The Obstacle Nobody Could Plan Around
On September 16, 2026, the House of Representatives passed S. 2403, the Retire Through Ownership Act, by a vote of 401 to 14. The Senate had already passed the bill by unanimous consent in October 2025, and it now goes to the President for signature. For owners who have ever looked seriously at selling a company to its employees, this is the most consequential ESOP legislation in a generation — because it addresses the one issue most often blamed for holding ESOP formation back.
Understanding why takes a minute, because the problem was procedural rather than economic. ERISA has always required that an ESOP pay no more than “adequate consideration” for employer stock. But the Department of Labor never issued a final regulation defining that term for privately held stock, and in the absence of clear guidance, fiduciaries faced uncertainty and potential liability even when they acted prudently and hired qualified, independent valuation professionals. That is the part most people misunderstand. The risk was never that employee ownership does not work. It was that a trustee could run a careful, well-documented process and still spend years defending it against a standard no one had ever written down. As Chairman Tim Walberg put it on the House floor, the bill “fixes this problem by providing clear guidance.”
What follows covers the specific statutory change, what the Act deliberately leaves untouched, and what a business owner weighing employee ownership should — and should not — do differently as a result.
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 59-60. The Act makes reliance on that work defensible as a matter of statute rather than a matter of argument.
Timing and scope
Per the Senate HELP Committee’s section-by-section summary, the change takes effect immediately upon enactment, and the operative language applies to valuation determinations made on or after that date. This is a forward-looking fix, 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 word “safe harbor” implies.
Fiduciary duties are untouched. The legislation does not modify a fiduciary’s obligations under ERISA Section 404, which means the duties of prudence and of acting solely in the interest of participants apply exactly as before. The Act also does not diminish the obligation to act prudently and solely in participants’ interests.
The independence requirement is doing real work. Reliance runs to a valuation from an independent expert who actually applied the 59-60 framework. An appraisal from a party with divided loyalties, or one that skips the framework, does not get 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 set rules for ESOP valuations.
And nothing here sets a price. The Act clarifies the process for arriving at fair market value. It does not raise it, 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 on adherence to a specific framework, the choice of valuation firm becomes a substantive decision rather than a procurement one. Ask how the firm documents its application of 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 are all exactly as difficult and as manageable as they were before September 16. The Act removes a source of legal friction at the front end. It does not shorten the diligence.
James Bonham of The ESOP Association described the change in blunter terms, calling it “a huge roadblock for ESOP formation effectively removed.” That is a fair read — provided you understand which roadblock was removed and which ones remain.
Looking Ahead
The bill now awaits the President’s signature. After that, the questions worth watching are how DOL positions itself under the clarified standard and how courts read the good-faith reliance provision in the first cases to test it. Neither will be 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 your 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.
Because this legislation 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.
If you have been weighing employee ownership and set it aside over valuation risk, this is a reasonable moment to look again. Menke has worked on ESOP design, valuation coordination, and financing for more than fifty years, and we can tell you plainly whether your company is a candidate. Start with our Feasibility Questionnaire for a free preliminary analysis, or contact us to talk through your situation directly.
This article is provided for general informational purposes and does not constitute legal, tax, accounting, or investment advice. Consult qualified professional advisors regarding your specific circumstances.
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Phil DeDominicis is an ESOP strategist and M&A advisor who has guided 300+ companies through ESOP formations, financing, and transactions over 20+ years at Menke & Associates. He specializes in selling ESOP‑owned businesses to financial or strategic buyers and in helping ESOP companies acquire other businesses.
