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Employee Ownership Blog

Loren Rodgers

DOL Releases Two Proposed Rules on the Valuation of ESOP Shares

January 22 update: The DOL removed the proposed rules from its website, so we have removed the original links to them.
 
January 20 update: The new Trump administration has put all pending regulations on hold, including the proposed rules on ESOP valuation discussed below. The second executive order signed by the President today states that all executive departments and agencies shall "immediately withdraw any rules that have been sent to the OFR [Office of the Federal Register] but not published in the Federal Register." The two proposed rules that affect ESOPs have both been released as public inspection documents but have not been published. The proposed rules could be withdrawn and rewritten, modified, or retained, but the executive order means that they may not advance "until a department or agency head appointed or designated by the President after noon on January 20, 2025, reviews and approves the rule." The executive order does offer an exception from the withdrawal, but only if the head of the Office and Management and Budget "deems [it] necessary to address emergency situations or other urgent circumstances." The NCEO will issue an analysis of the proposal in the coming days.
 

At 8:45 am Eastern time on January 16, the Federal Register released the public inspection versions of two proposed rules, both of which would affect the determination of the value of shares in ESOP transactions.  Both proposed rules are from the Employee Benefits Security Administration (EBSA) at the Department of Labor (DOL).

  • Proposed Regulation Relating to Application of the Definition of Adequate Consideration (Hyperlink removed on January 22 after the DOL took down the page.)
  • Safe Harbor Class Exemption: Initial Acquisition of Employer Common Stock by Employee Stock Ownership Plans from Selling Shareholders (Hyperlink removed on January 22 after the DOL took down the page.)

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Scott Rodrick

OMB Completes Review of DOL ESOP Valuation Regulation

Valuation is a crucial topic for ESOPs because in closely held companies, the price paid for company stock in transactions must be based on an independent outside appraisal, and likewise ESOP-held stock must be appraised at least annually. Much ESOP litigation over the years has revolved around valuation.

The Department of Labor issued proposed ESOP valuation regulations in 1988 but never finalized them. ESOP professionals have urged the DOL to issue formal guidance instead of leaving it to the courts, and the SECURE 2.0 Act of 2022 (as part of the WORK Act) directed the DOL to develop formal guidance on valuation. In October 2024, the DOL sent a new proposed ESOP valuation regulation to the Office of Management and Budget (OMB) for inter-agency review of costs and benefits. The OMB has now completed its review of the regulation.

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Corey Rosen

Proposed Colorado Legislation Expands Employee Ownership Incentives

HB25-1021, a bipartisan bill introduced in the Colorado House of Representatives, would expand the incentives under Colorado law to encourage employee ownership. The state already provides significant tax credits for companies to adopt ESOPs, worker cooperatives, employee ownership trusts, or other structures that provide employees with at least 20% of the company's equity.

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Corey Rosen

ESOP Pioneer Robert Smiley Dies at 81

Robert Smiley, one of the pioneers of ESOPs, died at the age of 81 on November 13, 2024. Bob was a past president of the ESOP Association and was instrumental in its foundation. He was an early and generous supporter of the NCEO and served on our board for several years.

He was the founder and board chair of the Benefit Capital Group, an ESOP banking and advisory firm. He formed Benefit Capital, Inc., which provided advice to ESOP deals worth over $5 billion over 30 years.  He was also a contributing author to the NCEO’s Journal of Employee Ownership Law and Finance, which was published from 1989 to 2010, and was the managing editor of Employee Stock Ownership Plans: ESOP Planning, Financing, Implementation, Law and Taxation, a definitive publication on ESOP legal, financial, and administrative issues. It was updated annually until 2013.

Mr. Smiley also served on the faculty of the University of California, Los Angeles (UCLA) Extension and was a trustee for the Reason Foundation, a free-market think tank, for nine years. He also served in the Navy. Bob was a key player in the development of the NCEO and ESOPs, and we will all miss him.

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Corey Rosen

Rep. Foxx Says DOL Abused Its Authority in Sharing Information with Plaintiffs’ Attorney

In a strongly worded letter,  Rep. Virginia Foxx, R-NC, chair of the House Committee on Education and the Workforce, says that the Department of Labor (DOL) abused its authority when it shared information from an ongoing investigation of Envision Radiology's ESOP with the law firm Cohen Milstein, which is acting as the counsel for the plaintiffs in an ESOP valuation lawsuit against the trustee, selling shareholders, and individuals at the company. Foxx called on the DOL’s Office of the Inspector General to investigate certain practices concerning “secretly sharing confidential information with a plaintiffs’ attorney for use against plan fiduciaries.”

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