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 The regulation, as of September 2011, has been withdrawn but the DOL has stated it will issue a new proposal in early 2012.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.