Fireside Chat with EBSA Assistant Secretary Lisa Gomez Illuminates Path Forward for ESOP Regulation

In a “fireside chat” at the final general session of the Employee Owned 2024 Conference, Jim Bonham, President and CEO of The ESOP Association (TEA), talked with Lisa Gomez, Assistant Secretary for the Employee Benefits Security Administration (EBSA) at the Department of Labor (DOL), for a rare behind-the-scenes look into her journey of understanding employee stock ownership plans (ESOPs) and her role in shaping their future. The conversation underscored EBSA’s evolving perspective on ESOPs and provided a detailed update on the Adequate Consideration Rule.

Building Bridges: Lisa Gomez’s Perspective on ESOPs

Gomez began the discussion by describing EBSA’s role within the DOL to regulate, provide assistance and conduct enforcement on qualified retirement plans such as ESOPs. After three decades as an employee benefits lawyer, Gomez candidly admitted her initial unfamiliarity with ESOPs. “Where has this been all my life?” she said, recalling her first encounters with the concept of employee ownership. Gomez acknowledged the traditionally frosty relationship between the ESOP community and EBSA, largely due to their role as an enforcement agency. However, Gomez described her efforts to mediate between the ESOP community and enforcement arm of EBSA by fostering understanding through informative visits to ESOP companies. Bonham thanked her for these efforts to be a “good cop in a difficult precinct.” 

Key Initiatives: Outreach, Education, and Enforcement

Gomez highlighted much of the exciting provisions of the WORK Act that EBSA is working to implement after it’s passage in December 2022. This includes establishing the Division of Employee Ownership within EBSA’s Office of Outreach, Education, and Assistance to highlight the commitment to proactive engagement with the ESOP community, distinct from its enforcement functions. Gomez went on to cover the most important aspect of the WORK Act that EBSA has worked on implementing: the adequate consideration regulation. 

Adequate Consideration Rule

The centerpiece of the conversation was the Adequate Consideration Rule, a long-awaited regulatory proposal aimed at providing clarity to ESOP stakeholders on how to value their ESOP shares. Gomez detailed the work that has happened so far to create the rule and where we go from here:

How we got here:

• The WORK Act passed in 2022 mandating that the DOL provide formal guidance on adequate consideration, so EBSA decided to propose a formal rule with a notice and comment period. 
• EBSA spent the next two years writing the rule while considering the input from stakeholders in the community.
• EBSA utilized The ESOP Association’s model regulation that we provided as a blueprint for what the ESOP community would like to see in the regulation.
• EBSA consulted with the Department of Treasury on the regulations as required by the WORK Act.
• EBSA completed their draft and submitted it to the Office of Management and Budget (OMB). 
   

What is happening now:

• OMB reviews the proposed regulation and consults multiple federal agencies to gather their input.
• Stakeholders from the ESOP community are given a chance to meet with OMB directly to provide their input on the rule.
• OMB sends the proposed regulation back to EBSA to incorporate interagency comments.
• EBSA releases the proposed regulation. The regulation will include:
  • Details of the rule
  • Proposed effective date
  • Regulatory impact analysis
  • Cost analysis
  • Timeline for the comment period
• IMPORTANT NOTE: Gomez stated that EBSA is currently very close to releasing the proposed regulation.

Once the proposed rule is released:

• The rule that EBSA initially releases is a proposed rule; a first draft that can and will be changed.
• Stakeholders from the ESOP community can submit comments to EBSA detailing how they would like the rule to change.
• EBSA will incorporate public comments into the final rule and submit it again to OMB for a similar interagency review.
• OMB sends the rule back to EBSA to release as the final rule.
• Once the final rule is released, stakeholders can still work with Congress or through litigation to change the rule.
• IMPORTANT NOTE: Gomez stated that it is highly unlikely that the rule will be finalized before the end of the Biden Administration on January 20. 

Looking Ahead

Bonham concluded the discussion by reiterating that what the ESOP community is looking for in the rule is clarity and permanence. While Gomez said that it is rare that all parties are happy with everything at the end of such a process, she is hopeful that the ESOP community will all be satisfied.