Corey Rosen
Will the Retire Through Ownership Act Reduce ESOP Fiduciary Risk?
President Trump recently signed the Retire Through Ownership Act (RTOA) into law. James Bonham of the ESOP Association says that the RTOA “strengthens confidence in the valuation process for millions of employee-owners and gives business owners a clearer path to an ESOP transition.” The very brief law states that “a fiduciary of an employee stock ownership plan as defined in section 407(d)(6) may make a good faith reliance on the principles and methodologies set forth in Internal Revenue Service Revenue Ruling 59–60 (as in effect on the date of enactment of the ERISA Adequate Consideration Act of 2025) in determining the fair market value of an asset described in such clause.” The RTOA states that nothing in the language limits the Department of Labor (DOL) from issuing regulatory guidance on how trustees should review ESOP valuations.
A new detailed analysis (member login required) by the NCEO looks at just how much impact this is likely to have. In the last 20 years, an average of about seven ESOP valuation cases have made it to court every year, some of which have been for clearly inappropriate acts. Many others come across as the plaintiffs’ bar seeking settlements. While this number is very small, the larger issue is whether fear of litigation discourages some business owners from doing an ESOP in the first place.
We asked members of the recent NCEO task force on ESOP valuation and the repurchase obligation what impact they think the law will have. There was unanimous agreement that it is a step forward but does not address the most common issues in litigation (overoptimistic projections, deal structure, control, and cases where ESOP shares were bought by insiders who then sold the company for a much higher price). These will need to be addressed by future DOL regulations if they are not to remain a subject of varying court opinions.
