Office of Regulations and Interpretations

Employee Benefits Security Administration

Room N–5655

U.S. Department of Labor

200 Constitution Avenue, NW.

Washington, DC 20210.

Attn: Definition of Fiduciary Proposed Rule

The American Institute of Certified Public Accountants (AICPA) Forensic and Valuation Services Executive

Committee (FVSEC) is pleased to comment on the U.S. Department of Labor’s (DOL)  proposed rule on

Definition of the Term “Fiduciary”  (RIN 1210‐AB32)  which was published in the October 22, 2010

Federal Register.  The FVSEC is authorized to speak on matters affecting forensic and valuation services

on behalf of the AICPA, which is the national professional association of over 360,000 Certified Public

Accountants.    

We applaud the DOL’s efforts of protecting the interests of plan participants and of the beneficiaries of

employee benefit plans. However we are concerned that certain aspects of the proposed rule would

inappropriately include persons providing appraisal and valuation services (such as to an Employee Stock

Ownership Plans (ESOP) under the term “ fiduciary” by redefining the longstanding definition of

“investment advice.” Our comments apply specifically to the change which will define the preparer as a

fiduciary for ESOP valuations of employer securities for which there is not a generally recognized

market.   

We believe the effect of the proposed change is:

• incompatible with the Internal Revenue Service’s requirements for an independent appraisal of

employer securities,  

• does not address the underlying issue of proper qualifications and standards for performing

valuation services,  

• will increase the cost of valuation services for ESOP plans, and

• will restrict the number of valuation specialists willing to do valuations for ESOP plans

Because of these issues, we believe the DOL should not change the definition of fiduciary, rather we

believe the DOL should implement rules to ensure only qualified individuals prepare valuations for

benefit plans and that individuals follow recognized valuation standards.  Our reasons for concern are

detailed below.

Independent Appraiser Required by IRS is in Conflict with Appraisers  Considered a Fiduciary by DOL

The Internal Revenue Service, in IRC 401(a)(28)(C), requires an ESOP to obtain valuations by an

independent appraiser at least on an annual basis.  The purpose of the valuation is to determine the

share price of shares distributed to plan participants.  A plan meets the requirements of IRC

401(a)(28)(C) if all valuations of employer securities which are not readily tradable on an established

securities market with respect to activities carried on by the plan are prepared by an independent
appraiser. The term “independent appraiser” means any appraiser meeting requirements similar to the

requirements of the regulations prescribed under section IRC 170(a)(1)(see discussion below on

qualified appraiser).

A fiduciary has an obligation to obtain ”best execution” of a client’s transactions.  In meeting this

obligation, an adviser must execute securities transactions for clients in such a manner that the clients

total cost or proceeds in each transaction is the most favorable under the circumstances (See Exchange

Act Release No. 23170).  If the appraiser is defined by DOL as a fiduciary, then this would almost

certainly impair the appraiser’s independence. This is because the appraiser would be acting on his or

her client’s best interest as a fiduciary.  If the appraiser, as a fiduciary, would not be considered

independent for purposes of performing the ESOP valuations, then this would cause an inherent conflict

between the DOL and IRS rules.

Qualifications of CPAs as Professional Appraisers

The Proposed Rule notes that one of the most common violations found during the DOL’s Employee

Benefits Security Administration (EBSA) national enforcement project is the incorrect valuation of

employer securities. There are many assumptions and judgments made when the appraiser prepares an

independent valuation.  If a CPA appraiser intentionally misstates a valuation, the AICPA has a strict

code of ethics and professional standards in place to address misstatement or fraud

(http://www.aicpa.org/Research/Standards/CodeofConduct/Pages/sec100.aspx ).   In addition to the

AICPA’s Code of Conduct, state laws are in place to regulate CPAs to ensure that the valuation work is

done with integrity, objectivity and independence.  We propose that the DOL should work with the IRS

to better define who is allowed to prepare employer stock valuations for ESOPs, building on the

requirements currently included in Section 170 (a)(1)1

.   

In addition to the AICPA’s rules and state laws, the AICPA has issued the Statement on Standards for

Valuation Services No.1 (SSVS1), to which all members of the AICPA must abide.  This standard requires

that CPAs performing valuation services have professional competence, and the standard details

minimum requirements for developing the conclusion of value and reporting on the conclusion of value.  

The standard can be found in its entirety at Statement on Standards for Valuation Services No1  

If DOL requires the preparer to hold a CPA or other professional credential with similar high professional

standards and enforcement procedures in place, and if the DOL requires valuations to be performed in

accordance with comprehensive valuation standards, the risk of employer stock valuation misstatement

would be mitigated.  

Other Points to Consider

By changing the definition to include a valuation preparer within the scope of fiduciary responsibilities

there would be an associated increase in employer stock valuation costs.  Such valuation cost increases

would negatively impact the investment to the plan participant.  Increased appraiser costs from higher

insurance rates and risk premiums would surely be passed on to plan participants, either by the plan
paying appraisal expenses directly or by decreased employer earnings affecting the value of the plan

owned securities.  The benefit of implementing these rules would in no way outweigh the cost to plan

participants.  

Finally, because of additional risks associated with fiduciary status for valuation preparers, a significant

number of experienced valuation professionals would discontinue offering valuation services for benefit

plans.  The decrease in the number of available, quality professionals to prepare employer stock

valuations would adversely affect plans by further driving up appraisal costs.  The AICPA has received

numerous comments from our membership, specifically those members who perform valuation services

for an ESOP.  These comments indicate that if these proposed rules are implemented, these CPAs will no

longer prepare valuations for benefit plans.

Considering the aforementioned issues, the FVSEC strongly believes that including preparers of

employer stock valuations and fairness opinions under the definition of fiduciary would adversely affect

ESOP and benefit plan participants.  That is, the FVSEC believes the employer stock appraisals should not

be included in the proposed definition of a fiduciary.  It is our opinion that the public would be best

served if the DOL worked with the IRS to better define who should be allowed to prepare an employer

stock valuation.  We also believe that valuation preparers should be required to follow accepted

valuation standards like the AICPA’s SSVS1.  If the person is independent and objective, and has the

professional competence to perform the valuation (as required of CPAs in the AICPA’s Code of

Professional Conduct) then the risk of misstatement would greatly mitigated.  

Regards

Thomas Burrage, CPA/ABV,/CFF, CVA  

Chair, AICPA Forensic and Valuation Services Executive Committee

1 (E) Qualified appraisal and appraiser

For purposes of this paragraph—  

(i) Qualified appraisal The term “qualified appraisal” means, with respect to any property, an appraisal

of such property which—  

(I) is treated for purposes of this paragraph as a qualified appraisal under regulations or other guidance

prescribed by the Secretary, and  

(II) is conducted by a qualified appraiser in accordance with generally accepted appraisal standards and

any regulations or other guidance prescribed under subclause (I).  

(ii) Qualified appraiser Except as provided in clause (iii), the term “qualified appraiser” means an

individual who—  

(I) has earned an appraisal designation from a recognized professional appraiser organization or has

otherwise met minimum education and experience requirements set forth in regulations prescribed by

the Secretary,  
(II) regularly performs appraisals for which the individual receives compensation, and  

(III) meets such other requirements as may be prescribed by the Secretary in regulations or other

guidance.  

(iii) Specific appraisals An individual shall not be treated as a qualified appraiser with respect to any

specific appraisal unless—  

(I) the individual demonstrates verifiable education and experience in valuing the type of property

subject to the appraisal, and  

(II) the individual has not been prohibited from practicing before the Internal Revenue Service by the

Secretary under section 330 (c) of title 31, United States Code, at any time during the 3‐year period

ending on the date of the appraisal.