DOL’s 2026 Report to Congress: Structural Shift in Federal Employee Ownership Policy

A Structural Development: The Division of Employee Ownership

The WORK Act directed DOL to create an Employee Ownership Initiative. In 2023, DOL operationalized that directive by establishing the Division of Employee Ownership (DEO) within EBSA’s Office of Outreach, Education, and Assistance.

This is significant for three reasons:

1. 1. Employee ownership now has a dedicated federal home inside EBSA

   2. The Initiative is mandated to support state-level employee ownership programs (SEOPs)

   3. DOL is now positioned not just as regulator — but as educator and clearinghouse

Historically, ESOP regulation and ESOP promotion lived in separate spheres. This report signals a federal effort to integrate oversight, education, and policy coordination under one administrative umbrella.

Scope: ESOPs, Cooperatives, and EOTs

The report defines employee ownership broadly, including:

• • ESOPs (federally regulated retirement plans under ERISA)

  • Worker cooperatives

  • Employee Ownership Trusts (EOTs)

However, the Department makes clear that its Initiative focuses on ownership models open to broad-based participation — not executive equity programs or selective stock compensation.

For ESOP companies, this reinforces a long-standing principle: broad-based participation remains central to federal policy support.

Funding Reality: Authorized but Not Fully Appropriated

The WORK Act authorized grants to states and administrative funding for the Initiative. However, as the report notes, Congress had not appropriated funds at the time of publication.

This creates a practical tension:

• • Policy framework exists

  • Administrative structure exists

  • But sustained expansion depends on appropriations

For companies and advisors, this means growth in state-level technical assistance may expand unevenly based on funding cycles.

Data Signals: Leveraged ESOP Activity

The report draws on Form 5500 data to track ESOP growth, including leveraged vs. non-leveraged plans and stand-alone ESOPs versus KSOP structures.

While the report stops short of policy recommendations, the emphasis on leveraged ESOP growth is notable. It reflects:

• • Continued use of ESOPs as ownership succession vehicles

  • Increased scale of ESOP transactions

  • Greater asset accumulation relative to plan count growth

For transaction planners, this reinforces that ESOPs remain a viable and increasingly capital-efficient succession tool.

State-Level Infrastructure: A Key Theme

One of the report’s most practical contributions is its detailed review of State Employee Ownership Programs (SEOPs).

DOL identifies:

• • Existing state-level outreach programs

  • Technical assistance structures

  • Tax incentives and subsidies adopted at the state level

This signals a decentralization strategy: federal coordination paired with state-level execution.

For ESOP sponsors, this may mean:

• • Expanded local advisory networks

  • Increased state tax alignment

  • Greater normalization of employee ownership as a mainstream succession strategy

What This Means for Fiduciaries and Sponsors

The report does not alter ERISA fiduciary standards. It does not revise “adequate consideration.” It does not change prohibited transaction rules.

But it does signal something subtler:

• • DOL is investing in policy literacy around employee ownership

  • Education and outreach are becoming formalized functions

  • The adversarial-only narrative is shifting toward structured engagement

For trustees and fiduciaries, this underscores the continued importance of:

• • Documented valuation processes

  • Careful transaction structuring

  • Clear demonstration of broad-based benefit

Federal engagement may be more constructive — but compliance standards remain intact.

The Big Picture

The 2026 Report is not a regulatory overhaul.

It is a framework document.

It formalizes employee ownership as a durable component of federal workforce and retirement policy. The creation of the Division of Employee Ownership institutionalizes that commitment.

For business owners considering succession, for S corporations navigating §409(p), and for C corporations evaluating §1042 transactions, the policy signal is clear:

Employee ownership is no longer niche. It is part of federal economic strategy.

We will continue monitoring funding developments, SEOP expansion, and any future guidance from EBSA as the Initiative evolves.