February 2, 2011 

Employee Benefits Security Administration 

Office of Regulations and Interpretations, Room N-5655 

U.S. Department of Labor 

200 Constitution Avenue, NW. 

Washington, DC 20210 

Re: Proposed Regulation, “Definition of the Term Fiduciary” 

Dear Ladies and Gentlemen: 

As a professional who is deeply committed to promoting employee ownership 

through employee stock ownership plans (“ESOPs”) and has worked with hundreds 

of successful ESOP companies throughout my career, I am strongly opposed to the 

Department of Labor’s (“DOL’s”) proposed reversal of a 34-year-old policy to 

automatically redefine independent valuators of ESOP shares as fiduciaries (the 

“Proposed Definition”) for three main reasons: 

1. It will hinder the creation and operation of ESOPs, and will lead to few ESOPS 

and job losses; 

2. It will have the exact opposite of the desired effect on valuations...it will 

actually decrease the quality of ESOP valuations; and 

3. There are viable alternative solutions to ensure higher quality ESOP 

valuations that will not have a negative effect on ESOP companies. 

Additionally, dozens of our ESOP company clients in Ohio and Indiana have 

contacted us expressing concerns about this Proposed Definition. In general, these 

companies’ concerns seem to be similar to the concerns I outline below. 

Proposed Definition Will Hinder the Creation and Operation of ESOPs 

Current law recognizes the importance of employee ownership and ESOPs to the 

U.S. economy, and 

states that Congress 

seeks to encourage 

employee ownership 

through ESOPs by not 

making laws that 

hinder the creation or 

operation of ESOPs 

(please see adjacent 

excerpt). With this 

new rule, ESOP 
Employee Benefits Security Administration 

February 2, 2010 

Page 2 

valuators would be forced to seek additional fiduciary liability insurance (similar to ESOP 

trustees), the cost of which will be passed on to ESOP company clients. As such, the 

Proposed Definition will substantially increase the cost of installing and administering 

ESOPs, thus reducing the number of new ESOPs, increasing the number of companies who 

terminate their ESOPs, and increasing the cost for companies that continue to sponsor 

ESOPs, thus reducing profits, reducing stock values, and reducing retirement account 

balances. 

Additionally, the Proposed Definition will eliminate the independence and objectivity of the 

valuation advisor by making them a fiduciary who is only concerned with what is best for 

the ESOP. When considering the installation of an ESOP, selling shareholders and trustees 

often rely heavily upon the advice and objectivity of independent valuation advisors. If such 

independent and objective advice is not available, many selling shareholders will elect not to 

pursue ESOPs, and will instead sell their companies by other means, oftentimes resulting in 

a substantial loss of jobs among the employees who helped build the company. 

Proposed Definition Will Dramatically Reduce the Quality of ESOP Valuations 

Independence and objectivity are cornerstones of the professional standards of the leading 

organizations that sponsor valuation-related professional designations such as the American 

Institute of Certified Public Accountants, the CFA Institute, the American Society of 

Appraisers, the Institute of Business Appraisers, and the National Association of Certified 

Valuation Analysts. By requiring ESOP valuators to be fiduciaries, the Proposed Definition 

precludes valuators from being independent and objective; thus, the Proposed Definition is 

in direct contrast to all professional appraisal standards. As such, professional valuators 

who hold professional designations (which constitute the most experienced, highest quality 

valuators), will be forced to withdraw from ESOP valuation assignments, abandon their 

long-time ESOP company clients, and exit the ESOP valuation market since their 

professional standards will preclude them from participating in ESOP valuations. The result 

will be the vast majority of ESOP companies having to replace their existing valuators with 

lower quality, lesser experienced, non-credentialed valuation advisors, thus reducing the 

reliability of their ESOP valuations and putting their participants’ retirement accounts at risk. 

Furthermore, the Proposed Definition will result in ESOP valuators needing to purchase 

additional fiduciary insurance, the cost of which would be passed on to ESOP companies and 

their employees. Also, the enhanced potential for frivolous lawsuits against ESOP valuators 

will drive high-quality valuators out of the ESOP valuation market. As a result, the only 

valuators who will remain in the ESOP valuation business will be low-quality providers who 

do not hold professional designations related to valuation, or who are unaware of the risks 

of potential lawsuits (or have such small practices that lawsuits are not a threat since there 

are no assets in their valuation businesses). 

Alternative Solution to Improve Valuations without Harming ESOP Companies 

I applaud the DOL’s concern about ESOPs and its desire to increase the quality of ESOP 

valuations. I agree that the quality of many ESOP valuations needs to improve, and I fully 
Employee Benefits Security Administration 

February 2, 2010 

Page 3 

support measures that protect ESOP participants’ retirement accounts. However, as 

discussed above, the Proposed Definition will have the exact opposite effect and in fact, will 

cripple ESOPs and may even effectively legislate ESOPs out of existence. 

A much more appropriate solution would be to mirror the actions of another government 

agency, the Internal Revenue Service, by specifically defining the elements of a “qualified 

appraisal” and a “qualified appraiser”, and requiring ESOP trustees to seek independent 

valuations of ESOP shares only from such “qualified appraisers”. Elements of a “qualified 

appraiser” would likely include consideration of the demonstration of an active valuation 

practice, valuation qualifications, number of appraisals completed, number of ESOP 

appraisals completed, professional designations related to valuation, or many other possible 

factors. Requiring ESOP trustees and plan sponsors to utilize only “qualified appraisers” 

who prepare “qualified appraisals” will increase the quality of ESOP valuations, improve the 

security of ESOP participants’ retirement accounts, and eliminate unqualified and low-quality 

valuators from practicing in the ESOP market. 

I would be in full support of this alternate proposal, and I suspect that many of the ESOP 

companies and ESOP service providers that I have worked with throughout my career would 

also support such an alternative. 

Summary

ESOPs play an important role in our economy. They provide employers an opportunity to 

share ownership with employees, and allow employees to share in the financial success of 

the companies where they work. The DOL’s Proposed Definition would greatly harm, and 

possibly eliminate ESOPs. I agree with many of the comment letters that have been 

submitted to-date, including the ESOP Association’s comment letter dated January 31, 

2011. 

I urge you to reconsider this proposal and consider more reasonable alternatives, such as 

the one I outlined above, so that employee ownership through ESOPs can continue to 

flourish in the United States and employees can continue to share ownership in the 

companies where they work and share in the success and value that they help create. 

Sincerely, 

GBQ CONSULTING LLC 

By: 

 Brian D. Bornino, CPA/ABV, CFA, CBA 

 Director of Valuation Services