Department of Labor: Adequate Consideration


Department of Labor: Adequate Consideration


One important thing to understand about ESOPS is that they have two federal regulators – the Internal Revenue Service (IRS) and the U.S. Department of Labor (DOL). Among other things, the DOL serves as the regulatory watchdog looking out for the interests of the Employee Owners in relation to the decisions made on their behalf by their ESOP Trustee(s). This authority is vested under the Employee Retirement Income Security Act of 1974 (ERISA). 


However, over 45 years has gone by since ERISA became law, yet the DOL has not finished and issued the body of regulations and guidance that companies should follow in order to ensure they are following the law. While DOL began – and nearly finished – the regulatory rulemaking process in the late 1980’s, they never issued the final proposed regulations from 1988.

Since then, ESOP companies have done their best to manage themselves properly under the law, but the lack of regulatory clarity and absence of guidance often makes business decisions difficult and dangerous to navigate.  

For example, ESOPs must perform an annual professional valuation and inform their employee owners of the determined value of the company were it to be offered for sale in the market. These valuations are complex, and while there are standard rules and practices for valuing companies – such as when the sale of a publicly held company must be approved by the Securities and Exchange Commission (SEC) – there is no clear guidance or rule on valuations for ESOPs before or after they are formed.


The ESOP Association is seeking regulatory clarity from the U.S. Department of Labor on a range of essential topics. This guidance clarity is needed so ESOPs do not continue to make business decisions under a fog of regulatory uncertainty. This means ESOPs become more transparent and understandable, while the financial and distractive risk  imposed by regulators  is reduced, if not eliminated. Learn more about ESOPs and the DOL here. >