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

by The ESOP Association | Feb 01, 2011

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