ESOP valuations not on safe ground—despite final DOL rules


Although ESOP valuation experts have been exempted from the DOL’s final fiduciary rules (see our prior coverage), it’s still not safe to go back into the water, experts say.

Still lurking: In the final rules, the DOL makes it a point to say (several times) that it is very concerned about this matter and will take it up again in separate rulemaking. “I think the DOL is sending a signal … actually a fairly strong one,” says attorney Bruce Ashton (Drinker Biddle Reath LLP). “So the issue is not dead, just on hold—though perhaps an extended hold.” Ashton’s firm was involved in drafting the DOL/GreatBanc Fiduciary Process Agreement, a settlement agreement that covers ESOP transactions and valuation issues.

Valuation experts we spoke with are happy with the outcome so far. “Stern Brothers Valuation Advisors is pleased to see that ESOP valuation experts are exempted from being named as a fiduciary to the ESOP,” says Steven York, the firm’s senior VP. He points out that the GreatBanc agreement offers "guidelines" for a good ESOP valuation.

Attacks continue: In the meantime, the DOL continues to take action against valuations it perceives as faulty. The agency recently obtained a judgment against fiduciaries of a California ESOP in a lawsuit alleging the fiduciaries paid inflated prices for company stock. The DOL also filed a complaint against owners of a Florida company for selling their stock to their ESOP for almost double the alleged fair market value.

An extended discussion of this matter will be in the June issue of Business Valuation Update.


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