The federal government is stepping up scrutiny of how U.S.
companies are valued for employee-stock-ownership plans, a vital source of
retirement savings for millions of workers. Some owners are selling stakes in
their companies to employee-stock-ownership plans at inflated prices jeopardizing
Since the start of fiscal 2010, the Labor Department has
recovered over $241 million through suits or investigations that were resolved
without going to court, nearly all of which involve valuations. Overall, the
agency has filed 28 suits tied to employee-stock-ownership plans since October
2009, double the total in the previous six years.
Federal officials are expected to propose early next year
rules aimed at toughening standards for outside appraisers who provide
valuations for employee-stock-ownership plans. Now, appraisers must be hired
whenever a stock plan is started and must tell workers once a year how much
their shares are worth, but there are no minimum qualification standards for
these appraisers or specific rules on how to perform their work.
To protect employees, a stock plan's trustees are required to
turn to an outside appraiser when assessing the company's value and stock price
if the shares aren't widely traded. Because more than 95% of companies with an
employee-stock-ownership plan are closely held, appraisers often rely heavily
on company management for information. That can lead to trouble.
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