From: Brad Van Horn [mailto:bvanhorn@BASval.com] 

Sent: Thursday, February 03, 2011 8:09 PM 

To: EBSA, E-ORI - EBSA 

Subject: Definition of Fiduciary Proposed Rule

Mr. Fred J. Wong 

Employee Benefits Security Administration 

U.S. Department of Labor 

Office of Regulations and Interpretations Room N-5655 

200 Constitution Avenue, NW 

Washington, DC 20210

SUBJECT: Comments on the DOL Proposed Regulation – Definition of the Term 

"Fiduciary" (Federal Register, Volume 75, Number 204, Pages 65263-6578, 

October 22, 2010, Proposed Regulation)

Dear Mr. Wong:

I am the President of Business Appraisal Services, LLC, an ESOP valuation firm 

that works with existing ESOP companies and companies looking to transition 

the ownership of their company to their employees by using an ESOP. We 

believe that both participants of existing ESOP companies and employees that 

will or would otherwise become ESOP participants in the future will be 

significantly harmed by the DOL Proposed Regulation – Definition of the Term 

"Fiduciary" (Federal Register, Volume 75, Number 204, Pages 65263-6578, 

October 22, 2010, Proposed Regulation). Here are 8 reasons why the DOL 

proposed regulations should be modified to remove the requirement that persons 

providing ESOP appraisals and fairness opinions are fiduciaries:

1. First and Foremost: The Internal Revenue Code requires that an appraiser 

be independent. The fiduciary responsibility to the plan participants would 

violate that independence. 

2. The cost to perform an ESOP appraisal would significantly increase. Firms 

performing ESOP appraisals would need to obtain additional and more 

expensive insurance, hire counsel, and take additional steps to comply 

with the regulations and manage the additional risk of litigation. These 

additional costs will be passed through to the ESOP companies and 

negatively impact the accounts of ESOP participants.

3. The previously-mentioned additional cost and risk associated with 

performing ESOP appraisals would cause some to leave the industry. This 

would reduce the number and quality of available appraisers, which would 

further increase the cost of performing an appraisal and decrease the 

quality. These additional costs will also be passed through to the ESOP 

companies and negatively impact the accounts of ESOP participants.
4. The previously-mentioned lack of independence would likely cause a 

selling shareholder to hire a second valuation firm, further increasing the 

cost of implementing and maintaining an ESOP, and further negatively 

impacting the accounts of ESOP participants.

5. The fiduciary responsibilities of the trustee and appraiser would be unclear 

and would create confusion problems in determining who is responsible 

for what and how each party is supposed to satisfy their fiduciary 

obligations.

6. The increased costs to establish and maintain an ESOP would 

significantly reduce the number of new ESOPs and cause existing ESOP 

companies to terminate their ESOP. This would negatively impact ESOP 

participants, ESOP companies, and society. A study, Effects of ESOP 

Adoption and Employee Ownership: Thirty years of Research and 

Experience, summarized years of research on the effects of ESOPs and 

employee ownership. The study found that ESOP participants benefit by 

increased employee wealth and wages, greater employment stability, and 

increased job satisfaction. It found that ESOP companies experienced an 

increase in productivity, profitability, and likelihood of firm survival. It also 

found that ESOPs benefit society by providing economic growth with 

increased sales and employment growth.

7. The DOL proposed regulations do not address the root causes of the 

problems you have identified. These problems include a lack of clear, 

concise and current valuation regulations and a lack of professional 

competence standards, qualifications, and/or credentials to perform an 

ESOP appraisal.

8. ESOP trustees are fiduciaries that are currently responsible for 

determining the fair market value. Existing case law and current 

regulations provide remedies for when the ESOP trustee is using an 

incorrect valuation and when appraisers are acting with discretion over 

plan assets. Remedies also exist for parties that are not satisfying their 

legal, fiduciary, and contractual responsibilities. 

In addition to our comments, many other members of the ESOP community have 

submitted comments and will testify at the March 1, 2011 hearing, including 

ESOP sponsors, participants, and professionals. They have submitted additional 

legal arguments and remedies that I have not addressed in my comments. 

Please consider my comments and those from others in the ESOP community 

and contemplate their impact.

We respectfully request that you modify the DOL proposed regulations to remove 

the requirement that persons providing ESOP appraisals and fairness opinions 

are fiduciaries. If you do not find that current regulations provide sufficient 

remedies, working with the ESOP professional community to create professional 

standards and enforcement procedures and providing the community with clear 

guidance are two solutions that would effectively address your concerns.
Sincerely,

Brad Van Horn 

President 

__________________________________________ 

Brad Van Horn 

President 

Business Appraisal Services, LLC 

Office: 630.357.5210 

Cell: 630.664.6004 

Email:bvanhorn@BASval.com 

Website: BASval.com 

Experts in valuing Privately-held Equities

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