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.

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