Retire through Ownership Act
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The bill would let fiduciaries of employee stock ownership plans (ESOPs) rely in good faith on an independent appraiser's valuation of non-publicly-traded stock, so long as the appraiser follows a longstanding IRS valuation methodology, when determining whether the plan paid 'adequate consideration' for that stock.
What this bill would do
What it would do
The bill would amend the Employee Retirement Income Security Act of 1974 (ERISA) to add a new definition clarifying what counts as 'adequate consideration' when an employee stock ownership plan (ESOP) buys stock that is not traded on a national securities exchange. It would allow a plan fiduciary to rely in good faith on a valuation from an independent valuation expert or business appraiser, provided that expert used the methodology in Internal Revenue Service Revenue Ruling 59-60, which sets out factors for valuing closely held company stock. The bill would not expand the Department of Labor's regulatory authority over the term 'adequate consideration' beyond what it already has, would not stop the Secretary of Labor from issuing clarifying regulations, and would not change a fiduciary's separate duty-of-prudence obligations under ERISA section 404. The change would apply to valuation determinations made on or after enactment.
Key provisions
- 1Would allow an ESOP fiduciary to rely in good faith on an independent appraiser's valuation of non-publicly-traded stock for adequate consideration purposes
- 2Would require that reliance be based on an appraiser following the methodology in IRS Revenue Ruling 59-60
- 3Clarifies that the provision does not expand the Secretary of Labor's regulatory authority over 'adequate consideration' beyond current authority
- 4Clarifies that the provision does not modify a fiduciary's existing obligations under ERISA section 404
- 5Would apply the new definition to valuation determinations made on or after the date of enactment
Who would be affected
Fiduciaries who administer employee stock ownership plans, the employees who hold ESOP shares in privately held companies, independent business appraisers and valuation experts who value closely held stock, and the Department of Labor, which oversees ERISA fiduciary standards.
Why it matters
ESOP fiduciaries have faced litigation and regulatory uncertainty over how to value privately held stock; the bill would give them a clearer safe harbor for relying on independent appraisals using an established IRS methodology, potentially reducing legal risk and making ESOP transactions in closely held companies easier to structure.
What would change
Changes to existing law
Amends Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002(18)) (Sec. 2)
Adds a new subparagraph letting ESOP fiduciaries rely in good faith on independent appraisals using IRS Revenue Ruling 59-60 methodology to determine adequate consideration.
Agencies directed to act
Effective dates
- The new adequate-consideration definition for ESOP stock valuations
How implementation would work
The change is largely self-executing: once enacted, a plan fiduciary determining adequate consideration for non-publicly-traded ESOP stock could point to an appraiser's compliance with IRS Revenue Ruling 59-60 methodology as good-faith reliance. The Department of Labor retains authority to issue implementing regulations through standard notice-and-comment rulemaking, but the bill does not require it to do so, and existing fiduciary prudence duties under ERISA section 404 remain unchanged and enforceable independently.
Legislative status & sources
Latest action
Placed on the Union Calendar, Calendar No. 383.
Official CRS summary
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This bill allows the fiduciary of an Employee Stock Ownership Plan (ESOP) to rely on a valuation provided by an independent valuation or business appraiser in determining the fair market value of the plan's securities if the securities are not traded on a national securities exchange (i.e., not publicly traded) and the expert or appraiser follows specified methodologies.
In general, ESOPs are defined contribution pension plans where employees accrue shares of their employers' stock in individual accounts as part of their compensation. After separating from employment or retiring, employees receive the cash value of their shares.
Under the bill, an independent appraiser or expert must adhere to the methodology established under the Internal Revenue Service Ruling 59-60, which prescribes the factors a professional business appraiser should consider in forming a valuation of the stock for a closely held business.
Legislative subjects
Employee benefits and pensions; Financial services and investments; Labor and Employment; Securities
Committee report
H. Rept. 119-448