NACVA’s Certified Valuation Analyst (CVA) and Accredited Valuation Analyst (AVA) designations are the only valuation credentials accredited 

by the National Commission for Certifying Agencies (NCCA), the accreditation body of the Institute for Credentialing Excellence (ICE). 

1111 Brickyard Road • Suite 200 • Salt Lake City, UT 84106-5401 • Tel: (801) 486-0600 • Fax: (801) 486-7500 • Internet: www.nacva.com 

National Association of Certified Valuation Analysts 

NACVA

February 2, 2011 

Office of Regulations and Interpretations 

Employee Benefits Security Administration 

United States Department of Labor 

200 Constitution Avenue, NW., Room N–5655 

Washington, DC 20210 

Attn: Definition of Fiduciary Proposed Rule 

Response to Proposed Rule Expanding the Definition of Fiduciary 

We are the National Association of Certified Valuation Analysts (NACVA), the largest business valuation 

credentialing organization in the country. We are responding to the Department of Labor (DOL) 

proposed new regulations expanding the definition of who will be considered a fiduciary (29 CFR 2510 

the “Proposed Regulation”). 

We understand the DOL’s concern to insure that valuations of private company stock for the purposes of

an Employee Stock Ownership Plan and Trust (ESOP) are both accurate and reliable. The DOL has 

issued the Proposed Regulation because in its opinion there is a problem with the quality and accuracy of 

ESOP stock valuations. As a result, the DOL is proposing the expansion of the full spectrum of fiduciary 

responsibilities to include appraisers. 

Brief History of Valuations for Tax Related Purposes 

The Department of the Treasury and its tax-collecting gatekeeper the Internal Revenue Service (IRS) has 

long had a vital interest in accurate appraisals of stock in private companies for compliance with 

regulations relating to the taxation of applicable property as legislated by the Federal Government. The 

IRS is the final arbiter of valuations for tax related purposes, generally understood to include assignments 

for gifting, estates, and ESOPs. 

If the DOL is concerned with the accuracy of appraisals for the purposes of ESOPs, the Proposed 

Regulation is the first indication that there is a widespread problem. We question why the DOL is 

undertaking this initiative without an apparent consultation with the IRS, which has a long history, trained 

staff and the resources to be effective in the rather narrow discipline of ESOPs. The IRS has the oversight 

responsibility for the large universe of tax related valuations including gifting and estate taxes. Involving 

the IRS in this discourse seems to us to be an essential element of the spirit of regulatory compliance if 

the issue is really a matter of poor quality valuation reports. 

Historically the IRS response regarding the quality of valuation reports has been to emphasize training 

and experience. Recently the IRS was instrumental in having Federal legislation enacted relating to 

gifting. For gifting purposes, we have an understanding of who is a qualified appraiser and what are the 

qualifications consistent with being a qualified appraiser. The penalties for non-compliance with these 

regulations are very severe for the appraiser. The penalties range from substantial fines to being 

prohibited from providing tax related valuations. Such a prohibition could seriously damage an 

appraiser’s reputation and their valuation business. 
DOL Response — 2 — 2/2/2011 

Major Flaws with the Proposed Regulation 

We are concerned that the DOL is apparently willing to rush into classifying appraisers as fiduciaries

without a thorough analysis of the essence of the problem and other more effective alternative solutions. 

Conflict with Existing Regulations. The Proposed Regulation imposes fiduciary responsibilities in direct 

conflict with existing tax regulations. Currently the IRS mandates that the appraiser must be 

“independent” (26 U.S. Tax Code 401(a)(28)(C)). This standard of behavior is supported by a 30-year 

history of court citations and enforcement actions by both the IRS and DOL. There is substantial 

documentation and logic for this standard of independence. 

The Proposed Regulation would directly conflict with this well established regulation by making the 

appraiser a fiduciary to the ESOP. A fiduciary has many stated obligations to the ESOP including such

things as undivided loyalty to the plan, acting in the exclusive best interests of the plan participants, and 

maximizing plan assets. 

Clearly, these fiduciary obligations are beyond the scope of activity of an independent appraiser. The 

Proposed Regulation will make the appraiser a fiduciary to the fullest extent of the law. The appraiser 

will be personally liable for a full range of activities bearing no relation to the stock value including such 

things as compliance with plan documents, investing plan assets, duty to correct prior mistakes, etc. 

We seriously question why the DOL is proposing regulations that are in direct conflict with long 

established regulations governing appraisals promulgated by other Federal agencies, primarily the IRS. 

We think it is reasonable expectation that the regulatory environment be coordinated between agencies to 

lessen the needless uncertainty of trying to comply with rules that are in direct conflict with one another. 

Failure to Maintain Valuation Standards. The DOL purports to make appraisers fiduciaries without 

defining the standards they are to be held to. The DOL issued 29 CFR Part 2510 Regulation Relating to

the Definition of Adequate Consideration, Notice of Proposed Rulemaking, 1988. Those proposed rules 

have never been finalized. Since the issuance of the proposed rules, there have been a host of valuation 

issues that the appraisal industry has addressed in concert with applicable organizations and the IRS. We 

have worked in partnership to provide leadership in this area. In spite of repeated requests, the DOL has 

been silent in such important matters. We think it is irresponsible for the DOL to propose such far 

ranging responsibilities without having a clearly defined understanding of how the fiduciaries are to be 

evaluated. 

The DOL has not participated to any material degree in the development of valuation standards and 

protocols. There is virtually no history of valuation orientation in a public arena. It is unclear who is 

coordinating the valuation discipline within the DOL, and their level of training and experience for such a 

key initiative. Again, we are concerned that the IRS has apparently been excluded from DOL 

discussions. 

Fiduciary Duties Poorly Considered. The Proposed Regulation will hold appraisers personally liable for a 

wide range of responsibilities and obligations having nothing to do with the valuation. This invites a 

regulatory quagmire with appraisers as “co-fiduciaries” with the ESOP Trustee and other possible 

fiduciaries who do have the full burden of responsibilities. We can imagine that the co-fiduciaries will be 

mired in negotiating indemnity agreements, defining duties, where the primary liability resides in the case 

of a challenged appraisal, and dealing with regulations that are unclear. There will be tremendous 

confusion under the Proposed Regulation because it is ill-considered. This will result in unnecessary
DOL Response — 3 — 2/2/2011 

litigation and involvement by the Federal Courts. While the struggle to define fiduciary responsibilities 

rages, it is likely that many valuation firms will withdraw from the ESOP valuation industry and they will 

not be replaced by other firms. 

Failure to Consider Existing Valuation Standards. The DOL proposes extending fiduciary responsibilities 

to ESOP appraisers. Most business valuation organizations (AICPA, NACVA, IBA, and ASA) have 

reporting standards that require all professionals having material input into the valuation to either sign the 

report or be identified. In larger appraisal organizations it is common for several associates to collaborate 

in the preparation of complex valuations. If there are multiple associates participating in the valuation 

process, which is the fiduciary? 

We understand that a fiduciary has potential unlimited personal liability under ERISA. Given that the

fiduciary responsibilities are so broad, often have little to do with the stock price, and create great 

uncertainty among co-fiduciaries, it is easy to see that many firms will refuse such assignments with 

predictable results. Fewer firms facing uncertain and limitless personal liability will raise prices 

substantially, and ESOP candidates will have fewer and more expensive options. 

Failure to Consider the IRS and their Responsibilities. The DOL asserts that the main problem with 

ESOP appraisers is that there are a number of flawed reports in the market leading to incorrect valuation 

conclusions. This appears to be an area of regulation most commonly associated with the rule making 

authority of the IRS. Extending fiduciary responsibility to appraisers seems unwarranted in light of the 

observations we have offered and the fact that the IRS has apparently not been consulted in this process. 

Alternative Suggestions to Accomplish the Goals 

We share the same overall goals with the DOL. We want the appraisals of ESOPs to be of consistent high 

quality. Our experience is that the better approach to attaining the higher ground regarding quality is to 

insist on training and education. There are a number of essential first steps in this venue. First, we 

suggest the DOL work with the industry and the IRS to identify the major quality issues. Once defined, a 

strategy to address any shortcomings will be delineated and corrective steps initiated to address the 

concerns. We have been a leader in developing national training in business valuation with the assistance 

of other valuation associations and with valuable input from users of the reports including the IRS. 

Appraiser Training. The DOL should be a leader in developing the standards that govern ESOP 

valuations. ESOP Appraisers should be required to provide evidence of competence with regard to ESOP 

related valuation issues. For example, the industry consortium of appraisal organizations, IRS and other 

interested parties has been very successful in raising the quality of tax oriented valuations. In our

experience, the first step is to establish clear appraisal standards. If the DOL believes the ESOP 

appraisals must meet specific discrete industry requirements, those attributes must be identified so that 

training and compliance can be measured. Once standards are met, appropriate training that meets the 

requirements of the IRS and DOL can be developed. With those requirements established, the business 

valuation community will be able to offer quality programs to bring expectations into alignment. 

NACVA has already demonstrated leadership in training by working with the IRS to establish valuation 

standards, train IRS associates, and train valuation professionals. 

Fiduciary Training. Currently, virtually anyone may become a Trustee or fiduciary. While there is 

literature that details the responsibilities of a fiduciary, there is no acknowledged training program or 

certification for such responsibilities. Authorizing fiduciary training and perhaps having candidates attest 

in writing that such training has been taken and understood is one positive step in making sure ESOP 
DOL Response — 4 — 2/2/2011 

valuations meet exacting quality standards. We think that trained fiduciaries are a best practice in 

promulgating industry quality. 

We note that there are already a number of ESOP centric organizations that are very active in 

communicating fiduciary and Trustee responsibilities. Such initiatives by the National Center for 

Employee Ownership (NCEO), the Ohio Employee Ownership Center (OEOC) and The ESOP 

Association rely on voluntary compliance and attendance. Having specific fiduciary requirements 

sanctioned by the DOL and IRS will create the necessary focus to compel greater compliance with 

regulations. The clear benefit to training existing fiduciaries on ESOP based valuation requirements is 

that such individuals are already expected to bear that responsibility. Having those individuals attest to 

knowledge of their duties will help insure quality valuations. 

Summary 

We think the Proposed Regulations as drafted contain substantial flaws and should not be enacted. The

Proposed Regulations will create unnecessary uncertainty within the appraisal community, impose 

unlimited personal liability that is ill-conceived, and fails to meet stated goals. There are better options. 

Comprehensive fiduciary and valuation training will help improve the quality of ESOP valuations. 

Training works for other tax related valuation reports, and ESOPs are no exception. 

Respectfully submitted, 

NACVA’s Executive Advisory Board