What is a business worth? It is one of the most basic questions an owner can ask. For employee owners, the answer matters a lot more than you think, from the first day a business becomes an ESOP to the day an employee retires or leaves the company.
A trustworthy valuation, and the process for determining that valuation, is a foundational issue for ESOPs and employee owners. If an ESOP overpays in the initial transaction, employees’ retirement savings bear the consequences. If shares are valued too low when employees exit the company, they won’t receive what they are truly owed. And as a company grows, whether organically or through mergers and acquisitions, the annual valuation requirement for ESOPs means that a sound valuation process remains vital long after the original transaction.
When Congress established the modern ESOP framework through ERISA in 1974, it required ESOP transactions to meet a standard called “adequate consideration,” in essence a good faith process to establish a fair market value for the company’s stock. Yet the Department of Labor never finalized a regulation explaining how to meet that standard. Instead, companies, fiduciaries and professional advisers were left to navigate an opaque web of unofficial guidance, court decisions and process agreements. This effectively allowed the DOL to follow a regulation by litigation policy, where the definition of adequate consideration was whatever the DOL said it was in each individual case. It also opened ESOPs to countless baseless lawsuits brought by plaintiffs’ attorneys whose sole purpose was to force companies to settle or face years of costly litigation.
The ESOP Association has long argued that this regulatory uncertainty raises costs for existing ESOPs and discourages business owners who might otherwise sell to their employees. More fundamentally, employee owners deserve a valuation process they can understand and trust.
The Association worked for years advocating for a fair process that protects employees and establishes a clear standard all ESOPs must follow. Congress took a positive step in 2022 with legislation that directed the Department of Labor to issue a formal rule defining this process. In 2024, The ESOP Association released its own model regulation, developed with input from the top expert professionals across the ESOP community. The outgoing Biden Administration then released proposed guidance in January 2025, but thankfully the incoming Trump Administration froze all pending regulations on January 20, as The ESOP Association had raised substantial objections to that proposal.
Then came a major shift at the DOL itself. During his confirmation hearing, Daniel Aronowitz pledged to “end the war on ESOPs,” while in January 2026, the Department ended its decades-long special enforcement project that targeted ESOPs for increased scrutiny.
But the most consequential signal that the tide is turning in favor of ESOPs has come from Congress. The Senate passed the Retire Through Ownership Act by unanimous consent in late 2025. The House voted in September and passed the bill with an overwhelmingly bipartisan vote of 401–14: 209 Democrats, 191 Republicans and one independent voted for it. For good measure, the Retire Through Ownership Act also passed the relevant committees in the House and Senate unanimously. The ESOP Association was proud to lead a sustained advocacy effort for this legislation with lawmakers and leaders on both sides of the aisle.
The bill, which now awaits the President’s signature, would make clear that an ESOP trustee may rely in good faith on an independent professional valuation based on longstanding IRS principles for valuing private companies. In the simplest terms, the bill removes ambiguity from what has been a huge gray area for decades. Trustees must still act prudently and in employees’ interests, but the legislation gives everyone involved a clearer, more consistent framework for determining a fair price for ESOP shares.
For business owners weighing succession options, advisers working with them and employees whose savings depend on sound valuations, the significance of the Retire Through Ownership Act is hard to overstate. For employee owners, the importance goes far beyond the initial purchase of shares when an ESOP is formed. Your company’s valuation affects the value of your individual ESOP account and what you ultimately receive when you leave or retire. Eliminating this uncertainty about how your stock should be valued is a major turning point in the history of ESOPs.
The congressional vote also tells a broader story. Democrats and Republicans may approach economic policy from different directions, but they came together in overwhelming numbers on this issue. It also tells us that our other key issues, like retirement security, business succession and the chance for employees to share in the value they help create all have support that cuts across party lines. That is particularly striking at a time when bipartisan agreement is increasingly more difficult to find.
That breadth of support could carry the employee ownership conversation beyond this Congress, perhaps even into the 2028 presidential race. For now, the clearest signal that ESOPs have reached a tipping point is the vote itself: after decades of uncertainty over a question at the heart of every ESOP, lawmakers in both parties agreed that employee owners deserve better, and did something about it.
