Congress Passes the Retire Through Ownership Act: What Clearer ESOP Valuation Rules Mean for Owners

What the Act Actually Changes

The Act amends Section 3(18) of ERISA—the definition of “adequate consideration”—to provide that a fiduciary of an employee stock ownership plan may rely in good faith on a valuation provided by an independent valuation expert or business appraiser who has relied upon the principles and methodologies set out in IRS Revenue Ruling 59-60, as amplified and modified by the IRS from time to time.

That single sentence does most of the work. It gives fiduciaries a defined framework to point to, and it identifies who must apply it.

Why Revenue Ruling 59-60 Matters

Revenue Ruling 59-60 is not new. It has been the working reference for appraising closely held stock since 1959, and it sets out the factors a qualified appraiser is expected to weigh: the nature and history of the business, the outlook for its industry, book value and financial condition, earning capacity, dividend-paying capacity, goodwill and other intangibles, prior sales of stock and the size of the block being valued, and the market prices of comparable public companies.

Aligning ERISA with these established valuation principles creates a more consistent process for fiduciaries, appraisers, regulators, and courts. In practical terms, appraisers were already applying Revenue Ruling 59-60. The Act makes reliance on that work defensible as a matter of statute rather than a matter of argument.

Timing and Scope

The change took effect immediately when the Act was signed into law on October 15, 2026. Its operative language applies to valuation determinations made on or after that date.

This is a forward-looking change, not a retroactive one. Owners and trustees with transactions currently under examination or in litigation should ask counsel how—or whether—the new provision bears on their situation.

What the Act Does Not Change

This is where careful reading pays off, because the Act is considerably more modest than the term “safe harbor” may imply.

Fiduciary duties are untouched. The Act does not modify a fiduciary’s obligations under ERISA Section 404. The duties of prudence and of acting solely in the interest of participants apply exactly as before.

The independence requirement is doing real work. Reliance runs to a valuation from an independent expert who actually applied the Revenue Ruling 59-60 framework. An appraisal from a party with divided loyalties—or one that skips the framework—does not receive the benefit of the provision.

Regulators retain their role. The Act permits the Department of Labor to issue additional guidance while providing that the legislation does not expand DOL’s regulatory authority over the term “adequate consideration” beyond what existed before enactment. Trustees must still protect workers’ retirement savings, and DOL can still establish rules governing ESOP valuations.

Nothing in the Act sets a price. It clarifies the process for arriving at fair market value. It does not raise the value, lower it, or guarantee any particular result.

What This Means If You Are Considering an ESOP

Appraiser selection matters more now, not less. When the statute conditions reliance on independence and adherence to a specific valuation framework, the choice of valuation firm becomes a substantive decision rather than a procurement decision. Ask how the firm documents its application of Revenue Ruling 59-60 and how it handles annual updates after closing.

Document the process, not just the number. ERISA’s fiduciary standard is process-based, which is precisely what allows participants to have confidence that the company was valued fairly and according to well-established principles. The Act rewards a clean, contemporaneous record. It does not substitute for one.

Everything else about the transaction is unchanged. Feasibility, financing structure, the repurchase obligation, board composition, and the internal communication work of turning employees into owners remain exactly as important as they were before the Act became law. The Act removes a source of legal friction at the front end. It does not shorten the diligence process.

James Bonham of The ESOP Association described the change in direct terms, calling it “a huge roadblock for ESOP formation effectively removed.” That is a fair reading—provided you understand which roadblock was removed and which ones remain.

Looking Ahead

The Retire Through Ownership Act is now law. The next questions worth watching are how the Department of Labor positions itself under the clarified standard and how courts interpret the good-faith reliance provision in the first cases to test it. Neither will become clear immediately.

For business owners, the core message is straightforward: a structural reason for hesitation—one that had nothing to do with whether employee ownership was right for the company—has been substantially reduced.

The analytical work of deciding whether an ESOP fits your company, your timeline, and your family’s objectives is unchanged. That work is where the decision has always actually been made.

For the employee-ownership community, however, this is a milestone worth celebrating. More than 50 years of uncertainty have been addressed through an overwhelmingly bipartisan effort. Great things happen when people work together.

Because the Act touches ERISA, fiduciary liability, tax treatment, and valuation methodology, none of the above should be treated as legal, tax, or valuation advice. Anyone evaluating a transaction should review the specifics with qualified ERISA counsel and an independent valuation professional.