Frequently Asked Questions about the Retire Through Ownership Act (RTOA, P.L. 119-124)
- What is the Retire Through Ownership Act?
The Retire Through Ownership Act (RTOA) amends ERISA’s definition of “adequate consideration” to clarify that ESOP fiduciaries may rely in good faith on independent valuations based on IRS Revenue Ruling 59-60.
This is the first law to amend the definition of adequate consideration since ERISA created ESOPs in 1974. By codifying this definition, Congress has given a clear and commonly used valuation framework for ESOPs as an explicit foundation in the federal code, notably where one didn’t exist before. This is a significant, positive change for ESOPs and employee owners. Fiduciaries now have express statutory recognition of a process they have relied on for decades, but had been continuously second-guessed by EBSA investigators and challenged by plaintiff bar attorneys in nuisance lawsuits. While the RTOA still allows the Department of Labor (DOL) to produce additional regulation in the future, it must do so through a formal notice and comment rulemaking, and any such rule cannot conflict with the new, underlying statute. The RTOA provides a durable legal foundation for ESOP transactions, providing in statute, not DOL regulation, the clarity ESOPs have lacked for more than 50 years. Plus, it provides certainty for both ESOP companies and employee owners on valuations.
The RTOA passed the Senate by unanimous consent, passed the House by a 401–14 vote, and was signed into law (P.L. 119-124) on October 15, 2026.
- What is IRS Revenue Ruling 59-60?
Revenue rulings provide official IRS guidance interpreting federal tax law. Issued in 1959, Revenue Ruling 59-60 explains the process for how independent appraisers may determine the fair market value of closely held company stock when reliable public trading prices are unavailable. It is a longstanding, widely accepted foundation for valuing privately held company stock, including ESOP stock.
- What does IRS Revenue Ruling 59-60 say?
The central principle of Revenue Ruing 59-60 is that privately held business valuation is a process based on informed judgment applied to a particular business. It specifically recognizes that valuation is not an exact science that must follow one universal formula. Revenue Ruling 59-60 identifies eight fundamental factors to consider when determining fair market value:
- the company’s history
- economic and industry conditions
- the financial condition of the business
- the earning capacity of the company
- the dividend-paying capacity
- goodwill and other intangible value
- prior stock sales and the size of the ownership interest
- comparable publicly traded companies
Subsequent IRS rulings and court decisions over 65 years have developed this framework further. Together, these authorities provide a strong foundation that ESOP appraisers and other business valuation professionals have used for decades. Importantly, it means that ESOP companies will be appraised and valued according to the same processes and methodologies as any other privately held businesses and that there should not be a different set of appraisal standards for ESOPs that are more onerous or prescriptive than for non-ESOP businesses.
- Why was the RTOA needed?
ESOPs desperately needed clarity on valuations for several reasons. Valuations are fundamental to everyone involved in the ESOP – the founder who sells his or her company to the ESOP should be paid a fair market value and not be forced to take a discount in order to ameliorate a perceived risk of future regulatory second-guessing; employee owners need confidence in their share prices when it comes to retire or leave an ESOP; and ESOP companies are required to perform annual valuations to comply with their ERISA requirements. However, because the DOL had never issued clear, uniform guidance on valuing company stock for ESOPs, but continued to question ESOP valuations regularly, there was uncertainty in the entire process for all involved. This regulatory uncertainty led to unfair targeting of ESOPs by the DOL, and excessive, costly litigation by the plaintiffs’ bar. This environment depressed interest in ESOPs by business owners and negatively affected existing ESOP companies and employee owners.
- How does the RTOA change ESOP valuations?
The most fundamental change is that it codifies the ability of an ESOP fiduciary to hire an independent business appraiser and that the fiduciary may in good faith rely upon that appraisal if it followed Revenue Ruling 59-60. This recognizes the long-standing principle that a fiduciary need not be an expert business appraiser. The fiduciary can hire an independent expert to do that without becoming an expert him/herself. The RTOA does not change any ESOP valuation methods. It codifies ESOP fiduciaries’ ability to rely in good faith on independent appraisers and business valuation experts using methods they have already been using for decades.
- Is this a “safe harbor” for ESOP valuations?
There is no such thing as a “safe harbor” – a fiduciary must do his or her job and that includes a prudent process in establishing share price. What the RTOA does is describe the boundaries of a prudent process and, even more importantly, that it is a process not a specific outcome. IRS Revenue Ruling 59-60 recognizes that there is no universal valuation approach or formula or checklist that any law or regulation could use as a “safe harbor.” It is flexible enough to appreciate that different businesses can and should be valued using different methodologies. For example, a service business that carries no inventory and is highly reliant upon individual professionals will require a different approach than a manufacturer that has significant capital investment and carries inventory. The law specifically preserves a fiduciary’s obligations to represent plan participants with prudence and loyalty, but recognizes that a prudent process may, in good faith, allow the fiduciary to hire an independent appraiser and rely upon the findings of that appraiser. And when the appraiser follows the well-established practices of Revenue Ruling 59-60, and the fiduciary documents his or her due diligence in confirming that, then the fiduciary has fulfilled his or her obligation.
- The RTOA and IRS Revenue Ruling 59-60 are fairly broad in their language and don’t get into specifics about things like control premiums and discounts, or finance tools like warrants or SARs. These are the main types of issues the DOL investigates and litigates. How does the RTOA help address these issues?
The RTOA confirms that an ESOP fiduciary’s obligation under adequate consideration is a process, not a specific outcome. Recent litigation has been focused on the reverse. The DOL and plaintiffs’ bar have used disagreement over judgments made by professional appraisers as a weapon to say ESOP fiduciaries didn’t do their job. This is what a control premium (or discount) disagreement is about, for example. The RTOA recognizes that these judgments are best made by independent business appraisal experts who make these judgments every day as their profession rather than by an ESOP fiduciary who is not, and should not be expected to become, a business appraisal expert. ERISA’s standard for all qualified retirement plan fiduciaries is process based. However, for decades, the DOL has tried to say ESOP fiduciaries not only need to have a prudent process with loyalty to plan participants, but they must ALSO guarantee that the outcome is “correct” and if two appraisers might come up with different share values, the DOL would assert that the fiduciary did not do his or her job. Congress has now made it clear it wants ESOP fiduciaries to have a prudent process, and the same process that has worked for the IRS for over six decades. This is a significant hurdle for the DOL and plaintiffs’ bar to overcome when second-guessing a professional independent appraisal of shares to be bought or sold by an ESOP.
- What does this mean for employee owners?
Employee owners benefit by having increased confidence in the value of their ESOP shares, which translates into greater assurance in their ESOP as a financial asset for retirement. Lowered risk of nuisance litigation and costly class action lawsuits helps an ESOP company’s bottom line, which enables more resources to support employee owners. Regulatory clarity should help bring down the cost of forming an ESOP and running an ESOP.
- What does this mean for ESOP companies?
ESOP companies are required by law to conduct an annual valuation, and they benefit through increased confidence that, by following the process outlined by IRS Revenue Ruling 59-60, they can rely on the resulting valuation in good faith. This should reduce the risk of costly litigation, which helps keep the strategic goals of the company front and center, not distracting nuisance lawsuits meant to drive quick settlement payouts.
- What does this mean for ESOP professionals?
ESOP professionals in several disciplines benefit by having the certainty they need to do their jobs with confidence. Assuming independent appraisers follow the well-established approach outlined in IRS Revenue Ruling 59-60, which many (if not the vast majority) already do, then:
- Appraisers and business valuation professionals will find it easier to value ESOP companies, and to ensure confidence in those valuations. In the past, absent clear guidance on valuation, the only correct valuation was the DOL’s valuation; the only correct methodology was the one the DOL used; the only correct assumptions were the DOL assumptions. That has now changed and the new law affirms a prudent process rather than dictating any specific approach that reasonable professionals could choose differently in the same situation.
- Fiduciaries will not be required to be appraisers (and they shouldn’t be) and will therefore find it easier to defend the process undertaken to derive a business valuation.
- ESOP attorneys will find it easier to defend valuations in court. Congress has now set a clear method for valuation, the IRS has defined how that looks with longstanding guidance, and so legal cases should become less frequent and ESOP companies easier to defend.
- The DOL must undertake a formal notice and comment rulemaking if it wants to prescribe any specific approach, and any approach it tries to require in a rule cannot contradict what is now codified (as opposed to a regulation).
- ESOP professionals of all stripes should find it easier to encourage companies to form ESOPs, because the risk of costly litigation related to valuations, some occurring well after the transaction, has been greatly reduced. Lowering the cost to maintain an ESOP should make forming an ESOP more attractive to potential clients.
- What does this mean for business owners considering an ESOP?
Business owners considering an ESOP can have confidence that their agreed valuation is not going to be second-guessed later by a government lawyer. This simple, commonsense change should dramatically reduce litigation risk, lower costs, and reduce the uncertainty that currently underpins the process of forming an ESOP. In turn, it’s reasonable to believe this new environment will see growth in the number of ESOP companies and more employee owners.
- What are other effects of the RTOA’s passage into law?
There are several direct and indirect effects of the passage of the Retire Through Ownership Act into law, all of which will encourage the formation of more ESOPs and the creation of more employee owners.
First, because the statute directly points the process for ESOP valuation to an IRS Revenue Ruling, the center of gravity for ESOP regulation related to valuation has been moved from the DOL to the IRS. The DOL will certainly maintain oversight responsibilities of ESOPs as qualified retirement plans under ERISA. However, the DOL cannot change an IRS revenue ruling, and because Congress has now said an ESOP fiduciary may rely in good faith on Revenue Ruling 59-60, the DOL will be very challenged in convincing a court that a fiduciary who did so failed in his or her responsibilities.
Second, because IRS Revenue Ruling 59-60 addresses ALL privately held businesses, any change or modification has sweeping implications for the entire business community and the interested constituency would be massive. This means that ESOPs are no longer relegated as a niche ownership structure under the jurisdiction of DOL regulators with their own unique system. A change for ESOPs would now mean a change to all business valuations. Any attempt to change this guidance for ESOPs will very likely have greater effects on other privately held businesses utilizing IRS Revenue Ruling 59-60. Relevant interested groups, associations, and coalitions could be affected, concerned, and hopefully vocal about proposed changes. Simply put, ESOPs now have lots of company on valuation matters, making the RTOA’s approach more stable.
Third, as stated before, passage of the RTOA restores some balance to the litigation landscape for ESOPs, reducing the risk of expensive litigation and lowering costs to form and insure new and existing ESOPs.
Fourth, as Administrations change with elections, new leaders can change regulations, issue new rules, create new sub-regulatory guidance, or choose to enforce existing regulations differently. Having the ESOP valuation process clearly delineated in statute makes it a substantially higher bar for any future Administration to change how it’s enforced. Also, because the RTOA is a statute, it supersedes any proposed regulatory change. As stated above, changing IRS Revenue Ruling 59-60 guidance likely has corollary effects for (non-ESOP) privately held business valuation practices. So, the RTOA provides the ESOP community and potential ESOPs an encouraging stability in the regulatory and legal landscape.
- Does the DOL still need to issue an adequate consideration regulation?
Yes. The SECURE 2.0 Act of 2022 requires the DOL, in consultation with the Department of the Treasury, to release formal guidance on acceptable standards and procedures for establishing good faith fair market value for shares acquired by an ESOP. The RTOA leaves that requirement in place, and adequate consideration rulemaking remains on the regulatory agenda of the DOL’s Employee Benefits Security Administration (EBSA). But a regulation cannot change what is in statute, and the IRS now has a much heavier hand with over 60 years of practice and application of a system that works. Changes to Revenue Ruling 59-60’s approach would have deep implications across the entire economy.
Congress has now expressly recognized the 59-60 framework and good faith reliance on independent valuations, giving future guidance a statutory foundation while preserving the DOL’s existing oversight authority. The DOL can now develop its guidance consistently with the new definition of adequate consideration.
