Contributing Author: Kristine Custodio Suero, Advanced Certified Paralegal
Employee stock ownership plans, or ESOPs, occupy a unique place in the retirement landscape. They give employees an opportunity to build retirement wealth through ownership in the companies where they work while providing business owners with another option for succession planning.
But for decades, one critical aspect of ESOP administration has remained frustratingly uncertain: How should privately held company stock be valued for purposes of ERISA's “adequate consideration” requirement?
The bipartisan Retire Through Ownership Act (S. 2403) seeks to provide some much-needed clarity.
The Valuation Challenge
Under the Employee Retirement Income Security Act of 1974 (ERISA), an ESOP may acquire employer securities, including stock that is not publicly traded. Because there is no public market price for closely held stock, determining its fair market value requires professional judgment and a sound valuation methodology.
That makes valuation one of the most consequential responsibilities associated with an ESOP transaction.
Yet ERISA has historically provided limited statutory guidance about precisely how fiduciaries should determine fair market value in this context. The resulting uncertainty has contributed to litigation over whether ESOPs paid more than fair market value for employer stock.
The concern is not that ESOP valuations should escape scrutiny. Fiduciaries remain responsible for acting prudently and in the interests of plan participants. The concern is whether fiduciaries acting responsibly should have clearer standards for determining what constitutes an appropriate valuation process.
What S. 2403 Would Do
The Retire Through Ownership Act (S. 2403) offers a relatively straightforward solution.
The legislation would amend ERISA's definition of “adequate consideration” to provide that an ESOP fiduciary may make a good-faith reliance on a valuation provided by an independent valuation expert or business appraiser who relies upon the principles and methodologies contained in IRS Revenue Ruling 59-60, as amplified and modified by the IRS over time.
Revenue Ruling 59-60 is hardly a new or untested concept. It has long provided a framework for valuing closely held businesses and identifies factors relevant to determining fair market value.
Importantly, the legislation does not eliminate fiduciary responsibility. The Senate-passed language expressly provides that the change does not modify a fiduciary's obligations under ERISA Section 404. It also preserves the Department of Labor's existing authority regarding the definition of adequate consideration.
In other words, this is not a free pass for ESOP fiduciaries. It is an effort to establish a clearer framework within which prudent fiduciaries and qualified valuation professionals can operate.
Bipartisan Momentum
At a time when relatively little legislation moves through Congress without partisan division, the Retire Through Ownership Act has generated notable bipartisan support.
Introduced by Senators Roger Marshall (R-Kansas) and Tim Kaine (D-Virginia), S. 2403 advanced through the Senate Health, Education, Labor and Pensions Committee by a 23-0 vote.
On October 9, 2025, the full Senate passed the legislation by unanimous consent.
Its House companion, H.R. 5169, also advanced unanimously through the House Committee on Education and Workforce. As of 2026, the legislation awaits further action in the House.
That level of bipartisan agreement is significant. Employee ownership has historically attracted support across party lines because it intersects with several shared policy goals: retirement security, business succession, workforce engagement and broader participation in economic ownership.
Why Valuation Clarity Matters
For employers considering an ESOP, uncertainty carries a cost.
ESOP transactions are already sophisticated. They involve fiduciaries, trustees, valuation professionals, attorneys, financial advisors, lenders and other specialists. When the legal standards governing valuation remain uncertain, businesses and fiduciaries must account for the additional possibility of costly investigations or litigation even after engaging independent professionals.
Clearer rules can therefore serve more than a compliance function.
They can help fiduciaries understand the process expected of them. They can provide valuation professionals with a more predictable framework. They can reduce avoidable disputes over methodology. And they can give business owners considering employee ownership greater confidence in the ESOP structure.
The ESOP Association has argued that decades of uncertainty surrounding valuation have increased costs for existing ESOPs and discouraged some business owners from establishing new plans.
Those costs ultimately matter to participants as well. Money spent defending unnecessary disputes is money that cannot otherwise support the plan, the business or its employee owners.
Clarity Is Not the Same as Deregulation
That distinction is particularly important.
Strong fiduciary standards are fundamental to ERISA. ESOP participants deserve protection against inflated valuations, conflicted transactions and imprudent decision-making.
But rigorous oversight and regulatory clarity are not competing objectives.
A functioning fiduciary system should tell responsible actors what is expected of them while preserving meaningful enforcement when those standards are violated. The Retire Through Ownership Act attempts to move the law in that direction by recognizing reliance on independent valuation expertise and established IRS valuation principles without eliminating ERISA's underlying fiduciary obligations.
That balance is worth emphasizing.
The Bigger Employee Ownership Conversation
The significance of S. 2403 also extends beyond a technical amendment to ERISA.
Thousands of privately held businesses will confront ownership transitions as their founders and long-time owners retire. Employee ownership can be one option for preserving businesses, maintaining jobs and allowing workers to participate in the economic value they help create.
But businesses are unlikely to choose structures surrounded by unnecessary legal uncertainty.
If policymakers want to encourage responsible employee ownership, the regulatory infrastructure supporting ESOPs must be understandable, predictable and workable.
The Retire Through Ownership Act represents a meaningful step toward that goal.
The Senate has already acted unanimously. The House now has an opportunity to finish the job.
For employers, fiduciaries, advisors and employee owners, the principle behind the legislation is relatively simple: strong participant protections and clear rules can, and should, coexist.
Providing responsible fiduciaries with clearer valuation guidance does not weaken ERISA. Done correctly, it can strengthen the employee ownership system by making compliance more predictable while preserving the fiduciary safeguards at the heart of the statute.
And that could make employee ownership a more accessible retirement and succession-planning option for the next generation of American businesses and workers.
About Schechter Benefits Law Group LLP
Schechter Benefits Law Group LLP focuses on ERISA and employee benefits law, including ESOPs, employee ownership transactions, fiduciary counseling, retirement plan compliance, and benefits litigation. The firm advises plan sponsors, fiduciaries, trustees, and organizations navigating complex employee benefits and governance issues.
Organizations evaluating employee ownership strategies or ERISA-related considerations involving workforce and succession planning may benefit from experienced legal counsel familiar with the evolving landscape of employee benefits law.
*Nothing stated herein is to be construed as legal or tax advice and shall not form any attorney-client relationship. Each individual situation is unique. Please contact us and speak with one of our attorneys regarding your individual situation.
