GRGDM LAW GROUP

Employee Benefits Security Administration
Office of Regulations and Interpretation
Page 4

Sincerely,
Groom Law Group, Chartered

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Edward A. Scallet

By:

and

ath
By: Dahl

Lars C. Golumbic


GRGDM LAW GROUP

Edward A. Scallet
Lars C, Golumbic.
(202) 857-0620

Icg@groom.com

February 9, 2011

By Electronic Mail (e-ORI@dol.gov)

Office of Regulations and Interpretations
Employee Benefits Security Administration
Attn: Definition of Fiduciary Proposed Rule
Room N-5655

U.S. Department of Labor

200 Constitution Avenue, NW

Washington, DC 20210

Re: Written Request to Testify and Outline of Proposed Testimony on
Proposed Fiduciary Definition Rule under ERISA Section 3(21)(A)(ii).

Dear Sir or Madam:

In response to the Notice of Public Hearing on Definition of “Fiduciary,”
published in the Federal Register on January 12, 2011, we submit this written request on
behalf of a group of providers of valuations and fairness opinions identified below
(hereinafter, the “Firms”)! to testify at the public hearing to be held on March 1 and
possibly March 2", Mr. Jeffrey Tarbell, a Director with Houlihan Lokey, would be
testifying on behalf of the firms on whose behalf we submitted a comment letter
regarding the proposed regulation.

As we indicated in the Firms’ letter, the Firms that have joined together provide
services related to Employee Stock Ownership Plans (“ESOPs”). Some have advised
companies that are considering the establishment of an ESOP, some have advised sellers
of stock to ESOPs, and all have advised trustees and fiduciaries of ESOPs. Viewed
collectively, they have worked on hundreds of ESOP formation transactions each year
and perform annual valuations for a significant percentage, by number and value, of the

' The firms include: Chartwell Capital Solutions, Columbia Financial Advisors, Inc.,
ComStock Advisors, Duff & Phelps, LLC, Houlihan Lokey, Prairie Capital Advisors,
Inc., and Stout Risius Ross. 7

iROOM Law Grour, CHARTERED

1701 Pennsylvania Ave., N.W. + Washington, D.C. 20006-5811
202-857-0620 + Fax: 202-659-4503 + www.groom.com


GRGDM LAW GROUP

Employee Benefits Security Administration
Office of Regulations and Interpretation
Page 2

roughly 11,500 ESOPs in the United States. The professionals in these Firms include the
current chair and four former chairs of the ESOP Association’s Advisory Committee on
Valuation, a board member of The ESOP Association, a member of the board of directors
of the National Center for Employee Ownership (“NCEO”), a member of the Business
Valuation Committee of the American Society of Appraisers (“ASA”), a past President of
the ASA, and a past chair of The Appraisal Foundation.

As indicated in the Notice of Public Hearing, Mr. Tarbell expects his testimony to
take approximately 10 minutes, and Mr. Tarbell will be prepared to answer the
Department’s questions. Mr. Tarbell may remark upon any of the issues discussed in the
Firms’ comment letter, although time permitting, he expects to address the specific points
below:

Outline of Proposed Testimony

L The Proposed Regulation Should be Withdrawn:

A. The Long-Standing Rationale for Excluding Valuation and Fairness
Opinion Providers from the Definition of ERISA Fiduciary Remains Valid
Today.

B. There is a Lack of Evidence that Conflicts of Interest or “Incorrect” or
“Faulty” appraisals” are a “Common Problem” for ESOP Valuations and
Fairness Opinions.

Cc. The Proposed Regulation Would Have an Unintended Adverse Effect on
the Level of Service Value in the ESOP Valuation and Fairness Opinion
Market.

1. DOL’s Assumption That Improvement in Service Value is
Necessary to Address the Common Problem of “Incorrect” or
“Faulty” ESOP Valuations Lacks Support.

2. The Proposed Regulation Would Increase Costs and Reduce the
Number of Qualified Providers of Valuations and Fairness Opinions
Participating in the Current ESOP Valuation and Fairness Opinion
Market.


GRGDM LAW GROUP

Employee Benefits Security Administration
Office of Regulations and Interpretation

Page 3

The Proposed Regulation is at Odds with Impartiality and Independence
Requirements under the Internal Revenue Code and Professional Standards
of Valuation Practice.

1. Under the Internal Revenue Code, Valuation Providers Must Provide
an Impartial Opinion of Value.

2. Professional Valuation Associations and Applicable Valuation
Standards Require Independence and Impartiality in Valuations.

The Relationship between an ESOP Trustee and a Valuation or Fairness
Opinion Provider would be thrown into Confusion by Making the Provider
a Co-Fiduciary.

IL. If DOL Issues a Final Rule, the Firms Urge DOL to Take into Account the

Following Recommendations:

A.

DOL Should Carve Out a Non-Fiduciary Safe Harbor for Valuation and
Fairness Opinion Providers Allowing Them to Perform Traditional ESOP-
Related Services.

DOL Should Provide Guidance on Critical ESOP Valuation Issues.

DOL Should Exclude From Its Fiduciary Definition the Preparation of a
Private Company ESOP Annual Valuation Used for Participant Accounting
and Redemption.

DOL Should Expand the Sellers’ Limitation to Include Providing Valuation
Advice to a Sponsoring ESOP Company.

o* * * *

The Firms would appreciate the opportunity for a Firm representative to share the
Firms’ views and concerns, as outlined above, and answer any questions concerning this
important proposal.