The House Committee on Education and Workforce on Wednesday advanced multiple pieces of legislation that would increase congressional oversight on certain subagencies and design a safe harbor for fiduciaries appraising ESOPs.
RELATED – Senate Passes ESOP Legislation
The “Balance the Scales Act,” introduced in April by Rep. Michael Rulli (R-OH), requires the Employee Benefit Security Administration (EBSA) to submit an annual report to Congress on common interest agreements to provide “adverse assistance.” Employers, plan sponsors, and fiduciaries directly impacted by this assistance would also receive a copy of the agreement.
Further, EBSA will be required to file an annual report to Congress describing any “adverse assistance agreements in effect for the prior fiscal year, with private party details redacted,” stated Committee Chairman Rep. Tim Walberg (R-MI).
The subagency had come under fire during a July hearing for allegations of collusion and claims that it had inappropriately worked with attorneys. During that hearing, Groom Law Group Principal Lars Golumbic testified that trial lawyers were able to receive case information from EBSA, therefore allowing an unfair advantage to plaintiffs.
“Before offering advice, sharing information, or providing any form of assistance to a private attorney for use in an ERISA civil action, the Department of Labor [DOL] must, under the bill, enter into a written agreement clearly defining the nature and extent of the adverse assistance,” said Rep. Walberg.
Another bill, the “Retire through Ownership Act,” passed unanimously in a 35-0 vote with support from both party lines. First introduced by Rep. Rick Allen (R-GA), chairman of the Health, Employment, Labor, and Pensions Subcommittee, the legislation addresses valuation risk by including a safe harbor that aligns with IRS guidelines. Per the legislation, ESOP fiduciaries will be allowed to use an independent evaluator or appraiser who follows IRS guidelines to review shares.
The bill also includes a legal definition of “adequate consideration” when ESOPs buy stock in “closely held companies.”
The litigation risk in appraising ESOP shares has become a main barrier in adoption, supporters of the plan type say. Advocates criticized EBSA for holding an “anti-ESOP bias” during July’s hearing, with claims that the subagency regularly investigates the plans as a substitution for adequate regulation.
“ESOP fiduciaries have been waiting for guidance on how to value the employer stock that their plans purchase. The DOL has never published definitive guidance,” stated Rep. Allen prior to the bill’s passage. “Instead, DOL began a national enforcement project targeting ESOPs. Rather than tell the ESOP community how to value the stock, DOL used legal actions and settlements to guide ESOP stock purchases in a practice stakeholders call ‘regulation by litigation.”
A third bill, the “EBSA Investigations Transparency Act,” would require EBSA to send Congress an annual report with details on the status and timeline of its investigations. It would also mandate that EBSA provide explanations for investigations that exceed three years.
Supporters of the bill have blasted EBSA for its timeliness with investigations, with some claiming that audits could take over five years to complete. On the other hand, opponents point to the subagency’s high turnover and limited resources for the lack of responsiveness. Incorporating additional responsibilities at a time when the subagency faces cuts in funding by $10 million will only grow this burden, they say.
“We all agree that EBSA has an important role to play, but this bill does not improve that,” said Rep. Suzanne Bonamici (D-OR), who opposed the legislation.
The bills will now move forward to the full House of Representatives.
Additional details on the legislation package can be found here.