Effect of the Retire Through Ownership Act on ESOP Transactions

President Trump has signed into law the Retire Through Ownership Act (S. 2403), amending Section 3(18) of the Employee Retirement Income Security Act (ERISA), to clarify the “adequate consideration” requirement that is key to employee stock ownership plan (ESOP) transactions. While the act provides that a fiduciary may rely in good faith on a valuation prepared by an independent valuation expert or business appraiser that relies on the principles and methodologies of Internal Revenue Service (IRS) Revenue Ruling 59-60, it remains to be seen how the act will affect enforcement actions and litigation.

Background

An ESOP's purchase of employer stock avoids being a “prohibited transaction” under ERISA Section 406(a) only if the ESOP pays no more than “adequate consideration” as provided under Section 408(e). For privately held stock, ERISA defines adequate consideration as fair market value determined in good faith by the fiduciary “in accordance with regulations promulgated by the Secretary [of Labor].” In 1988, the Department of Labor (DOL) issued proposed regulations that have never been finalized. In January 2025, the Biden administration released proposed regulations and a companion prohibited transaction class exemption addressing adequate consideration, but both were withdrawn before publication due to the president’s regulatory freeze and have no legal effect. In the absence of final regulations, DOL enforcement actions, private litigation, and settlement agreements have filled the gap with a patchwork of fact-specific, inconsistent standards.

What the Act Does — and Does Not Do

The act generally provides that an ESOP fiduciary may rely in good faith on a valuation by an independent valuation expert or business appraiser who applies the principles and methodologies set forth in IRS Revenue Ruling 59-60. IRS Revenue Ruling 59-60 has long been part of the standard framework used by valuation experts in ESOP transactions. The key “willing buyer” and “willing seller” language is included in the DOL’s 1988 proposed regulation. In that sense, the act codifies existing practice rather than establishing a new standard, although it arguably removes other requirements in the proposed regulations that have been relied upon in valuations. The act also expressly preserves the DOL’s authority to issue further regulations and does not modify the fiduciary's duties of prudence and loyalty under ERISA Section 404. The act applies to determinations of adequate consideration made on or after its enactment.

Open Questions

Whether the act truly functions as a “safe harbor” is debatable. The statute confirms that a fiduciary may rely on a valuation expert or business appraiser who follows IRS Revenue Ruling 59-60, but it does nothing to reduce the fiduciary’s independent obligation to select a qualified, independent appraiser to oversee the engagement and to conduct a substantive review of the resulting valuation. Those process obligations — including appraiser independence, freedom from referral relationships, and documented oversight — have been the focus of DOL enforcement actions, private litigation, and DOL process agreements for over a decade, and the act leaves them fully intact. Revenue Ruling 59-60 also leaves considerable room for professional judgment on the very issues that have generated ESOP valuation litigation: control premiums, treatment of warrants and synthetic equity, and below-market seller financing. The act does not resolve those questions. And because the DOL retains authority to issue new regulations, employers, sellers, trustees, and their advisors should not assume that the act will be the last word. Until new regulations are issued, the proposed regulation and the DOL’s process agreements will likely continue to be referenced as informal benchmarks.

If you have any questions about the act, please contact one of the attorneys on Bradley's Employee Benefits & Executive Compensation team.