In its letter to the DoL, the firm noted that case law shows that incorrect Employee Stock Ownership Plan valuations are not unusual, and the impact of such errors on plan participants is severe. “Because fiduciaries tend to lack knowledge and expertise about business valuation, they rely heavily on valuators to support the price of stock bought or sold by ESOPs. Any overstatement (or understatement) of value by the valuator translates directly to overpayment by (or underpayment to) the participants,” the firm wrote.
Lewis, Feinberg contends that valuators do provide investment advice. “[T]hey support (or not) the price that the ESOP pays in a transaction. They give the transaction price the imprimatur of accuracy and fairness.” The firm also said that having the option to pursue claims against the appraiser will benefit plan participants if the trustee is insolvent, undercapitalized, or under-insured.
In addition, the law firm notes that conferring fiduciary status on valuators will not absolve plan trustees of their traditional responsibility to review, understand, question, and ultimately approve the price of ESOP shares.
Lewis, Feinberg asked that the DoL provide guidance regarding valuation standards and valuator credentials.
The DoL issued its proposal last October (see “DoL Broadens Fiduciary Net“). Since then, commenters have argued that including appraisers of ESOPs would discourage the creation of new plans (see “Fiduciary Expansion Proposal Could Hurt ESOPs: Commenters“) and increase the cost of valuation (see “ESOP Association Warns against Making Valuators Fiduciaries“).The comment letter can be viewed at http://www.lewisfeinberg.com/news.html#fiduciaryreg.