In advance of the Department of Labor issuing its proposed final regulations related to ESOP valuations, the ESOP Association has drafted a “proposed regulatory framework,” according to the group’s blog post. The draft was distributed at the group’s Professionals’ Forum in New Orleans last week and will be released to more members for input before it is submitted for board approval, the post says.

Core matter: At the heart of these regs is the definition of “adequate consideration” under Section 408(e) of the Employee Retirement Income Security Act of 1974 (ERISA). It has been four decades since the DOL first proposed regulations, but they were never finalized. In the meantime, the DOL had a long winning streak in court, alleging that the ESOPs overvalued and paid more than “adequate consideration” for the stock of the sponsoring companies. Valuation experts maintained that the DOL was playing by its own valuation rules that ran afoul of accepted valuation standards. Then, in several recent and important cases, the courts rejected the DOL’s position.

The 2022 WORK Act requires the DOL to finalize the regs, and they are expected to be issued in proposed form this May, after which there will be a two-to-three-month public comment period before they are finalized. Some practitioners fear that the proposed regs will reflect the DOL’s tough stance on valuation issues and that stakeholders may not get a sufficient chance to comment on the proposal. Although there have been reports of collaboration between the DOL and the valuation community on these regs, it is unclear how receptive the agency has been.