House Appropriations Committee Includes Strong Pro-ESOP Language in FY25 Labor, Health and Human Services, Education, and Related Agencies Funding Package

The House Committee on Appropriations recently released its report on proposed fiscal year 2025 funding for the Department of Labor, which included two very strong provisions affecting ESOPs.

With respect to ESOP company valuation and the adequate consideration exemption, the Committee noted that the DOL has neglected to provide critical regulatory guidance and asks the Department to prioritize formal rulemaking:

“Employee Stock Ownership Plans.—The Committee is concerned about the Department’s implementation of the SECURE 2.0 Act of 2022 (26 U.S.C. 1042), specifically a key provision related to employee stock ownership plans (ESOPs). The law directs DOL to issue formal guidance on the adequate consideration exemption, as defined in section 407(d)(6) of the Employee Retirement Income Security Act (ERISA). The Committee is aware that this critical regulatory guidance for ESOPs has been neglected since ERISA’s passage in 1974, causing both significant enforcement and investigation issues for decades and a deleterious effect on ESOP formation. The Committee encourages the Department to prioritize a timely, formal notice and comment rulemaking on the adequate consideration exemption that ensures taxpayers benefit from stakeholder input and experience.”

In another key provision, the Committee stated its concern about the effect of prolonged EBSA investigations into retirement plan sponsors like ESOPs and ordered the DOL to publicly release a report on all investigations older than 48 months:

“Open Investigations.—The Committee is concerned that prolonged investigations conducted by EBSA have placed tremendous strain on retirement plan sponsors and have negatively impacted amounts available for employee benefits. In May 2021, the Government Accountability Office (GAO) found that 17 percent of all investigations opened in 2017 were still open four years later. Within 180 days of enactment of this Act, the Committee directs DOL to publicly release a report on the number of investigations older than 48 months outstanding and the measures taken by DOL to expediently address any violations uncovered by these investigations.”

EBSA’s investigatory tactics are an issue The ESOP Association has discussed with members of Congress on several occasions. In addition, in September 2023 the House Committee on Education and the Workforce, which has oversight authority of EBSA, sent a letter to the Secretary of Labor citing “disturbing reports” about EBSA’s failures to conduct investigations in a timely manner.

To read the full House Appropriations Committee report please click here.

“The ESOP Association thanks Chairmen Aderholt and Cole for recognizing the role of ESOPs in growing our economy and providing retirement security for millions of Americans, and the importance of a clear regulation for adequate consideration made with stakeholder input,” said Jim Bonham, President and CEO of The ESOP Association. “We now look forward to working with the Senate Appropriations Committee to ensure its bill for funding DOL and EBSA also includes clear language in support of ESOPs and employee ownership.”

Despite the inclusion of pro-ESOP provisions in the committee’s report, at this early stage the legislation did not include specifically directed funding for the Employee Ownership Initiative (EOI), housed within EBSA at the DOL. The WORK Act authorized up to $4 million to be spent for the Initiative in fiscal year 2025 to promote employee ownership.

However, this is just the first step in the FY 2025 appropriations process, and there will be several opportunities to include directed funding for the EOI. These include the Senate version of the Labor, Health and Human Services, Education, and Related Agencies appropriations bill as well as in conference committee if both the House and Senate pass different versions of the legislation as expected.

It is also important to note the political dynamics at play with a Republican-controlled House and a Democratic Senate and White House. The House bill appropriates $181 million for EBSA, a funding cut of $10 million over FY24 levels, and more than $24 million less than the department requested. This reflects the political priorities of the House, which has been aggressively trying to cut federal government spending, in particular at agencies that have been viewed as overly aggressive in their regulatory approach. However, the Senate bill will look much different than the House version, as it will reflect the Democratic majority’s priorities.

The ESOP Association continues to work closely with our Congressional champions toward a pathway to directed funding for the EOI, and will keep our members fully informed of any developments.