Not surprisingly, the new proposal from the Department of Labor (DOL) to make appraisers “fiduciaries” under ERISA (Sec. 3(21)) dominated the discussion on ESOP valuations at last week’s 25th annual meeting of the Valuation Roundtable of San Francisco in Orinda, CA. (For background, see BVWire #s 101-2 and 102-1.) “There is a disconnect between the DOL and the appraisal community,” said attorney Larry Goldberg (Sheppard Mullin), who testified at the DOL hearings last March as Chair of the ESOP Association’s Advisory Committee on Legislative and Regulatory Issues. If the DOL purports to make appraisers fiduciaries—then how can they maintain their objectivity and independence?
The DOL says they are after “rogue” appraisers who perform “incorrect” valuations, but when pressed for clarification (incorrect standard of value? incorrect multiples?), “the DOL couldn’t or didn’t say,” Goldberg reported. Since they can’t win lawsuits under the current rules, the DOL wants a direct cause of action against appraisers, he added. Some VRT members believed that a robust peer-review process would be a better solution, and Goldberg said the idea of an IRS-type appraiser penalty came up at the hearings. “All the appraiser groups said they’d vote for that,” and some are continuing to lobby the point—along with the DOL's failure to assess the impact of its proposed regulations on business in general, but ultimately, the DOL is “very focused on getting this finalized and passed,” Goldberg said, with an internal deadline by year’s end.
What’s behind the attack? Some VRT attendees believe the union-friendly DOL is generally opposed to ESOPs (and have been since the 70s). Others, including the latest the ESOP Ownership Foundation, say the DOL is targeting the specific valuation practice of discounts/control premiums. Whatever the reason, “I’m upset, and I want someone to take DOL to task on this issue,” said Scott Miller (Enterprise Services, Inc.), a VRT co-presenter. “Go to your elected representatives,” he advised appraisers. “Champion employee-owned companies, how they tend to grow faster, create more jobs, more profits than non-ESOP firms—and don’t ship jobs overseas.” Hammer the point home: Why is the DOL attacking what is working so well? “Consider your direct involvement,” Miller added, who’d already “hammered” his local reps with some success: “It does work.”