The ESOP Association Prepares to Release Proposed Regulatory Framework

Product is the Result of Two-Year Professional Working Group Effort

Nearly two years ago, at the 2022 ESOP Association Professionals’ Forum, an important group of professionals was organized to find ways to leverage the U.S. Department of Labor (DOL) into finally drafting and publishing actual rules to guide ESOP Trustees in fulfilling their valuation responsibilities.  This working group represented all the major professional stakeholders including ESOP Trustees, valuation firms, defense counsels, and lenders.  Each participant not only brought their professional expertise, but they also contributed financial resources to the effort through the Association’s Corporate Council program.

The first task was to exercise our rights under the Administrative Procedure Act (APA) and to file a formal petition with the Secretary of Labor requesting a rulemaking.  Under the APA, the DOL was obligated to respond and either grant the requested rulemaking or deny with a reason. Parallel to this working group effort, the Association’s lobbyists and policy experts worked aggressively within the U.S. Congress to pass a law that would require the rulemaking more directly.

In late December 2022 President Biden signed the WORK Act into law as part of SECURE 2.0, and it contained the requirement that the DOL finally, after nearly 50 years, produce the regulatory guidelines that ESOP Trustees need.  By February of 2023, the DOL pointed to the Congressional directive, formally denied the APA petition and essentially stated “we are turning you down because Congress already told us to do this.”

Since the passage of the WORK Act, this professional working group has continued into a new phase – drafting the Association’s official views for consideration by the Department of Labor, the Congress, and the White House.  Spanning the last year, this working group has provided invaluable thoughts, ideas, and feedback on a draft rule framework that has been reviewed by the Association’s Public Policy Council Executive Committee and will be considered by the full Board of Directors for adoption in February.

Our initial draft is the result of a lengthy period of consideration, thought, and hard work by many people representing all major parties who will be affected by the DOL’s rulemaking, and remains an iterative process. In our effort to obtain maximum input from our internal stakeholders before putting it to the Board, over the next few weeks we will be releasing our initial proposed draft rule to increasingly large numbers of our membership for review, starting with attendees at the Professionals’ Forum in New Orleans next week. During the opening General Session on February 8, a special panel of advisors who helped conceptualize and draft the proposed rule will lead a discussion of the approach and process, and work through key parts of the draft. If you are a professional member of the Association and have not yet registered for the Forum, there are still spots available if you would like to contribute to what will be a very significant discussion. We will also be discussing this important regulatory activity throughout the coming months during our spring chapter conferences and meetings.

Our Association’s membership is heading into a very important period of regulatory activity.  Participation in these efforts is essential, particularly in The ESOP Association’s annual National Conference in Washington, DC this May 7 -10, where the voice of ESOPs nationwide will be directly interfacing with our federal policymakers.  We anticipate the Department of Labor to release their proposed draft rule prior to or immediately after this conference.  

The ESOP Community event calendar has become chock-a-block full of competing national events.  As we begin to move into this next phase of achieving regulatory clarity on behalf of all ESOPs, with far-reaching consequences, I urge you to consider the larger purpose of The ESOP Association’s role in Washington in choosing which conferences to attend.  Your voice, and presence, will be needed in Washington.