Seyfarth Synopsis: A deceptively simple question—How can an ESOP fiduciary determine that the price paid for closely-held stock constitutes “adequate consideration” under ERISA?—has created uncertainty in the employee stock ownership plan (“ESOP”) world for years. Relief is finally here in the form of the Retire Through Ownership Act (the “Act”), which was passed by the Senate in October 2025 and the House on September 16, 2026. The President signed the Act into law on October 15, 2026.
Background
An ESOP is a specialized type of retirement plan that allow employees to become partial owners of the company they work for. ESOPs are generally subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), including the fiduciary requirement that an ESOP pay no more than “adequate consideration” for company stock. ERISA defines “adequate consideration” by reference to fair market value, as determined in good faith by the trustee or named fiduciary. However, because the stock of privately-held companies is not traded on a public exchange, determining fair market value is inherently a matter of professional judgment. Further, ERISA has not historically provided a sufficiently clear or reliable framework for how an ESOP fiduciary may determine whether the “adequate consideration” standard is satisfied when relying on an independent appraisal. The absence of defined criteria has historically left plan sponsors and fiduciaries exposed to second-guessing and litigation risk.
Retire Through Ownership Act
The Act amends Section 3(18) of ERISA to establish a clear standard for satisfying ERISA’s adequate consideration requirement. Specifically, an ESOP fiduciary may make a good faith reliance on a valuation provided by an independent valuation expert or business appraiser, so long as that expert or appraiser relied on the principles and methodologies set forth in IRS Revenue Ruling 59-60. (By way of background, IRS Revenue Ruling 59-60 is a well-established IRS framework that has long been used to value closely- held stock.) Anchoring the safe harbor to Revenue Ruling 59-60 gives fiduciaries a recognized, defensible benchmark to follow.
Why It Matters
For companies considering an ESOP and the fiduciaries who serve existing ESOPs, the Act could meaningfully reduce the uncertainty and potential litigation exposure that have historically surrounded closely-held stock valuations.
The Act also reflects a broader federal effort to encourage employee ownership. Under the current administration, the U.S. Department of Labor is actively working to expand its support for employee ownership. These efforts are intended to make employee ownership more accessible while helping companies and employees understand how these arrangements can support business succession, workplace participation, and workers’ financial security.