Timothy R. Lee, ASA, Managing Director at Mercer Capital, recently authored the whitepaper “Analyzing Financial Projections as Part of the ESOP Fiduciary Process.” This whitepaper, which serves as an Appraisal Review Practice Aid for ESOP Trustees, focuses on the use of financial projections in ESOP Valuations. The use (or misuse) of financial projections is often the most direct cause of over- or under-valuation in ESOPs.
In recent years there has been increasing concern among ESOP sponsors and professional advisors (trustees, TPAs, business appraisers, legal counsel) regarding the scrutiny of the DOL, the Employee Benefits Security Administration (“EBSA”), and the Internal Revenue Service (“IRS”). These entities (and agencies thereof) are tasked with ensuring that ESOPs comply with the Employee Retirement Income Security Act (“ERISA”) as well as with various provisions of the federal income tax code concerning qualified retirement plans (including ESOPs). Citing concerns for poor quality and inconsistency in business appraisals, the DOL has sought in recent years to expand the meaning of “fiduciary” under ERISA to include business appraisers. In the most recent forums of exchange and deriving from various court actions, there are numerous areas of concern that DOL/EBSA appear to have regarding ESOP valuations.
View the whitepaper here.