Press Releases
Department of Labor Announces Proposed Adequate Consideration Rule for ESOPs

Notice of Proposed Rulemaking Set to be Published in Federal Register on January 22; When Published, Provides 75 Days for Public Comment and Stakeholder Input
Washington, D.C. – The U.S. Department of Labor’s draft adequate consideration rule for Employee Stock Ownership Plans (ESOPs) has been has been announced in a Notice of Proposed Rulemaking (NPRM). The proposed regulation has significant implications for ESOPs in that it provides the first meaningful regulatory guidance to ESOP Trustees on what fulfills a “Good Faith Effort” in determining fair value of the stock price for shares to be bought or sold by an ESOP. This is the foundational issue in forming and operating an ESOP.
The public, but not yet published rule draft marks the first opportunity for the public to review the government’s proposed guidance on adequate consideration, and after publication in the Federal Register on January 22 interested parties will have 75 days to provide comment which must be considered before a final rule can be published. Congress required the regulation as part of the Consolidated Appropriations Act of 2023 after waiting nearly 50 years for DOL to provide the regulation following passage of ERISA in 1974.
Adequate consideration, as described by ERISA, is “the fair market value of the asset as determined in good faith by the trustee or named fiduciary pursuant to the terms of the plan and in accordance with regulations promulgated by the Secretary [of Labor]”. The ESOP Association has been strongly advocating for a fair and transparent rule governing adequate consideration, which is an absolute necessity to spur new ESOP formation in the United States and to provide regulatory clarity for existing ESOPs.
“The ESOP Association and our community have waited 50 years for an adequate consideration rule. We will carefully review the DOL’s approach and provide substantial feedback on behalf of our membership, which the DOL should strongly factor before any final rulemaking” said James Bonham, President and CEO of The ESOP Association. “Our goal is to make it easier, more transparent, and less costly for ESOPs to be formed and operated. More Americans should have the opportunity to receive the benefits of an ESOP, and this regulation should have that goal as well.”
The ESOP Association will provide further analysis and commentary upon full review of the proposed rule.
Click here to read the full rule.
In addition, the DOL also separately announced an NPRM regarding a safe harbor exemption to “provide a safe harbor for newly created ESOPs that are making their initial purchase of non-publicly traded common stock from Selling Shareholders in compliance with ERISA’s fiduciary provisions.” This proposed exemption also has a 75-day comment period.
In the proposed draft, DOL states this exemption is meant to “promote ESOP transactions that comply with ERISA, protect the interests of plan participants and beneficiaries in paying no more than fair market value for stock, and provide clarity to the parties so they can have confidence in the legality of the transactions covered.” DOL further states that “sellers, in particular, can enter into ESOP transactions with greater certainty about their compliance with the law based on certifications from the responsible fiduciaries and appraiser.”
DOL’s proposed safe harbor exemption is available here.
Members of the ESOP community and other interested parties are welcome to submit comments to The ESOP Association by emailing ppc@esopassociation.org.