pro-ESOP Bill, S. 1232

We wanted to share the following press release which was sent out by The ESOP Association.

 For Immediate Release: June 21, 2011

For More Information: Amy Gwiazdowski, amy AT esopassociation.org

 Senator Kelly Ayotte Introduces Pro-ESOP Bill, S. 1232

The bill would modify the definition of fiduciary under the Employee Retirement Income Security Act of 1974 to exclude appraisers of employee stock ownership plans.

June 21, 2011 (Washington, DC) – Senator Kelly Ayotte (R-NH) introduced today S. 1232, a bill to modify the definition of fiduciary under the Employee Retirement Income Security Act of 1974 to exclude appraisers of employee stock ownership plans. The bill is co-sponsored by Senators Olympia Snowe (R-ME), Susan Collins (R-ME), Scott Brown (R-MA), and Mary Landrieu (D-LA).

This bill is a response to the Department of Labor’s (DOL) proposed anti-ESOP regulation mandating all private ESOP company appraisers be ERISA fiduciaries. If the proposed regulation were to be finalized as is, there would be extreme confusion over whether the appraiser or the trustee[s] and other current fiduciaries make the decisions about acquisition of shares, and most troubling, would leave private ESOP companies open to lawsuits.

“We’re very pleased to see Senator Ayotte take the lead on this issue,” said ESOP Association President, J. Michael Keeling. “The DOL needs to wake up to the fact that private company ESOPs have tremendous positive records of creating jobs that are locally controlled in high performing companies. ESOPs are good for employees, companies, and our communities.”

The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy.

 ###

Tuesday, June 21, 2011

ESOP Legislative Bulletin – Senator Kelly Ayotte Introduces Pro-ESOP Bill S. 1232

The following information was sent to ESOP Association members this morning.  We also wanted to share with readers here.

Senator Kelly Ayotte’s Floor Amendment #467 Becomes S. 1232 — A bill to modify the definition of fiduciary under the Employee Retirement Income Security Act of 1974 to exclude appraisers of employee stock ownership plans. 

Urge Your Senators to Co-Sponsor!

Because the underlying bill pending on the Senate floor, S. 782 to reauthorize the Public Works and Economic Development Act of 1965, has bogged down and is not likely to be adopted, Senator Kelly Ayotte, and her colleagues Senators Olympia Snowe (R-ME), Susan Collins (R-ME), Scott Brown (R-MA), and Mary Landrieu (D-LA), decided a more effective pathway to stop DOL’s proposed anti-ESOP regulation mandating all private ESOP company appraisers be ERISA fiduciaries, was to take S. AMDT 467 word for word and introduce it as a free standing legislative proposal. It is now S. 1232.

Please consider, and then ask your Senators to co-Sponsor S. 1232. Call 202/224-3121 and ask for your Senators’ offices. Ask to speak to the aid responsible for following tax, labor, or retirement savings law and follow-up with a suggested letter.

CLICK HERE for a suggested letter.

If you would like information on the DOL’s proposed regulation, CLICK HERE.

Go to http://www.senate.gov for information on contacting your Senators’ offices.

Contact govrel@esopassociation.org with any questions.

If you live in New Hampshire, Maine, Massachusetts, or Louisiana, say thank you to these Senators who are standing up for ESOPs.

Tuesday, June 14, 2011

Pending Amendment in Senate to Stop Department of Labor’s (DOL) Regulatory Attack on ESOPs

The following legislative alert was sent out by The ESOP Association this afternoon. We wanted to share it with readers here.  Information will also be made available on The ESOP Association’s website.

 Legislative Alert

ESOP Bulletin

Pending Amendment in Senate to Stop Department of Labor’s (DOL) Regulatory Attack on ESOPs

CONTACT YOUR SENATORS AND URGE THEM TO BE “FOR” THE PRO-ESOP POSITION

Senator Kelly Ayotte (R) of New Hampshire has proposed an amendment to S. 782 that would amend ERISA to make clear that appraisers of private company ESOP stock are not ERISA fiduciaries.  She is joined by Senators Olympia Snowe (R) of Maine and Scott Brown of Massachusetts (R).

Their amendment would stop the DOL proposed regulation mandating all private company ESOP appraisers be ERISA fiduciaries.  Briefly, if DOL has its way, all private ESOP companies would pay significantly higher fees for appraisals, there would be extreme confusion over whether the appraiser or the trustee[s] and other current fiduciaries make the decisions about acquisition of shares, and most troubling, would leave private ESOP companies sitting ducks anytime aggressive trial lawyers could find anyone upset over a share value determination.  [See The ESOP Association website, and the 12 blog posts, about the harm the DOL proposal will do to the ESOP community if finalized.]

To read the amendment, CLICK HERE.

Please call your Senators’ offices, or call and get permission to send an email to the appropriate staff person who works on tax, labor, or retirement savings issues for the Senator, and urge them to be for S. AMDT 467 to S. 782 to reauthorize the Public Works and Economic Development Act of 1965.

Your message is: “I am ______ of (name of company) in (location) and I urge Senator _____ to be for Senator Ayotte’s amendment number 467 to S. 782 to stop a very negative ESOP position being proposed by the Department of Labor.” Call 202/224-3121 and ask for your Senators’ offices.

If you live in New Hampshire, Maine, or Massachusetts, call the offices of Senators Ayotte, Snowe, and Brown and say, “Thank you, thank you!”

If needed, go to http://www.esopassociation.org/docs/255%20-%20DOL%20Proposal.doc to learn more about the DOL’s proposed regulation.

If you want direct numbers for your Senators’ offices, go the U.S. Senate, http://www.senate.gov, and click “Find Your Senator” in the upper right hand corner. The U.S. Senate website lists all Senators’ office numbers.

No matter the final handling of the Ayotte amendment, it is extremely important that Senators hear the voice of the ESOP community, and that they are then more committed to making sure the current negative attitude towards ESOPs at DOL is dampened, if not silenced.

Monday, June 06, 2011

Is the DOL Ignoring the Obama Administration?

The Administration is making a big deal over its Executive Order (EO 13563) that supposedly guides Executive Branch agencies to only issue regulations, or to at least use a process in developing regulations, that does not impose harsh burdens on business — especially small businesses.  Below is letter that sets forth what we at The ESOP Association consider to be the facts that Department of Labor (DOL), in preparing and issuing the proposed regulation that ESOP appraisers be ERISA fiduciaries, ignored the Executive Order from the White House about how to develop and issue regulations.

We think it’s persuasive to show members of Congress that DOL is thumbing its nose at business, and particularly small businesses, in spite of what is being said by the Administration that it is “business” friendly.

Please feel free to use the information in the letter below in communications with your members of Congress. Thoughts and comments are welcome.

______

May 23, 2011

Mr. Cass R. Sunstein

Administrator

Office of Information and Regulatory Affairs

Executive Office of the President

Office of Management and Budget

Washington, DC 20503

RE: Department of Labor Ignores Executive Order 13563

Dear Administrator Sunstein:

On behalf of the approximately 2,500 members of The ESOP Association, I write setting forth some of the points made in your February 2, 2011, memorandum to the Heads of Executive Department and Agencies, explaining Executive Order 13563 (EO 13563), “Improving Regulations and Regulatory Review.” I do so to contrast its purposes and directions to Executive Agencies to the approach the Department of Labor (DOL) took in proposing a rule to expand the definition of the term “fiduciary” to include appraisers of the stock held in employee stock ownership plans (ESOPs) sponsored by U.S. corporations that are not publicly-traded (referred to as “private” companies, or private ESOP companies.) See 75 Fed Reg. 65263 (Oct. 22, 2010) (referred to as proposed DOL regulation.)

This communication does not repeat the policy critique The ESOP Association has made on the proposed DOL regulation, but to note to you and your colleagues in the Executive Office of the President the obvious inconsistencies of certain provisions of EO 13563 and the process DOL followed in issuing the proposed DOL regulation.

 Section 1: Cost Analysis Guidelines

             Your February 2nd memorandum reiterates five principles from an earlier Executive Order 12866 in Section 1 of EO 13563 that agencies “use the best available techniques to quantify anticipated present costs as accurately as possible.”

The proposed DOL regulation preamble states the “best” cost analysis as to costs the proposed DOL regulation will impose on private ESOP companies, is based on the assumption professional appraisers charged an average $119 per hour for their work in the past.

$119 per hour is a ridiculous number to use. Any cost analysis based on $119 per hour is not accurate. 98% to 99% of U.S. corporations sponsoring ESOPs are private companies, approximately 92% of these private companies have fewer than 500 employees, and just over 50% have fewer than 100 employees.   Thus the majority of U.S. corporations impacted by the proposed DOL regulation with regard to their appraisers becoming ERISA fiduciaries are small businesses, and the costs they will bear if their appraisers are fiduciaries is way more than additional work by appraisers at $119 per hour. While one may submit that the drafters of the proposed DOL regulation were using the $119 per hour rate as an example of the rate years ago, the mere fact DOL did not seek to obtain a more realistic per hour rate to cite is a flaunting of EO 12866 and EO 13563.

 Section 2: Seek Input Before Regulation Proposed

              Section 2 of EO 13563 “directs agencies, where feasible and appropriate, to seek the views of those who are likely to be affected by rulemaking, even before issuing a notice of proposed rulemaking.” (Underline and italics added for emphasis.)

Private ESOP companies, individually, and in ad hoc groups, and through trade associations, in addition to The ESOP Association, and through individual member organizations of service providers to private ESOP companies, are all well known to DOL personnel in its Employee Benefits Security Administration (EBSA), dating back to the late 70s.

The proposal to mandate private company ESOP appraisers be ERISA fiduciaries was never, ever, discussed by anyone at DOL with any party in the ESOP community.

 Section 3: Urges and Instructs Agencies to Co-ordinate

             Section 3 of EO 13563 urges Executive Branch agencies to have more “co-ordination across agencies” to produce simplification and harmonization of rules.

In the matter of appraisers valuating shares of private ESOP companies, the IRS has a major responsibility to ensure Internal Revenue Code Section 401(a)(28)(C), which mandates an annual valuation of non-traded company stock in an ESOP be independently valued, or whenever circumstances might have a significant impact on ESOP share value, is adhered to by private ESOP companies. Because the IRS has for many years policed the accuracy of hard to value assets in areas of estate tax, charitable contributions, and ESOPs, the agency has several approaches to ensure appraisals are professionally done, and as accurate as possible.

Section 3 of EO 13563 instructs (note EO 13563 does not “ask,” “encourage,” recommend,” but instructs) agencies (1) to consider the combined effects their regulations… on particular sectors… and (2) to promote coordination across agencies and harmonization of regulatory requirements. Section 3, thus emphasizes the crucial importance of simplifying and harmonizing regulations and acknowledges that, at times, regulated entities might be subject to requirements that, even if individually justified, may have cumulative effects imposing undue, unduly complex, or inconsistent burdens. Section 3 is designed to reduce burdens, redundancy, and conflict, and at the same time to promote predictability, certainty, and innovation.

While no one disputes DOL’s primary role in determining who is an ERISA fiduciary and its primary role in enforcing ERISA’s requirement that a private ESOP company acquire company stock only for fair-market value as determined by an appraiser, common sense says that DOL should follow EO 13563 Section 3’s instructions, and confer with IRS/Treasury officials who have expansive experience with making sure IRC Section 401(a)(28)(C) is complied with by private ESOP companies when their stock is appraised.

There is no evidence DOL personnel have discussed, even briefly, its proposed regulation making appraisers of private ESOP company stock with appropriate IRS/Treasury personnel before drafting and proposing appraisers of private ESOP company stock be ERISA fiduciaries. (Underline added for emphasis.)

The ESOP community has frequent communications with IRS/Treasury personnel.

 Section 4: Admonishes Agencies to Seek Goals in Least Burdensome Manner

             Section 4 of EO 13563 states that “each agency shall identify and consider regulatory approaches that reduce burdens and maintain flexibility and freedom of choice… Such approaches include “warnings, appropriate default rules, and disclosure requirements…”

Section 4 acknowledges the importance of considering flexible approaches and alterations to mandate… EO 13563 directs agencies to consider the use of tools to promote regulatory goals through actions that are less expensive…

The DOL proposed rule mandating appraisers of private company ESOP stock ignores all of the admonitions of Section 4. The ESOP appraiser mandate ignores the fact other Federal agencies use a variety of approaches to regulate appraisers of non-marketable assets. Particularly instructive are approaches taken by the IRS, which also has responsibility of enforcing ERISA statues and regulations.

 Summary

             In sum, the DOL proposed regulation ignores provisions of Sections 1, 2, 3, and 4 of EO 13563 by:

1. Using a ridiculous number as the per hour charge by appraisers of private ESOP company stock;

2. Refusing to seek any input from the ESOP community before issuing the proposed regulation;

3. Ignoring input from other Federal agencies on their policies with regard to appraisers of non-marketable assets, particularly the IRS; and

4. Disregarding the less burdensome alternatives to reach its goal of ensuring professional and qualified appraisals of private ESOP company stock tools used by other Federal agencies to ensure appraisers, required under laws and regulations they are responsible for, are professional and qualified.

Your review of this communication is appreciated.

Sincerely yours,

J. Michael Keeling, CAE

President, The ESOP Association

Tuesday, May 24, 2011

DOL’s Goals with Appraiser Proposal Coming into Focus

Ever since last October when the Department of Labor (DOL) proposed a regulation primarily dealing with financial advisors to persons with 401(k) plans, which included a very brief but unexplained recommendation that appraisers of private ESOP company stock be ERISA fiduciaries, the ESOP community has pondered — precisely what was is the DOL seeking in the world of ESOPs.

DOL, in public comments and in letters to members of Congress, has stated “many” ESOP private company stocks are “overvalued” to the detriment of employees participating in the ESOP.  ESOP advocates have consistently asked “how many is many?”  The answer has always been just “many.”

Recently, in response to written questions submitted by a member of Congress serving on the House committee with jurisdiction over the DOL, the DOL position seems to be coming into focus.  And, as the picture becomes clear, it is not getting any prettier, and somewhat belies the broad brushed DOL claim the agency is trying to clamp down on “rouge” appraisers.  [The Congressman was Todd Rokita, 4th District Indiana, serving his first term.  If you are interested in reading the exchange, please send an email to media@esopassociation.org and a copy will be sent to you.  His questions and the DOL response are public record, as they are part of the official transcript of a Congressional hearing.]

What the DOL response indicates is that DOL officials do not agree with some valuation practices which candidly are debated among ESOP appraisers.  In fact, the highly respected ESOP Association Advisory Committee on Valuation has written white papers on the topics; and honorable people can disagree what is the “best” valuation position.  Specifically, there is a practice in appraising private company stock to add back to the discount for lack of marketability a “control” premium should the ESOP hold more, or is to hold more than 50% of the corporation’s voting stock.  Another area discussed among professional appraisers is whether an ESOP company’s repurchase obligation be taken into consideration when valuing shares in a manner that lowers share price.

In other words, it is very reasonable to assume the proposed DOL regulation is not about “rouge, unqualified” appraisers, but a goal by DOL to impose valuation practices they, the DOL officials, think are correct.

Another way to put it:  DOL is moving to establish the “details” of what is a correct private ESOP company appraisal as opposed to having the transparency to say, “We do not like the way nearly all ESOPs are valued by appraisers that claim to be good appraisers, who probably do all the appraisals of the ESOP companies who are members of The ESOP Association.”

In sum, victory by the DOL in making appraisers ERISA fiduciaries is not just about reigning in unqualified individuals doing appraisals but about lowering the price an exiting shareholder may get when selling to an ESOP; such a result will mean fewer ESOPs.

Monday, May 02, 2011

Ohio Employee Ownership Center — Weighing in on the DOL Proposed Regulation

The Ohio Employee Ownership Center’s (OEOC) recent magazine issue, Owners at Work, Winter 2011, contains a particularly good opinion piece on the DOL’s proposed regulation to make appraisers fiduciaries. Written by the OEOC’s Program Director, Bill McIntyre, the article is a re-cap of statements and opinions already presented to the DOL and an interesting list of points that are important to the discussion.

You can download and read the Owners at Work Winter issue from the OEOC’s website HERE.  Bill McIntyre’s article is on page 14 of the issue.

With many people attending the Association’s Annual Conference in Washington, DC next week and possibly meeting with their members of Congress, we wanted to share this article with members to assist them in their discussions with members of Congress. As we mentioned in an update posted here on April 29 (DOL Campaign: Not Winning: ESOP Community Needs to Be Active) there is still much work to be done on this issue.

Take a look at the OEOC article and our thanks goes out to Bill for his insightful piece.

Friday, April 29, 2011

DOL Campaign: Not Winning: ESOP Community Needs to Be Active

The following is a legislative bulletin which was sent to all members of The ESOP Association recently. In our efforts to keep everyone informed, we are sharing the bulletin here on the blog.

             In a recent news article, Assistant Solicitor of DOL, Ted Hauser said, “The Labor Department is set (emphasis added) with its position on valuation firms…” Thus, ESOP voices are not at this time having significant impact on altering the basic position proposed by DOL that all appraisers of private company ESOP stock be ERISA fiduciaries.

Unfortunately, the ESOP issue embedded in the Department of Labor’s proposed new definition of who is an ERISA fiduciary has fallen in importance in the eyes of key members of Congress and the Department of Labor officials.

Why? The DOL proposal also negatively impacts financial institutions administering IRAs, mutual funds offering IRAs, and 401(k) plans, and major financial businesses providing financial advice. Members of Congress of the key committees are justifiably aware the 401(k) market is much, much larger than the ESOP marketplace for those selling services to their plans and many more Americans participate in these plans. (The key committees in this campaign are the House Committees on Education and Workforce; Ways and Means; and Appropriations, and the Senate Committees on Health, Education, Labor, and Pensions; Finance; and Appropriations.)

The fact is these businesses handle trillions of dollars, and have expertly mounted a significant campaign to persuade members of Congress to protest, and to threaten to overturn the DOL proposal as it impacts their interests.

Not surprisingly, key Republican members of Congress have heeded their concerns, and have registered protests to DOL.

Not surprisingly, in this day of sharp partisanship in Congress, Democratic leaders are taking positions contra to their Republican colleagues, and writing to the Secretary of Labor supporting the DOL proposal.

But to the knowledge of The ESOP Association neither Republicans nor Democrats, except for five members, say anything about ESOPs!

The five members of Congress who have conveyed concerns about DOL’s proposal to mandate that an appraiser of private company ESOP stock be fiduciaries are Senators Bernie Sanders (I-VT), and Patrick Leahy (D-VT), Congressmen Maurice Hinchey (D-NY), Charles Boustany (R-LA) and Geoff Davis (R-KY).

Many ESOP advocates have written their Senators and Representatives.

If you can, please let us know what your Senators and/or Representatives have done, as this list of five may be incomplete. No matter when the campaign ends (probably fourth quarter of this year) the ESOP community needs to express appreciation to their elected officials who stood up for ESOPs.

DOL staffers have fanned out to key Congressional offices, making an effective argument to Congressional staff that the ESOP proposal is a minor tweak that will not impact “good” ESOPs and their “qualified” appraisers. (Keep in mind, these DOL staffers would not give our side of the argument about this proposal to members of Congress or their aides.)

Not true. See http://www.dol.gov/ebsa/newsroom/fsfiduciary.html

So,

1. If you have not contacted your elected officials in Congress. Please do so. See

http://www.esopassociation.org/pdfs/Letter_to_Members_of_Cong_DOL_Proposal.pdf

for suggested communication.

2. If you have, call 202-224-3121, ask to speak to the office you contacted, then ask to speak to the staff person responsible for retirement savings policy and/or tax policy; when connected, refer to your communication, and ask politely if the [Senator] [Representative] has had time to review the issue you raised in your communication. If so, has s/he contacted DOL, and if not, ask respectfully that she/he do so, noting you will “check” again in a week or so.

This ESOP community is threatened by the DOL proposal. Since 1974, when threatened, the voice of ESOP advocates has consistently beaten back the threat 80% of the time.

Let’s keep this wining percentage!

Tuesday, April 19, 2011

Comment Letters Indicate DOL Proposed Regulation “Would Seriously Impede ESOPs”

Pensions & Benefits Reporter, a Bureau of National Affairs publication, ran an article in the March 8, 2011 issue covering the DOL’s March 1st and 2nd hearing on the “Definition of a Fiduciary.” While the article itself didn’t contain any surprises, it did include an interesting table in a sidebar article. The publication went through all 199 DOL comment letters regarding the proposed regulation and looked at the themes present one of which was — would seriously impede ESOPs. Tallying the list in this category found 82 of the 199 submitted comments in agreement that the DOL proposed regulation would harm ESOPs.

“This is a very enlightening insight,” said J. Michael Keeling, president of The ESOP Association. “We have looked at all of the comments letters and knew that many were against the proposed regulation as we are but have not had the opportunity to tally the results. This figure is notable — 41% believe this proposed regulation would harm ESOPs.”

In addition to the category regarding the harmful effects on ESOPs, the chart also included the following: costs outweigh benefits and/or flawed impact analysis, standards too vague and subjective, insufficient coordination with other contemporaneous rulemaking and/or existing guidance or standards, overprotective of sophisticated fiduciaries, covers certain service providers who should be presumptively excluded, exceptions too narrow, and none.

Thursday, March 03, 2011

Update on DOL Proposed Rule Negative to ESOP Companies

We wanted to share the following ESOP Legislative Bulletin which was sent to ESOP Association members this morning about the DOL Hearing on the proposed regulation “Definition of a Fiduciary.”

 The Department of Labor has concluded its public hearing on its proposal that appraisers of ESOP stock be fiduciaries to the ESOP, in addition to a current ESOP fiduciary.

While I have sat through other sessions where ESOP cynics’ comments made the session a nightmare for an ESOP/employee owner advocate, and while I can report that I found the DOL officials to be respectful of the ESOP concept, I must report there was no indication they would drop their desire to have the appraisers be fiduciaries.

In exchanges with witnesses who were not supportive of the proposed regulation, including the Chair of the Association’s Advisory Committee on Legislative and Regulatory Issues, Laurence Goldberg, the DOL officials put forth several ideas to ameliorate the concerns of ESOP advocates, that primarily were to limit the appraisers’ fiduciary responsibilities, but not to drop their core proposal that appraisers be fiduciaries.  Compromises are always welcomed, as no one gets 100% of everything he or she wants.

BUT…..and this is a big but:  The DOL officials might claim they only want to make sure valuations are as good as they can be, and they, the DOL enforcement arm, will not expand their current interpretation of when a valuation is wrong; but private sector lawyers do not have to read any final regulation narrowly.  In other words, making appraisers fiduciaries will not only result in existing ESOP companies paying more because their appraiser will have to buy fiduciary insurance, for which no one knows the cost as such a policy does not exist for appraisers right now, plus appraisers will probably hire their own “fiduciary” lawyer, and these costs will be paid by the ESOP company, reducing its profits, and reducing benefits to employee owners; but, and here is the but that is so worrisome, there will be many more lawsuits against ESOP companies and the appraisers as now the lawyers will have more pockets to go after.

And again, DOL has not documented its claims that bad valuations of private ESOP companies are widespread and common.

The data is overwhelming:  Most lawsuits against ESOP companies for fiduciary violations, of whatever nature, do not succeed.  But litigation is so expensive, time consuming, that many companies just settle for an amount less than the cost of winning the lawsuit.  A settlement pay day for lawyers’ bringing the law suits makes it worthwhile to find situation where suits may pay off.

What to do?

The fact that the hearings are concluded does not mean the ESOP community stops complaining about this proposal.

Please consider contacting your member of Congress, House and Senate, to protest along the lines of the suggested letter that is linked to this email bulletin. (To download a copy of the sample letter CLICK HERE.) If you have already written, and have heard nothing in return, consider a polite inquiry of how your letter was handled. If your letter resulted in a response, write again to say politely DOL is not budging from its proposal.

Bottom line — higher costs, perhaps prohibitive to ESOP creation and continued operation, is nonsensical coming from the Department of Labor, an agency that is supposedly trying to keep jobs in America, versus their being eliminated, or shipped overseas.  Our national ESOP policy is a proven engine for keeping good jobs, providing sizeable retirement benefits in nearly all instances, in high performing workplaces, right now, right here, in America.

Nice, respectful words from the DOL officials at the hearings do not alter the real world, potential impact of what they have proposed.  ESOP advocates should not sit by and let the DOL proposal become the law of the land.

Thanks for reading this bulletin.

J. Michael Keeling, CAE

President

The ESOP Association

Tuesday, February 01, 2011

The ESOP Association Submits Comments to the Department of Labor on the Proposed Regulation, “Definition of the Term Fiduciary”

As noted in an earlier post today, below is additional information about The ESOP Association’s comments submitted to the DOL along with links to the comments and letter to members of Congress.

 In our efforts to keep Association members apprised of developments regarding the Department of Labor’s (DOL) proposed regulation that would make valuators of ESOP stock fiduciaries of the ESOP trust, we wanted to alert members that The ESOP Association submitted comments to the Department of Labor’s Employee Benefits Security Administration (EBSA). The comments, which were prepared under the direction of the Association’s Advisory Committee on Legislative and Regulatory Issues with input from the Advisory Committee on Valuation, point out several reasons why this regulation would harm private company ESOPs.

Five main points of the comments:

1.) mandating any and all valuators of private company stock be fiduciaries will increase the cost of the valuation substantially;

2.) establishing more efficient, less economically burdensome ways to ensure valuations are done properly without reducing ESOP companies’ profits is doable;

3.) this regulation will create potential lack of trustee prudent actions if the valuator services provider has an equal fiduciary role as a trustee;

4.) it will confuse the law on trustee decisions; and

5.) it will create a big cost for ESOP companies arising from more private parties suing ESOP companies and their trustees in cases that currently Federal courts dismiss.

If you would like to read a copy of the comments submitted by The ESOP Association, please CLICK HERE.

It was also noted in the comments that the companies that will directly be impacted by this proposed regulation are mainly small businesses that on average have fewer than 500 employees and are not traded on the public stock exchange. Anywhere from 80% to 95% of the ESOPs created are because of an exiting shareholder of the private company that sold his or her stock an ESOP. These companies are proud of the ownership structures they have created, have healthy ESOP account balances, and over 78% of the companies also sponsor another benefit plan in addition to the ESOP. The DOL proposed regulation will harm companies that are providing local jobs and employee owners with significant retirement savings.

We ask that ESOP companies and valuation specialists write their elected officials and express their concerns and respectfully ask that his/her member of Congress consider expressing opposition and/or doubts about the DOL’s attack on private company ESOPs.

If you would like to download a sample letter to your member of Congress, please CLICK HERE.

Finally, we understand the DOL is working to ensure flim flam plans are uncovered and those responsible are held accountable, but all we ask is that DOL not seek the perfect at the expense of the good.

If you have questions about the DOL proposed regulation, please send an email to govrel@esopassociation.org.

Tuesday, February 01, 2011

The ESOP Association Submits Comments to the Department of Labor

We wanted to share the following press release which was sent out by The ESOP Association today. 

 A second post later this afternoon will contain links to the comments which are in the process of being posted to the Association’s website. 

 For Immediate Release: February 1, 2011

For More Information: Amy Gwiazdowski, 202/293-2971, amy@esopassociation.org

 The ESOP Association Submits Comments to the Department of Labor

 February 1, 2011 (Washington, DC) – The ESOP Association submitted comments to the Department of Labor’s Employee Benefits Security Administration (DOL EBSA) regarding the proposed regulation, “Definition of the Term Fiduciary.”

Noting that many privately-held businesses would be directly impacted by the proposed regulation which would make valuators of ESOP stock fiduciaries of the ESOP trust, the Association stated five reasons that should be considered in the EBSA’s deliberations of the proposed regulation: 1.) mandating any and all valuators of private company stock be fiduciaries will increase the cost of the valuation substantially; 2.) establishing more efficient, less economically burdensome ways to ensure valuations are done properly without reducing ESOP companies’ profits is doable; 3.) creating potential lack of trustee prudent actions if the valuator services provider has an equal fiduciary role as a trustee; 4.) confusing the law on trustee decisions; and 5.) creating a big cost for ESOP companies arising from more private parties suing ESOP companies and their trustees in cases that Federal courts currently dismiss.

“Nearly 91% of corporate members of The ESOP Association are small businesses that have fewer than 500 employees that are not traded on the public stock market. These ESOP companies have pride in their ownership structures and we feel these proposed changes are not in the best interest of average pay employees,” said ESOP Association President J. Michael Keeling. “This proposed regulation will weaken companies providing local jobs; companies that are overwhelmingly furnishing average pay employees with significant retirement savings. We believe the DOL is mistakenly seeking the perfect at the expense of the good.”

The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy.

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Tuesday, January 04, 2011

NCEO Submits Comments Regarding DOL Proposal

The Department of Labor’s (DOL) overreaching proposal to make ESOP appraisers fiduciaries is a topic we’ve discussed often the last few weeks. We wanted to bring to your attention comments submitted by the National Center for Employee Ownership (NCEO) on the proposal. This is the first time the NCEO, a 501(c)(3), has submitted comments in regard to a DOL proposal. The comments are public record and can be found here.

You can read all comments submitted here.

Information about the proposal can be found here.

In addition to filing comments with the DOL, the NCEO’s Corey Rosen also wrote a piece about the proposal that appeared in the December 14, 2010 issue of Pensions & Benefits Reporter which is published by the Bureau of National Affairs (BNA). The BNA does require an account to access articles online. If you have an account, you can find the article here.

As additional information about the DOL proposal becomes available, we will post it here.

Wednesday, December 22, 2010

DOL to Hold Public Hearing on Proposed Rule Mandating Valuators of Private ESOP Companies be Fiduciaries

The Department of Labor’s Employee Benefits Security Administration (DOL EBSA) announced in a press release today that it will hold a public hearing on March 1, 2011 in Washington, D.C. on the proposed rule regarding the definition of a fiduciary, which included mandating all valuators of private company ESOPs be fiduciaries to the ESOPs they valuate. You can find a copy of the proposed rule on the DOL’s website here.

According to the DOL’s press release, a formal notice regarding the hearing will be issued in January 2011. The DOL will not consider requests to testify in advance of the formal notice.

Also noted, the DOL will accept public comments until Feb. 3, 2011. This is two weeks after the close of the Jan. 20, 2011 comment period.

President of The ESOP Association, J. Michael Keeling, noted, “This announcement is positive news. We applaud EBSA’s decision to have an open discussion about its proposal that would impact 98% of the ESOPs in America. Now, we will be able to hear DOL’s concerns explained in full, and we ESOP advocates will be able to voice our thoughts in public.”

The press release is available on the DOL’s website here.

If you would like additional information about the rule and The ESOP Association’s position, please click here.

Additionally, information can be found on the blog here.

Monday, November 29, 2010

Why the Department of Labor’s Proposed Regulation Will Harm Private Company ESOPs Cont…

Background: The proposal reverses 34 years of DOL policy that valuators of ESOP stock are not ESOP fiduciaries.

(Note: this 34 year policy was developed under President Ford, a Republican; continued by DOL under Presidents Carter (Democrat), Reagan (Republican), Bush I (Republican), Clinton (Democrat), and Bush II (Republican). Why now the proposed attack on ESOPs?)

1. The proposal if finalized will significantly increase the costs of establishing and maintaining an ESOP, because valuators will have to purchase fiduciary insurance.

2. The proposal, if finalized, will hinder an ESOP company’s desire to acquire another company, or to expand, or to be acquired, as any person rendering a fairness opinion for an ESOP trustee will be a fiduciary, increasing the cost of the transaction.

3. Many valuation firms may drop their ESOP practice due to exposure to lawsuits, as many trial lawyers who now troll for lawsuits against ESOP public companies, will now have better monetary opportunities with lawsuits against private ESOP companies. (One impact of the proposal, if finalized, is one disgruntled employee can bring a lawsuit against the plan fiduciaries over the valuation.)  Less competition among valuation firms doing private ESOP company valuations also mean higher costs, and more hassles finding competent valuation firms.

4. If DOL has evidence, as it claims without data in preamble to proposed regulation, that many private company ESOP shares are wrongly valued, DOL currently has enforcement powers against current ESOP fiduciaries and trustee[s].

5. Finally, the DOL proposal, if finalized, would create a contradiction. Internal Revenue Code § 401(a)(28)(c) mandates the appraiser of private company ESOP stock be independent. If a valuator becomes a fiduciary to the ESOP, s/he per se would not independent!

The DOL proposal is not needed and its real purpose seems to be to hinder creation and operation of private company ESOPs in contradiction of P.L. 94-455, 90 Stat. 1520.

Also below is a link to a brief “talking points” paper on the potential negative impact of the DOL proposal, and a suggested letter to a member of Congress.

Coincidently, the view towards private company ESOPs by the current leadership of the DOL’s Employee Benefits Security Administration is not positive, and the ESOP community should not ignore this attempt to squeeze ESOPs so hard they diminish in number.

Click here to read entire proposal.

Click here for attachment P.L. 94-455, 90 Stat. 1520.   

Click here for suggested letter to your Senators and your members of Congress.  

Click here for talking points.   

If you have questions, please contact J. Michael Keeling at The ESOP Association — michael AT esopassociation.org or call 202/293-2971.

11/29/2010 UPDATE:To add another reason, which is obvious, and embarrassed not to have included this bullet point in the first communication about the Department of Labor’s (DOL) attack on ESOPs, see below:

  • Current law mandates that an appraiser of shares of a private company that are to be, or are, ESOP shares be independent (26 U.S. Code 401(a)(28)(c)). In If the DOL proposal to make all ESOP valuators (appraisers) fiduciaries to the ESOP, how could the valuator/appraisers be independent?

In sum, a strong case may be made that DOL’s proposed regulation not only violates current law P.L. 94-455, 90 Stat. 1520 but also 26 USC 401(a)(28)(c)!!

Click here to read the proposed regulation.

Click here to read P.L. 94-455, 90 Stat. 1520.

Click here to read 26 USC 401(a)(28)(c).

ESOP Bulletin – More Positive News on Stopping DOL’s Fiduciary Proposal

Today, the Chair of the House Committee on Appropriations’ Subcommittee on Labor, Health and Human Services, Education, and Related Services, Congressman Denny Rehberg [R-MT], introduced an appropriations bill for the Department of Labor for the Fiscal Year 2012, among other Federal agencies, which contains the following provision:

“Section 109.  None of the funds made available by this Act may be used to promulgate or implement a final rule amending…the definition of the term ‘fiduciary’…including the proposed rulemaking published by the…Department of Labor on October 22, 2010…”

The reference is to the proposed rule that The ESOP Association and its members have been protesting since last year because it would have mandated that all appraisers of private company ESOP stock be ERISA fiduciaries.

The www.esopassociationblog.org has set forth in many instances why the DOL proposal would have been a bad blow to ESOP creation and operation.

Introduction of this bill does not mean — go here for information on the bill; a formal bill number will be released on September 30, 2011 — the DOL proposal will go away, because a proposed bill is not necessarily going to be on the President’s desk for signing into law.

But we thank Congressman Rehberg for standing up against the DOL.  We know his proposal was motivated by concerns over the proposed rule’s impact on k plans and IRAs as well as ESOPs.  But his action, just as Senator Kelly Ayotte’s [R-NH] introduction of S. 1232 in June of this year, is a strong signal to DOL and its officials that they, when re-proposing the October 22, 2010 regulation, should not come close to what was in the original proposal.  In fact, Congressman Rehberg’s proposal in this Appropriations bill for FY 2012 DOL spending is a pretty strong signal to DOL to just walk away from its original proposal 100%.

The ESOP Association will keep you posted on this legislation, and other efforts to stop the DOL 2010 proposal mandating that appraisers of private ESOP company stock be ERISA fiduciaries with bulletins, and postings on its blog, Facebook page, and LinkedIn group.

Contact govrelATesopassociation.org if you have questions.

Monday, September 19, 2011

DOL Backs Off Proposed Fiduciary Regulation; To Issue New Version in Early 2012

BUT, Game Not Over!

Since late October 2010, The ESOP Association, and the ESOP community, has protested vigorously against the Department of Labor’s (DOL) proposed regulation to make all appraisers of private ESOP company stock ERISA fiduciaries. Today, the DOL issued a press release announcing that it would issue a new version of the regulation revising the definition of ERISA fiduciaries in January 2012, and begin the comment period, in essence, all over again.

This news is a good trend line for pro-ESOP voices. On October 22, 2010, to use an analogy, when the “game” started, the ESOP community was already down two touchdowns. Today, we can say we’re at half time, and we’re tied going into the locker room.

But, there is still plenty of play in the months leading up to 2012 and beyond. For example, the DOL press release hints at leaving in the provision making ESOP appraisers ERISA fiduciaries when they value stock being acquired by a private company. Read the release here.

Such an outcome would dry up ESOP transactions in our view, and soon the number of ESOPs would dwindle, our voice in DC would be weaker, and ESOP benefits would be devastated.

So, do not back off; continue to bring concerns about this proposed regulation to the attention of members of Congress.

Clearly our message will be precise when the new proposed regulation is issued in early 2012. We will post suggested messages — for letter, telephone call, or if you have email green light from a staff member of your Senators and Congress person’s offices, for an email — on our website, blog, and social media sites, as well as in our Advocacy and Congressional Visit Kits.

PS: Just a note of some pride from this corner. The DOL press release cites the Department’s desire to comply with a White House directive issued in January 2011. The ESOP Association, to our knowledge, was the first to develop a point by point analysis why the October 22, 2010, DOL proposed regulation did not conform to the President’s Executive Order, in a communication to the Office of Management and Budget. Click here to read our June 6, 2011 post – Is the DOL Ignoring the Obama Administration?

Wednesday, September 14, 2011

Indiana Freshman Congressman Speaks Out for ESOPs, Strongly

Congressman Rokita (R-IN) Drills Deep on Labor Department’s Lack of Data Supporting Proposed Appraiser/Fiduciary Rule

On July 26, 2011, the House Committee on Education and the Workforce’s Subcommittee on Health, Employment, Labor, and Pensions (HELP) held an oversight hearing on the Department of Labor’s (DOL) proposed regulation to mandate that all appraisers of private ESOP company stock be ERISA fiduciaries.

Both Republican and Democratic members asked sharp questions, ranging from concerns about the impact on IRAs and 401(k) plans to ESOPs in private companies.

But without question, the inquiries about the proposal that hit home for the ESOP community were from freshman Indiana Congressman Todd Rokita (4th District).  His questions stemmed from his disappointment to a letter he received from Secretary of Labor Hilda Solis.  In May 2011, he asked for the Department to be more specific as to the extent of “bad” appraisals of ESOP companies.  He pointed out that up to the time of his writing, all the Department had said in justifying its position was, “Many ESOP appraisals were wrong.”  In short, he was asking how “many” is “many.”

Later in May, Secretary Solis answered his inquiry citing six law suits involving “bad” valuations as evidence that the proposed regulation was justified.  One case dated from the early 90s involving a Mafia family and real estate.  Two other cases were from the mid-90s.  Only one was a recent case.

On July 26, Congressman Rokita was persistent in asking the Assistant Secretary of Labor, Phyllis Borzi, whose sub-department of the DOL, the Employee Security Benefits Administration (EBSA), issued the proposed regulation, to quantify the problem.  He pointed out that six cases over nearly 20 years was not evidence of “many.”  Additionally, he pointed out that probably since 1990 most likely 100,000 ESOP appraisals had been done, and the best EBSA could do was cite six?

ESOP advocates have in testimony, in letters, and verbally, expressed many problems with the DOL proposal; and several members of the HELP Committee, such as Representatives Roby (R-AL), Loebsack (D-IA), and Tierney (D-MA) raised questions critical of the DOL proposal.

But perhaps most frustrating is the charge that the ESOP world is full of flimflammers, shysters, and enablers of bad valuations that do not benefit employee owners.  Congressman Rokita put his finger on the shallowness of this claim by the Department.

Friday, September 02, 2011

The ESOP Project

A few of you out there may have heard of the Department of Labor (DOL) ESOP Project. If you’re an ESOP Report reader, you’ll note it was briefly mentioned in the Advisory Committee on Valuation column in the August 2011 issue. (You can find the ESOP Report online in the members only section of the Association’s website.)

We bring it up here because of an article in the August 18, 2011 Daily Tax Report titled, “Failure to Offset Mutual Fund Fees Tops List of Provider Errors, Official Says.” The article in a general wrap-up of retirement plan topics and one happens to be the DOL’s ESOP Project.

Article re-cap: The most common problems with ESOPs, according to Jeffrey A. Monhart, acting director of the Office of Enforcement in DOL’s Employee Benefits Security Administration (EBSA), are unrealistic growth projections and improper discount rates. It also mentioned improper ESOP loan transactions relying on acceleration clauses that are not allowed under DOL rules as another problem. Another problem noted is failure to provide diversification when participants reach 55 with 10 years of service.

These comments expose the “hidden” intent of DOL’s proposal making an ESOP appraiser an ERISA fiduciary. It sets forth that DOL officials do not accept professional judgments of qualified appraisers with regard to discounts and economic projections. The truth is valuing a non-marketable asset will never be precise, and clearly all qualified appraisers have legitimate disagreements over discounts and economic projections. Supposedly in a recent DOL audit, in a position reported to the Association, the DOL thinks failure to predict the Great Recession resulted in a violation of ERISA. DOL’s EBSA team seems to be saying, “We have the final correct answers on all ESOP appraisals. If our views are not followed, there is an ERISA violation.”

The ESOP community has to keep opposing the proposed regulation.

Friday, August 12, 2011

Wall Street Journal Editorial Questions DOL Proposed Fiduciary Regulation

The Friday, August 12, 2011 edition of The Wall Street Journal ran an editorial titled, “The Borzi Savings Bomb,” questioning the Department of Labor’s (DOL) proposed rule on the definition of a fiduciary including making all appraisers of private ESOP companies ERISA fiduciaries.

If you haven’t seen it, the major thrust of the editorial is that the DOL hasn’t justified the need for the regulation.

We’ve said from the beginning:

DOL’s proposal to mandate all appraisers of private ESOP company’s shares are ERISA fiduciaries is NOT just to police rogue, fly by night, unqualified persons performing ESOP appraisals.

We’ve asked for proof and received none. Congressman Todd Rokita (R-IN) has asked for proof and received noneThe Wall Street Journal has asked for proof and received none.

To propose a regulation that will have major consequences for the entire retirement industry — and especially the ESOP community — without proof the rule is needed is, well, we’ve never been able to wrap our heads around the DOL’s thought process. And it seems we aren’t the only ones.

You can read the full editorial on the House Education and the Workforce Committee website.

The editorial on The Wall Street Journal website is here.  You will need a Journal account to read it online.

The editorial refers to a recent House Education and the Workforce Committee hearing held on July 26th where several members of Congress strongly questioned the value of and need for the proposed regulation. You can find additional information about the hearing here.  You can find our thoughts on the outcome here.

Wednesday, August 10, 2011

Letters to the Department of Labor

During this year’s Annual Conference in Washington, D.C., many ESOP Association members paid visits to Capital Hill to meet with their members of Congress to discuss ESOPs and employee ownership. Among the numerous discussions that took place, the Department of Labor’s (DOL) proposed regulation to make appraisers fiduciaries was also on the agenda. Several members of Congress including: Senator Susan M. Collins (R-ME); Senator Scott P. Brown, (R-MA); Senator Kelly Ayotte (R-NH); Congressman David Loebsack (D-IA); Congressman Leonard Boswell (D-IA); Congressman Bruce Braley (D-IA); Congressman Todd Rokita (R-IN); Congressman Todd Young (R-IN); Congressman Brett Guthrie (R-KY); Congressman Larry Bucshon (R-IN); Congressman David McKinley (R-WV); and Congressman Alan Nunnelee (R-MS) have written to the U.S. Secretary of Labor, Hilda L. Solis, in regard to the proposed regulation. Many, if not all, of these letters came out of meetings with ESOP company representatives.

We want to thank members in New England and Iowa that made these letters happen. By taking the time to meet with members and explain how this proposed rule will affect small businesses directly they have garnered the attention of their representatives who have taken action on their behalf. As we have stated in prior emails and blog posts, the DOL seems set on its position in regard to valuation firms. We need to have more ESOP companies step up and ask their members of Congress to protest and question the proposed regulation to the DOL. See the blog on August Recess – Time to Setup a Meeting with Your Member of Congress.

Additionally, if you have received a reply from your members of Congress in regard to a letter to the DOL, please let us know. This list above is far from complete and we know many companies have been working with their members of Congress on this issue. If you would like information on how to ask your member of Congress to send a letter to the DOL, please visit the Association’s website for additional information.

Thursday, July 28, 2011

Congressional Hearing Thoughts on DOL Proposed Regulation

The following is a legislative bulletin which was sent to all members of The ESOP Association recently. In our efforts to keep everyone informed, we are sharing the bulletin here on the blog.

 Congressional Hearing Confirms DOL Proposal to Make Appraisers of ESOP Stock is Not to Stop “Rogue,” “Fly by Night,” Unqualified Appraisers, but Mainstream ESOP Appraisers, One of Whom Probably Appraises Your ESOP Stock!

 On July 26, Assistant Secretary Phyllis Borzi, head of the Department of Labor’s Employee Security Benefits Administration (EBSA), during testimony to the Subcommittee on Health, Employment, Labor, and Pensions of the House Education and Workforce Committee confirmed what The ESOP Association has said from the day the proposed regulation was published:

DOL’s proposal to mandate all appraisers of private ESOP company’s shares are ERISA fiduciaries is NOT just to police rogue, fly by night, unqualified persons performing ESOP appraisals.

During her testimony, in response to a question, Secretary Borzi made clear that she and her agency had found that prominent ESOP appraisers are often using “wrong methodologies” when appraising ESOP stock.

MESSAGE: If the DOL proposal mandating that all ESOP private company appraisers be ERISA fiduciaries as proposed, not only will your company pay more for an appraisal, the chances are high that a DOL audit will deem your ESOP share value to be a violation of ERISA, or such a claim will be made by plaintiff lawyers.

The ESOP community must continue its protests to members of Congress about this DOL proposed regulation.

If your Representative or Senators have already protested, thank her or him again; and ask if they have heard anything from DOL indicating a willingness to alter the proposed regulation. If Senators, ask that they consider cosponsoring the Ayotte et al bill, S. 1232, stopping the DOL regulation in its tracks.

If you have no evidence that your Representative or Senators have contacted the DOL, and you have contacted their offices already, call and ask if you can expect a response. [Dial 202.224.3121, and ask the operator to connect you to the member’s office.]

If you have not yet contacted your Representative or Senators, please considering doing so. Click here for suggested letter that can also be used as a phone script.

Remember: it is your ESOP in the line of fire. Not some weird ESOP outlier company!!!

Wednesday, July 27, 2011

Part IV – To Everyone Who Cares About ESOPs…

PART IV

To Everyone Who Cares About ESOPs…

 A recent article written by Nina Wasow, an associate attorney with Lewis, Feinberg, Lee, Renaker & Jackson in Oakland, CA which appeared in a July 12, 2011 issue of Pensions & Benefits Reporter, spells outthe truth about how the DOL proposal to make private ESOP company appraisers ERISA fiduciaries will harm private ESOP companies.

The author unexplainably creates several myths and in a series of blog posts over the next few days, we’ll be examining each. Today:

  • Myth number four: ESOPs are big business.

Citing NCEO data selectively, the author ignores that 99% of ESOPs are closely held, private businesses, and that probably 90% plus have fewer than 500 employees, thus meeting the definition of small businesses.

It would be a shame if a proposal that hurts one of the best job policies in America is sacrificed to satisfy the desire of some plaintiff law firms to be able to sue more ESOP companies.

You can read the outrageous article by going to BNA’s Pensions and Benefits website.   All BNA material is copyrighted and you will have to login and pay to obtain the article.  An ERISA law firm probably has a subscription to Pension & Benefits Reporter, and you can ask for your lawyers to share on a client-attorney basis, or summarize the article for you.  The article is in the July 12, 2011 issue, pages 1308 to 1311.


Share your concerns about this article that is circulating on the Hill with staffers who handle ERISA issues with your members of Congress.


Comments? Let’s hear them!

Tuesday, July 26, 2011

Part III – To Everyone Who Cares About ESOPs…

PART III

To Everyone Who Cares About ESOPs…

         A recent article written by Nina Wasow, an associate attorney with Lewis, Feinberg, Lee, Renaker & Jackson in Oakland, CA which appeared in a July 12, 2011 issue of Pensions & Benefits Reporter, spells out the truth about how the DOL proposal to make private ESOP company appraisers ERISA fiduciaries will harm private ESOP companies.

The author unexplainably creates several myths and in a series of blog posts over the next few days, we’ll be examining each. Today:

  • Myth number three: Appraisers can be ERISA fiduciaries and still be independent.

No one, but officials at DOL, think appraisers can be ERISA fiduciaries and still be independent, in conflict with law, and appraisal standards set by the Congressionally sanctioned Appraiser Standards Board [see blog post here].

[In making the claim that appraisers can be independent and be ERISA fiduciaries, the author makes a snarky reference in a footnote to a comment from Dave Fitz-Gerald, an employee owner of ESOP Association member, Carris Reels in Proctor, VT.  Guess the author could not fathom that a real live ESOP company executive might be protesting.  Dave is President of the Association’s New England Chapter and a member of the Executive Committee of the State and Regional Chapter Council.]

You can read the outrageous article by going to BNA’s Pensions and Benefits website.   All BNA material is copyrighted and you will have to login and pay to obtain the article.  An ERISA law firm probably has a subscription to Pension & Benefits Reporter, and you can ask for your lawyers to share on a client-attorney basis, or summarize the article for you.  The article is in the July 12, 2011 issue, pages 1308 to 1311.

Share your concerns about this article that is circulating on the Hill with staffers who handle ERISA issues with your members of Congress.

Comments? Let’s hear them!

Monday, July 25, 2011

Part II – To Everyone Who Cares About ESOPs…

PART II

To Everyone Who Cares About ESOPs…

         A recent article written by Nina Wasow, an associate attorney with Lewis, Feinberg, Lee, Renaker & Jackson in Oakland, CA which appeared in a July 12, 2011 issue of Pensions & Benefits Reporter, spells outthe truth about how the DOL proposal to make private ESOP company appraisers ERISA fiduciaries will harm private ESOP companies.

The author unexplainably creates several myths and in a series of blog posts over the next few days, we’ll be examining each. Today:

  • Myth number two: There are many, many flim flam appraisals that will be stopped if the DOL proposal is adopted, and the bad actors will stop cheating employees out of their retirement funds.

          The author, which is active in suing ESOP companies — just won a “whopping” $2 million lawsuit against an ESOP company in Arkansas and will split its proceeds with two other firms — blasts The ESOP Association for saying to DOL, “Where is the scandal?” by citing seven lawsuits since 1993 that found the valuation of ESOP shares to be woefully wrong.  Let’s see, since 1993 there have probably been around 25,000 appraisals of private company ESOP stock, meaning that the author’s cites have a flim flam in 3/100th of the appraisals.  What a scandal!  There have been many more malpractice cases against trial lawyers since 1993 than against private ESOP companies.

As side note, the author notes several cases in making her point that this proposed regulation would be in line with current case law and cites seven (Yes, a total of SEVEN cases!); two she cites twice. You would think if this problem of bad valuations was so wide spread, more than seven cases would be used as examples or at least cite a general number to provide a larger scope of the problem.

          It seems that the plaintiffs’ lawyers have finally heard what The ESOP Association has been saying from day one about the proposal — it will give the plaintiffs’ firms more business.  Isn’t it odd that the author acts like the desire is to give DOL more enforcement power to lower the number of bad ESOPs when if that were true the law firms would have fewer lawsuits to bring.  I doubt the law firms hustling to sue ESOP companies really want to eliminate their business opportunities.  We think that they doth protest too much.

You can read the outrageous article by going to BNA’s Pensions and Benefits website.   All BNA material is copyrighted and you will have to login and pay to obtain the article.  An ERISA law firm probably has a subscription to Pension & Benefits Reporter, and you can ask for your lawyers to share on a client-attorney basis, or summarize the article for you.  The article is in the July 12, 2011 issue, pages 1308 to 1311.

Share your concerns about this article that is circulating on the Hill with staffers who handle ERISA issues with your members of Congress.

Comments? Let’s hear them!

Friday, July 22, 2011

Part I – To Everyone Who Cares About ESOPs…

PART I

To Everyone Who Cares About ESOPs…

         A recent article written by Nina Wasow, an associate attorney with Lewis, Feinberg, Lee, Renaker & Jackson in Oakland, CA which appeared in a July 12, 2011 issue of Pensions & Benefits Reporter, spells outthe truth about how the DOL proposal to make private ESOP company appraisers ERISA fiduciaries will harm private ESOP companies.

The author unexplainably creates several myths and in a series of blog posts over the next few days, we’ll be examining each. Today:

  • Myth number one: Protests against DOL’s proposal are the result of the powerful, inside the beltway ESOP lobbying machine compared to the author’s pure desire to help employees.

Give me a break! The powerful ESOP lobbying machine compared to the trial lawyers — note ESOP PAC contributes about $140,000 in a two year election cycle to its true friends on the Hill, while the author’s association, and big law firms contributed $234 million in the last election cycle according to public records obtained by the Center for Responsive Politics.

I have trouble shedding crocodile tears for the poor trial lawyers fighting to save employees from evil ESOP advocates when the trial lawyers probably have more influence with their big donations to Federal office holders than any group in America.

You can read the outrageous article by going to BNA’s Pensions and Benefits website.   All BNA material is copyrighted and you will have to login and pay to obtain the article.  An ERISA law firm probably has a subscription to Pension & Benefits Reporter, and you can ask for your lawyers to share on a client-attorney basis, or summarize the article for you.  The article is in the July 12, 2011 issue, pages 1308 to 1311.

Share your concerns about this article that is circulating on the Hill with staffers who handle ERISA issues with your members of Congress.

Comments? Let’s hear them!

Wednesday, July 06, 2011

DOL Problem: Is Bad Getting Worse?

This article ran as the Washington Report column in the June 2011 issue of the ESOP Report, the newsletter of The ESOP Association.

 Maybe this column will sound like a little “fussin,’” but some ESOP advocates still think what the Department of Labor (DOL) is doing with its proposed regulation making all ESOP appraisers fiduciaries is a minor problem that will be handled once the regulation is finalized. It is not a minor problem, and the seeming agenda that the current DOL agency called the Employee Benefits Security Administration (EBSA) has for ESOPs grows darker. At the same time, this agency and its leadership seems to continue to hide what its goals are for its new “attitude” towards ESOPs.

Let’s start with what everyone seems to know: the proposed regulation states that all ESOP appraisers be ERISA fiduciaries. The formal justification set forth by DOL officials, including the Secretary of Labor, is that EBSA had this special task force reviewing ESOP transactions and found that “many” ESOPs were overvalued, and it was the most “common” problem with private company ESOPs. These statements about private company ESOPs have been repeated over and over by DOL officials in the form letters to members of Congress and in interviews with media, and at seminars of ERISA service providers.

We have also seen on several occasions DOL officials say, on the record, that while they are pondering alterations to the proposed regulation’s impact on 401(k) plans and IRAs, the proposed regulation on ESOP appraisers is set, with no changes anticipated.

Both, the citation that there is some kind of nationwide scandal involving private company ESOPs, and that no changes will be made in the proposal’s impact on ESOPs, gave rise to the ESOP community wanting to have the details so the community could assist DOL in proper enforcement. Also to have the regulation be more in sync with what other Federal agencies do to ensure appraisals of non-marketable properties are in accord with professional appraisal standards. So the ESOP community made suggestions for enforcement enhancement, and continued to ask what the definition of “many” is — 5%, 10%, 20%, 50%, etc? DOL has never responded to the offer to cooperate, or to define “many.”

But a letter to a freshman Congressman from Indiana, Todd Rokita (R-IN), from Secretary of Labor Hilda Solis, that was of course written in the office of the Assistant Secretary of Labor for EBSA, gave a hint as to the true agenda of DOL. The letter justified the proposed regulation by citing cases where appraisals were made using valuation theories that candidly are debated among qualified professional appraisers, and under ERISA law can be argued both ways. The letter in several instances cited as an overvaluation an appraisal that took a position on share value in one of these gray areas, that experts debate, that resulted in a higher share value. The letter thus implies that unless the appraiser always gives the lowest value it violates ERISA.

But this letter to Congressman Rokita is not the only piece of evidence of what is the intent of DOL in its campaign against ESOP appraisals. The ESOP Association is hearing report after report that appraisal approaches that have been blessed in DOL and IRS audits of ESOPs for the past 35 years are now being labeled as overvaluation that result in the ESOP being labeled a prohibited transaction. Reports are coming in that a DOL auditor will leave a room to call Washington D.C. DOL offices to learn what the “correct” value should be. In every instance, the D.C. office responds the correct value is always the lower value. In many instances, the ESOP company had an independent outside trustee, and used a very well known appraisal firm with years of ESOP appraisal experience.

Bottom line: If the ESOP community does not stand with people in Congress, such as Senators Ayotte, Snowe, Brown, Collins, and Landrieu who know what the ESOP means in keeping locally controlled jobs that provide good benefits in their states, the ESOP community will be deemed as weak, the number of ESOPs will shrink, and candidly, preserving ESOP tax benefits will be unlikely. The ESOP community cannot afford to abandon its Congressional allies, as it cannot afford to have fewer ESOPs, and thus a smaller voice in the days ahead.

Monday, June 27, 2011

DOL’s Claim that an Appraiser can be an ERISA Fiduciary and still be Independent

At the Department of Labor’s (DOL) public hearings on the anti-ESOP proposal that appraisers of private company ESOP stock automatically be ERISA fiduciaries, DOL top EBSA (Employee Benefits Security Administration) officials scoffed at claims from private sector witnesses that an appraiser could not be independent, and at the same time, be an ERISA fiduciary. Phrases like, “I just don’t get it” were thrown out by DOL leaders at the hearing when this seeming contradiction of being independent and being an ERISA fiduciary was raised.

Well, maybe it’s time for ESOP advocates to say back to the DOL, “We just don’t get it” when “You just don’t get it.”

Congress authorized the Appraisal Standards Board in 1989 as the source of appraisal standards. On June 15, 2011, the Chair of the Appraisal Standards Board wrote to the DOL EBSA saying that there was no way an appraiser could be independent and also be a fiduciary. CLICK HERE to read the letter.

But noted in our blog post – Is the DOL Ignoring the Obama Administration? - the EBSA does not seem to care what the White House and OMB have ordered in terms of promulgating regulations.  It is no surprise that ESBA doesn’t really care what a Congressionally authorized group to set appraisal standards thinks either. Guess EBSA top leaders just “don’t get” what the White House and the Appraisal Standards Board say.

If you are dialoguing with your member of Congress about the DOL attack on ESOPs, here is another piece of evidence that what DOL is proposing has no support in rational reading of law, Executive Order, or in current appraiser standards.

Wednesday, June 22, 2011

Senator Kelly Ayotte Introduces Pro-ESOP Bill, S. 1232

We wanted to share the following press release which was sent out by The ESOP Association.

 For Immediate Release: June 21, 2011

For More Information: Amy Gwiazdowski, amy AT esopassociation.org

 Senator Kelly Ayotte Introduces Pro-ESOP Bill, S. 1232

The bill would modify the definition of fiduciary under the Employee Retirement Income Security Act of 1974 to exclude appraisers of employee stock ownership plans.

June 21, 2011 (Washington, DC) – Senator Kelly Ayotte (R-NH) introduced today S. 1232, a bill to modify the definition of fiduciary under the Employee Retirement Income Security Act of 1974 to exclude appraisers of employee stock ownership plans. The bill is co-sponsored by Senators Olympia Snowe (R-ME), Susan Collins (R-ME), Scott Brown (R-MA), and Mary Landrieu (D-LA).

This bill is a response to the Department of Labor’s (DOL) proposed anti-ESOP regulation mandating all private ESOP company appraisers be ERISA fiduciaries. If the proposed regulation were to be finalized as is, there would be extreme confusion over whether the appraiser or the trustee[s] and other current fiduciaries make the decisions about acquisition of shares, and most troubling, would leave private ESOP companies open to lawsuits.

“We’re very pleased to see Senator Ayotte take the lead on this issue,” said ESOP Association President, J. Michael Keeling. “The DOL needs to wake up to the fact that private company ESOPs have tremendous positive records of creating jobs that are locally controlled in high performing companies. ESOPs are good for employees, companies, and our communities.”

The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy.

 ###

Tuesday, June 21, 2011

ESOP Legislative Bulletin – Senator Kelly Ayotte Introduces Pro-ESOP Bill S. 1232

The following information was sent to ESOP Association members this morning.  We also wanted to share with readers here.

Senator Kelly Ayotte’s Floor Amendment #467 Becomes S. 1232 — A bill to modify the definition of fiduciary under the Employee Retirement Income Security Act of 1974 to exclude appraisers of employee stock ownership plans. 

Urge Your Senators to Co-Sponsor!

Because the underlying bill pending on the Senate floor, S. 782 to reauthorize the Public Works and Economic Development Act of 1965, has bogged down and is not likely to be adopted, Senator Kelly Ayotte, and her colleagues Senators Olympia Snowe (R-ME), Susan Collins (R-ME), Scott Brown (R-MA), and Mary Landrieu (D-LA), decided a more effective pathway to stop DOL’s proposed anti-ESOP regulation mandating all private ESOP company appraisers be ERISA fiduciaries, was to take S. AMDT 467 word for word and introduce it as a free standing legislative proposal. It is now S. 1232.

Please consider, and then ask your Senators to co-Sponsor S. 1232. Call 202/224-3121 and ask for your Senators’ offices. Ask to speak to the aid responsible for following tax, labor, or retirement savings law and follow-up with a suggested letter.

CLICK HERE for a suggested letter.

If you would like information on the DOL’s proposed regulation, CLICK HERE.

Go to http://www.senate.gov for information on contacting your Senators’ offices.

Contact govrel@esopassociation.org with any questions.

If you live in New Hampshire, Maine, Massachusetts, or Louisiana, say thank you to these Senators who are standing up for ESOPs.

Tuesday, June 14, 2011

Pending Amendment in Senate to Stop Department of Labor’s (DOL) Regulatory Attack on ESOPs

The following legislative alert was sent out by The ESOP Association this afternoon. We wanted to share it with readers here.  Information will also be made available on The ESOP Association’s website.

 Legislative Alert

ESOP Bulletin

Pending Amendment in Senate to Stop Department of Labor’s (DOL) Regulatory Attack on ESOPs

CONTACT YOUR SENATORS AND URGE THEM TO BE “FOR” THE PRO-ESOP POSITION

Senator Kelly Ayotte (R) of New Hampshire has proposed an amendment to S. 782 that would amend ERISA to make clear that appraisers of private company ESOP stock are not ERISA fiduciaries.  She is joined by Senators Olympia Snowe (R) of Maine and Scott Brown of Massachusetts (R).

Their amendment would stop the DOL proposed regulation mandating all private company ESOP appraisers be ERISA fiduciaries.  Briefly, if DOL has its way, all private ESOP companies would pay significantly higher fees for appraisals, there would be extreme confusion over whether the appraiser or the trustee[s] and other current fiduciaries make the decisions about acquisition of shares, and most troubling, would leave private ESOP companies sitting ducks anytime aggressive trial lawyers could find anyone upset over a share value determination.  [See The ESOP Association website, and the 12 blog posts, about the harm the DOL proposal will do to the ESOP community if finalized.]

To read the amendment, CLICK HERE.

Please call your Senators’ offices, or call and get permission to send an email to the appropriate staff person who works on tax, labor, or retirement savings issues for the Senator, and urge them to be for S. AMDT 467 to S. 782 to reauthorize the Public Works and Economic Development Act of 1965.

Your message is: “I am ______ of (name of company) in (location) and I urge Senator _____ to be for Senator Ayotte’s amendment number 467 to S. 782 to stop a very negative ESOP position being proposed by the Department of Labor.” Call 202/224-3121 and ask for your Senators’ offices.

If you live in New Hampshire, Maine, or Massachusetts, call the offices of Senators Ayotte, Snowe, and Brown and say, “Thank you, thank you!”

If needed, go to http://www.esopassociation.org/docs/255%20-%20DOL%20Proposal.doc to learn more about the DOL’s proposed regulation.

If you want direct numbers for your Senators’ offices, go the U.S. Senate, http://www.senate.gov, and click “Find Your Senator” in the upper right hand corner. The U.S. Senate website lists all Senators’ office numbers.

No matter the final handling of the Ayotte amendment, it is extremely important that Senators hear the voice of the ESOP community, and that they are then more committed to making sure the current negative attitude towards ESOPs at DOL is dampened, if not silenced.

Monday, June 06, 2011

Is the DOL Ignoring the Obama Administration?

The Administration is making a big deal over its Executive Order (EO 13563) that supposedly guides Executive Branch agencies to only issue regulations, or to at least use a process in developing regulations, that does not impose harsh burdens on business — especially small businesses.  Below is letter that sets forth what we at The ESOP Association consider to be the facts that Department of Labor (DOL), in preparing and issuing the proposed regulation that ESOP appraisers be ERISA fiduciaries, ignored the Executive Order from the White House about how to develop and issue regulations.

We think it’s persuasive to show members of Congress that DOL is thumbing its nose at business, and particularly small businesses, in spite of what is being said by the Administration that it is “business” friendly.

Please feel free to use the information in the letter below in communications with your members of Congress. Thoughts and comments are welcome.

______

May 23, 2011

Mr. Cass R. Sunstein

Administrator

Office of Information and Regulatory Affairs

Executive Office of the President

Office of Management and Budget

Washington, DC 20503

RE: Department of Labor Ignores Executive Order 13563

Dear Administrator Sunstein:

On behalf of the approximately 2,500 members of The ESOP Association, I write setting forth some of the points made in your February 2, 2011, memorandum to the Heads of Executive Department and Agencies, explaining Executive Order 13563 (EO 13563), “Improving Regulations and Regulatory Review.” I do so to contrast its purposes and directions to Executive Agencies to the approach the Department of Labor (DOL) took in proposing a rule to expand the definition of the term “fiduciary” to include appraisers of the stock held in employee stock ownership plans (ESOPs) sponsored by U.S. corporations that are not publicly-traded (referred to as “private” companies, or private ESOP companies.) See 75 Fed Reg. 65263 (Oct. 22, 2010) (referred to as proposed DOL regulation.)

This communication does not repeat the policy critique The ESOP Association has made on the proposed DOL regulation, but to note to you and your colleagues in the Executive Office of the President the obvious inconsistencies of certain provisions of EO 13563 and the process DOL followed in issuing the proposed DOL regulation.

 Section 1: Cost Analysis Guidelines

             Your February 2nd memorandum reiterates five principles from an earlier Executive Order 12866 in Section 1 of EO 13563 that agencies “use the best available techniques to quantify anticipated present costs as accurately as possible.”

The proposed DOL regulation preamble states the “best” cost analysis as to costs the proposed DOL regulation will impose on private ESOP companies, is based on the assumption professional appraisers charged an average $119 per hour for their work in the past.

$119 per hour is a ridiculous number to use. Any cost analysis based on $119 per hour is not accurate. 98% to 99% of U.S. corporations sponsoring ESOPs are private companies, approximately 92% of these private companies have fewer than 500 employees, and just over 50% have fewer than 100 employees.   Thus the majority of U.S. corporations impacted by the proposed DOL regulation with regard to their appraisers becoming ERISA fiduciaries are small businesses, and the costs they will bear if their appraisers are fiduciaries is way more than additional work by appraisers at $119 per hour. While one may submit that the drafters of the proposed DOL regulation were using the $119 per hour rate as an example of the rate years ago, the mere fact DOL did not seek to obtain a more realistic per hour rate to cite is a flaunting of EO 12866 and EO 13563.

 Section 2: Seek Input Before Regulation Proposed

              Section 2 of EO 13563 “directs agencies, where feasible and appropriate, to seek the views of those who are likely to be affected by rulemaking, even before issuing a notice of proposed rulemaking.” (Underline and italics added for emphasis.)

Private ESOP companies, individually, and in ad hoc groups, and through trade associations, in addition to The ESOP Association, and through individual member organizations of service providers to private ESOP companies, are all well known to DOL personnel in its Employee Benefits Security Administration (EBSA), dating back to the late 70s.

The proposal to mandate private company ESOP appraisers be ERISA fiduciaries was never, ever, discussed by anyone at DOL with any party in the ESOP community.

 Section 3: Urges and Instructs Agencies to Co-ordinate

             Section 3 of EO 13563 urges Executive Branch agencies to have more “co-ordination across agencies” to produce simplification and harmonization of rules.

In the matter of appraisers valuating shares of private ESOP companies, the IRS has a major responsibility to ensure Internal Revenue Code Section 401(a)(28)(C), which mandates an annual valuation of non-traded company stock in an ESOP be independently valued, or whenever circumstances might have a significant impact on ESOP share value, is adhered to by private ESOP companies. Because the IRS has for many years policed the accuracy of hard to value assets in areas of estate tax, charitable contributions, and ESOPs, the agency has several approaches to ensure appraisals are professionally done, and as accurate as possible.

Section 3 of EO 13563 instructs (note EO 13563 does not “ask,” “encourage,” recommend,” but instructs) agencies (1) to consider the combined effects their regulations… on particular sectors… and (2) to promote coordination across agencies and harmonization of regulatory requirements. Section 3, thus emphasizes the crucial importance of simplifying and harmonizing regulations and acknowledges that, at times, regulated entities might be subject to requirements that, even if individually justified, may have cumulative effects imposing undue, unduly complex, or inconsistent burdens. Section 3 is designed to reduce burdens, redundancy, and conflict, and at the same time to promote predictability, certainty, and innovation.

While no one disputes DOL’s primary role in determining who is an ERISA fiduciary and its primary role in enforcing ERISA’s requirement that a private ESOP company acquire company stock only for fair-market value as determined by an appraiser, common sense says that DOL should follow EO 13563 Section 3’s instructions, and confer with IRS/Treasury officials who have expansive experience with making sure IRC Section 401(a)(28)(C) is complied with by private ESOP companies when their stock is appraised.

There is no evidence DOL personnel have discussed, even briefly, its proposed regulation making appraisers of private ESOP company stock with appropriate IRS/Treasury personnel before drafting and proposing appraisers of private ESOP company stock be ERISA fiduciaries. (Underline added for emphasis.)

The ESOP community has frequent communications with IRS/Treasury personnel.

 Section 4: Admonishes Agencies to Seek Goals in Least Burdensome Manner

             Section 4 of EO 13563 states that “each agency shall identify and consider regulatory approaches that reduce burdens and maintain flexibility and freedom of choice… Such approaches include “warnings, appropriate default rules, and disclosure requirements…”

Section 4 acknowledges the importance of considering flexible approaches and alterations to mandate… EO 13563 directs agencies to consider the use of tools to promote regulatory goals through actions that are less expensive…

The DOL proposed rule mandating appraisers of private company ESOP stock ignores all of the admonitions of Section 4. The ESOP appraiser mandate ignores the fact other Federal agencies use a variety of approaches to regulate appraisers of non-marketable assets. Particularly instructive are approaches taken by the IRS, which also has responsibility of enforcing ERISA statues and regulations.

 Summary

             In sum, the DOL proposed regulation ignores provisions of Sections 1, 2, 3, and 4 of EO 13563 by:

1. Using a ridiculous number as the per hour charge by appraisers of private ESOP company stock;

2. Refusing to seek any input from the ESOP community before issuing the proposed regulation;

3. Ignoring input from other Federal agencies on their policies with regard to appraisers of non-marketable assets, particularly the IRS; and

4. Disregarding the less burdensome alternatives to reach its goal of ensuring professional and qualified appraisals of private ESOP company stock tools used by other Federal agencies to ensure appraisers, required under laws and regulations they are responsible for, are professional and qualified.

Your review of this communication is appreciated.

Sincerely yours,

J. Michael Keeling, CAE

President, The ESOP Association

Tuesday, May 24, 2011

DOL’s Goals with Appraiser Proposal Coming into Focus

Ever since last October when the Department of Labor (DOL) proposed a regulation primarily dealing with financial advisors to persons with 401(k) plans, which included a very brief but unexplained recommendation that appraisers of private ESOP company stock be ERISA fiduciaries, the ESOP community has pondered — precisely what was is the DOL seeking in the world of ESOPs.

DOL, in public comments and in letters to members of Congress, has stated “many” ESOP private company stocks are “overvalued” to the detriment of employees participating in the ESOP.  ESOP advocates have consistently asked “how many is many?”  The answer has always been just “many.”

Recently, in response to written questions submitted by a member of Congress serving on the House committee with jurisdiction over the DOL, the DOL position seems to be coming into focus.  And, as the picture becomes clear, it is not getting any prettier, and somewhat belies the broad brushed DOL claim the agency is trying to clamp down on “rouge” appraisers.  [The Congressman was Todd Rokita, 4th District Indiana, serving his first term.  If you are interested in reading the exchange, please send an email to media@esopassociation.org and a copy will be sent to you.  His questions and the DOL response are public record, as they are part of the official transcript of a Congressional hearing.]

What the DOL response indicates is that DOL officials do not agree with some valuation practices which candidly are debated among ESOP appraisers.  In fact, the highly respected ESOP Association Advisory Committee on Valuation has written white papers on the topics; and honorable people can disagree what is the “best” valuation position.  Specifically, there is a practice in appraising private company stock to add back to the discount for lack of marketability a “control” premium should the ESOP hold more, or is to hold more than 50% of the corporation’s voting stock.  Another area discussed among professional appraisers is whether an ESOP company’s repurchase obligation be taken into consideration when valuing shares in a manner that lowers share price.

In other words, it is very reasonable to assume the proposed DOL regulation is not about “rouge, unqualified” appraisers, but a goal by DOL to impose valuation practices they, the DOL officials, think are correct.

Another way to put it:  DOL is moving to establish the “details” of what is a correct private ESOP company appraisal as opposed to having the transparency to say, “We do not like the way nearly all ESOPs are valued by appraisers that claim to be good appraisers, who probably do all the appraisals of the ESOP companies who are members of The ESOP Association.”

In sum, victory by the DOL in making appraisers ERISA fiduciaries is not just about reigning in unqualified individuals doing appraisals but about lowering the price an exiting shareholder may get when selling to an ESOP; such a result will mean fewer ESOPs.

Monday, May 02, 2011

Ohio Employee Ownership Center — Weighing in on the DOL Proposed Regulation

The Ohio Employee Ownership Center’s (OEOC) recent magazine issue, Owners at Work, Winter 2011, contains a particularly good opinion piece on the DOL’s proposed regulation to make appraisers fiduciaries. Written by the OEOC’s Program Director, Bill McIntyre, the article is a re-cap of statements and opinions already presented to the DOL and an interesting list of points that are important to the discussion.

You can download and read the Owners at Work Winter issue from the OEOC’s website HERE.  Bill McIntyre’s article is on page 14 of the issue.

With many people attending the Association’s Annual Conference in Washington, DC next week and possibly meeting with their members of Congress, we wanted to share this article with members to assist them in their discussions with members of Congress. As we mentioned in an update posted here on April 29 (DOL Campaign: Not Winning: ESOP Community Needs to Be Active) there is still much work to be done on this issue.

Take a look at the OEOC article and our thanks goes out to Bill for his insightful piece.

Friday, April 29, 2011

DOL Campaign: Not Winning: ESOP Community Needs to Be Active

The following is a legislative bulletin which was sent to all members of The ESOP Association recently. In our efforts to keep everyone informed, we are sharing the bulletin here on the blog.

             In a recent news article, Assistant Solicitor of DOL, Ted Hauser said, “The Labor Department is set (emphasis added) with its position on valuation firms…” Thus, ESOP voices are not at this time having significant impact on altering the basic position proposed by DOL that all appraisers of private company ESOP stock be ERISA fiduciaries.

Unfortunately, the ESOP issue embedded in the Department of Labor’s proposed new definition of who is an ERISA fiduciary has fallen in importance in the eyes of key members of Congress and the Department of Labor officials.

Why? The DOL proposal also negatively impacts financial institutions administering IRAs, mutual funds offering IRAs, and 401(k) plans, and major financial businesses providing financial advice. Members of Congress of the key committees are justifiably aware the 401(k) market is much, much larger than the ESOP marketplace for those selling services to their plans and many more Americans participate in these plans. (The key committees in this campaign are the House Committees on Education and Workforce; Ways and Means; and Appropriations, and the Senate Committees on Health, Education, Labor, and Pensions; Finance; and Appropriations.)

The fact is these businesses handle trillions of dollars, and have expertly mounted a significant campaign to persuade members of Congress to protest, and to threaten to overturn the DOL proposal as it impacts their interests.

Not surprisingly, key Republican members of Congress have heeded their concerns, and have registered protests to DOL.

Not surprisingly, in this day of sharp partisanship in Congress, Democratic leaders are taking positions contra to their Republican colleagues, and writing to the Secretary of Labor supporting the DOL proposal.

But to the knowledge of The ESOP Association neither Republicans nor Democrats, except for five members, say anything about ESOPs!

The five members of Congress who have conveyed concerns about DOL’s proposal to mandate that an appraiser of private company ESOP stock be fiduciaries are Senators Bernie Sanders (I-VT), and Patrick Leahy (D-VT), Congressmen Maurice Hinchey (D-NY), Charles Boustany (R-LA) and Geoff Davis (R-KY).

Many ESOP advocates have written their Senators and Representatives.

If you can, please let us know what your Senators and/or Representatives have done, as this list of five may be incomplete. No matter when the campaign ends (probably fourth quarter of this year) the ESOP community needs to express appreciation to their elected officials who stood up for ESOPs.

DOL staffers have fanned out to key Congressional offices, making an effective argument to Congressional staff that the ESOP proposal is a minor tweak that will not impact “good” ESOPs and their “qualified” appraisers. (Keep in mind, these DOL staffers would not give our side of the argument about this proposal to members of Congress or their aides.)

Not true. See http://www.dol.gov/ebsa/newsroom/fsfiduciary.html

So,

1. If you have not contacted your elected officials in Congress. Please do so. See

http://www.esopassociation.org/pdfs/Letter_to_Members_of_Cong_DOL_Proposal.pdf

for suggested communication.

2. If you have, call 202-224-3121, ask to speak to the office you contacted, then ask to speak to the staff person responsible for retirement savings policy and/or tax policy; when connected, refer to your communication, and ask politely if the [Senator] [Representative] has had time to review the issue you raised in your communication. If so, has s/he contacted DOL, and if not, ask respectfully that she/he do so, noting you will “check” again in a week or so.

This ESOP community is threatened by the DOL proposal. Since 1974, when threatened, the voice of ESOP advocates has consistently beaten back the threat 80% of the time.

Let’s keep this wining percentage!

Tuesday, April 19, 2011

Comment Letters Indicate DOL Proposed Regulation “Would Seriously Impede ESOPs”

Pensions & Benefits Reporter, a Bureau of National Affairs publication, ran an article in the March 8, 2011 issue covering the DOL’s March 1st and 2nd hearing on the “Definition of a Fiduciary.” While the article itself didn’t contain any surprises, it did include an interesting table in a sidebar article. The publication went through all 199 DOL comment letters regarding the proposed regulation and looked at the themes present one of which was — would seriously impede ESOPs. Tallying the list in this category found 82 of the 199 submitted comments in agreement that the DOL proposed regulation would harm ESOPs.

“This is a very enlightening insight,” said J. Michael Keeling, president of The ESOP Association. “We have looked at all of the comments letters and knew that many were against the proposed regulation as we are but have not had the opportunity to tally the results. This figure is notable — 41% believe this proposed regulation would harm ESOPs.”

In addition to the category regarding the harmful effects on ESOPs, the chart also included the following: costs outweigh benefits and/or flawed impact analysis, standards too vague and subjective, insufficient coordination with other contemporaneous rulemaking and/or existing guidance or standards, overprotective of sophisticated fiduciaries, covers certain service providers who should be presumptively excluded, exceptions too narrow, and none.

Thursday, March 03, 2011

Update on DOL Proposed Rule Negative to ESOP Companies

We wanted to share the following ESOP Legislative Bulletin which was sent to ESOP Association members this morning about the DOL Hearing on the proposed regulation “Definition of a Fiduciary.”

 The Department of Labor has concluded its public hearing on its proposal that appraisers of ESOP stock be fiduciaries to the ESOP, in addition to a current ESOP fiduciary.

While I have sat through other sessions where ESOP cynics’ comments made the session a nightmare for an ESOP/employee owner advocate, and while I can report that I found the DOL officials to be respectful of the ESOP concept, I must report there was no indication they would drop their desire to have the appraisers be fiduciaries.

In exchanges with witnesses who were not supportive of the proposed regulation, including the Chair of the Association’s Advisory Committee on Legislative and Regulatory Issues, Laurence Goldberg, the DOL officials put forth several ideas to ameliorate the concerns of ESOP advocates, that primarily were to limit the appraisers’ fiduciary responsibilities, but not to drop their core proposal that appraisers be fiduciaries.  Compromises are always welcomed, as no one gets 100% of everything he or she wants.

BUT…..and this is a big but:  The DOL officials might claim they only want to make sure valuations are as good as they can be, and they, the DOL enforcement arm, will not expand their current interpretation of when a valuation is wrong; but private sector lawyers do not have to read any final regulation narrowly.  In other words, making appraisers fiduciaries will not only result in existing ESOP companies paying more because their appraiser will have to buy fiduciary insurance, for which no one knows the cost as such a policy does not exist for appraisers right now, plus appraisers will probably hire their own “fiduciary” lawyer, and these costs will be paid by the ESOP company, reducing its profits, and reducing benefits to employee owners; but, and here is the but that is so worrisome, there will be many more lawsuits against ESOP companies and the appraisers as now the lawyers will have more pockets to go after.

And again, DOL has not documented its claims that bad valuations of private ESOP companies are widespread and common.

The data is overwhelming:  Most lawsuits against ESOP companies for fiduciary violations, of whatever nature, do not succeed.  But litigation is so expensive, time consuming, that many companies just settle for an amount less than the cost of winning the lawsuit.  A settlement pay day for lawyers’ bringing the law suits makes it worthwhile to find situation where suits may pay off.

What to do?

The fact that the hearings are concluded does not mean the ESOP community stops complaining about this proposal.

Please consider contacting your member of Congress, House and Senate, to protest along the lines of the suggested letter that is linked to this email bulletin. (To download a copy of the sample letter CLICK HERE.) If you have already written, and have heard nothing in return, consider a polite inquiry of how your letter was handled. If your letter resulted in a response, write again to say politely DOL is not budging from its proposal.

Bottom line — higher costs, perhaps prohibitive to ESOP creation and continued operation, is nonsensical coming from the Department of Labor, an agency that is supposedly trying to keep jobs in America, versus their being eliminated, or shipped overseas.  Our national ESOP policy is a proven engine for keeping good jobs, providing sizeable retirement benefits in nearly all instances, in high performing workplaces, right now, right here, in America.

Nice, respectful words from the DOL officials at the hearings do not alter the real world, potential impact of what they have proposed.  ESOP advocates should not sit by and let the DOL proposal become the law of the land.

Thanks for reading this bulletin.

J. Michael Keeling, CAE

President

The ESOP Association

Tuesday, February 01, 2011

The ESOP Association Submits Comments to the Department of Labor on the Proposed Regulation, “Definition of the Term Fiduciary”

As noted in an earlier post today, below is additional information about The ESOP Association’s comments submitted to the DOL along with links to the comments and letter to members of Congress.

 In our efforts to keep Association members apprised of developments regarding the Department of Labor’s (DOL) proposed regulation that would make valuators of ESOP stock fiduciaries of the ESOP trust, we wanted to alert members that The ESOP Association submitted comments to the Department of Labor’s Employee Benefits Security Administration (EBSA). The comments, which were prepared under the direction of the Association’s Advisory Committee on Legislative and Regulatory Issues with input from the Advisory Committee on Valuation, point out several reasons why this regulation would harm private company ESOPs.

Five main points of the comments:

1.) mandating any and all valuators of private company stock be fiduciaries will increase the cost of the valuation substantially;

2.) establishing more efficient, less economically burdensome ways to ensure valuations are done properly without reducing ESOP companies’ profits is doable;

3.) this regulation will create potential lack of trustee prudent actions if the valuator services provider has an equal fiduciary role as a trustee;

4.) it will confuse the law on trustee decisions; and

5.) it will create a big cost for ESOP companies arising from more private parties suing ESOP companies and their trustees in cases that currently Federal courts dismiss.

If you would like to read a copy of the comments submitted by The ESOP Association, please CLICK HERE.

It was also noted in the comments that the companies that will directly be impacted by this proposed regulation are mainly small businesses that on average have fewer than 500 employees and are not traded on the public stock exchange. Anywhere from 80% to 95% of the ESOPs created are because of an exiting shareholder of the private company that sold his or her stock an ESOP. These companies are proud of the ownership structures they have created, have healthy ESOP account balances, and over 78% of the companies also sponsor another benefit plan in addition to the ESOP. The DOL proposed regulation will harm companies that are providing local jobs and employee owners with significant retirement savings.

We ask that ESOP companies and valuation specialists write their elected officials and express their concerns and respectfully ask that his/her member of Congress consider expressing opposition and/or doubts about the DOL’s attack on private company ESOPs.

If you would like to download a sample letter to your member of Congress, please CLICK HERE.

Finally, we understand the DOL is working to ensure flim flam plans are uncovered and those responsible are held accountable, but all we ask is that DOL not seek the perfect at the expense of the good.

If you have questions about the DOL proposed regulation, please send an email to govrel@esopassociation.org.

Tuesday, February 01, 2011

The ESOP Association Submits Comments to the Department of Labor

We wanted to share the following press release which was sent out by The ESOP Association today. 

 A second post later this afternoon will contain links to the comments which are in the process of being posted to the Association’s website. 

 For Immediate Release: February 1, 2011

For More Information: Amy Gwiazdowski, 202/293-2971, amy@esopassociation.org

 The ESOP Association Submits Comments to the Department of Labor

 February 1, 2011 (Washington, DC) – The ESOP Association submitted comments to the Department of Labor’s Employee Benefits Security Administration (DOL EBSA) regarding the proposed regulation, “Definition of the Term Fiduciary.”

Noting that many privately-held businesses would be directly impacted by the proposed regulation which would make valuators of ESOP stock fiduciaries of the ESOP trust, the Association stated five reasons that should be considered in the EBSA’s deliberations of the proposed regulation: 1.) mandating any and all valuators of private company stock be fiduciaries will increase the cost of the valuation substantially; 2.) establishing more efficient, less economically burdensome ways to ensure valuations are done properly without reducing ESOP companies’ profits is doable; 3.) creating potential lack of trustee prudent actions if the valuator services provider has an equal fiduciary role as a trustee; 4.) confusing the law on trustee decisions; and 5.) creating a big cost for ESOP companies arising from more private parties suing ESOP companies and their trustees in cases that Federal courts currently dismiss.

“Nearly 91% of corporate members of The ESOP Association are small businesses that have fewer than 500 employees that are not traded on the public stock market. These ESOP companies have pride in their ownership structures and we feel these proposed changes are not in the best interest of average pay employees,” said ESOP Association President J. Michael Keeling. “This proposed regulation will weaken companies providing local jobs; companies that are overwhelmingly furnishing average pay employees with significant retirement savings. We believe the DOL is mistakenly seeking the perfect at the expense of the good.”

The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy.

###

Tuesday, January 04, 2011

NCEO Submits Comments Regarding DOL Proposal

The Department of Labor’s (DOL) overreaching proposal to make ESOP appraisers fiduciaries is a topic we’ve discussed often the last few weeks. We wanted to bring to your attention comments submitted by the National Center for Employee Ownership (NCEO) on the proposal. This is the first time the NCEO, a 501(c)(3), has submitted comments in regard to a DOL proposal. The comments are public record and can be found here.

You can read all comments submitted here.

Information about the proposal can be found here.

In addition to filing comments with the DOL, the NCEO’s Corey Rosen also wrote a piece about the proposal that appeared in the December 14, 2010 issue of Pensions & Benefits Reporter which is published by the Bureau of National Affairs (BNA). The BNA does require an account to access articles online. If you have an account, you can find the article here.

As additional information about the DOL proposal becomes available, we will post it here.

Wednesday, December 22, 2010

DOL to Hold Public Hearing on Proposed Rule Mandating Valuators of Private ESOP Companies be Fiduciaries

The Department of Labor’s Employee Benefits Security Administration (DOL EBSA) announced in a press release today that it will hold a public hearing on March 1, 2011 in Washington, D.C. on the proposed rule regarding the definition of a fiduciary, which included mandating all valuators of private company ESOPs be fiduciaries to the ESOPs they valuate. You can find a copy of the proposed rule on the DOL’s website here.

According to the DOL’s press release, a formal notice regarding the hearing will be issued in January 2011. The DOL will not consider requests to testify in advance of the formal notice.

Also noted, the DOL will accept public comments until Feb. 3, 2011. This is two weeks after the close of the Jan. 20, 2011 comment period.

President of The ESOP Association, J. Michael Keeling, noted, “This announcement is positive news. We applaud EBSA’s decision to have an open discussion about its proposal that would impact 98% of the ESOPs in America. Now, we will be able to hear DOL’s concerns explained in full, and we ESOP advocates will be able to voice our thoughts in public.”

The press release is available on the DOL’s website here.

If you would like additional information about the rule and The ESOP Association’s position, please click here.

Additionally, information can be found on the blog here.

Monday, November 29, 2010

Why the Department of Labor’s Proposed Regulation Will Harm Private Company ESOPs Cont…

Background: The proposal reverses 34 years of DOL policy that valuators of ESOP stock are not ESOP fiduciaries.

(Note: this 34 year policy was developed under President Ford, a Republican; continued by DOL under Presidents Carter (Democrat), Reagan (Republican), Bush I (Republican), Clinton (Democrat), and Bush II (Republican). Why now the proposed attack on ESOPs?)

1. The proposal if finalized will significantly increase the costs of establishing and maintaining an ESOP, because valuators will have to purchase fiduciary insurance.

2. The proposal, if finalized, will hinder an ESOP company’s desire to acquire another company, or to expand, or to be acquired, as any person rendering a fairness opinion for an ESOP trustee will be a fiduciary, increasing the cost of the transaction.

3. Many valuation firms may drop their ESOP practice due to exposure to lawsuits, as many trial lawyers who now troll for lawsuits against ESOP public companies, will now have better monetary opportunities with lawsuits against private ESOP companies. (One impact of the proposal, if finalized, is one disgruntled employee can bring a lawsuit against the plan fiduciaries over the valuation.)  Less competition among valuation firms doing private ESOP company valuations also mean higher costs, and more hassles finding competent valuation firms.

4. If DOL has evidence, as it claims without data in preamble to proposed regulation, that many private company ESOP shares are wrongly valued, DOL currently has enforcement powers against current ESOP fiduciaries and trustee[s].

5. Finally, the DOL proposal, if finalized, would create a contradiction. Internal Revenue Code § 401(a)(28)(c) mandates the appraiser of private company ESOP stock be independent. If a valuator becomes a fiduciary to the ESOP, s/he per se would not independent!

The DOL proposal is not needed and its real purpose seems to be to hinder creation and operation of private company ESOPs in contradiction of P.L. 94-455, 90 Stat. 1520.

Also below is a link to a brief “talking points” paper on the potential negative impact of the DOL proposal, and a suggested letter to a member of Congress.

Coincidently, the view towards private company ESOPs by the current leadership of the DOL’s Employee Benefits Security Administration is not positive, and the ESOP community should not ignore this attempt to squeeze ESOPs so hard they diminish in number.

Click here to read entire proposal.

Click here for attachment P.L. 94-455, 90 Stat. 1520.   

Click here for suggested letter to your Senators and your members of Congress.  

Click here for talking points.   

If you have questions, please contact J. Michael Keeling at The ESOP Association — michael AT esopassociation.org or call 202/293-2971.

11/29/2010 UPDATE:To add another reason, which is obvious, and embarrassed not to have included this bullet point in the first communication about the Department of Labor’s (DOL) attack on ESOPs, see below:

  • Current law mandates that an appraiser of shares of a private company that are to be, or are, ESOP shares be independent (26 U.S. Code 401(a)(28)(c)). In If the DOL proposal to make all ESOP valuators (appraisers) fiduciaries to the ESOP, how could the valuator/appraisers be independent?

In sum, a strong case may be made that DOL’s proposed regulation not only violates current law P.L. 94-455, 90 Stat. 1520 but also 26 USC 401(a)(28)(c)!!

Click here to read the proposed regulation.

Click here to read P.L. 94-455, 90 Stat. 1520.

Click here to read 26 USC 401(a)(28)(c).

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