Still waiting for the DOL ESOP regs

BVWireIssue #259-3
April 17, 2024

ESOP valuations
ASA, breach of fiduciary duty, overpayment, employee stock ownership plan (ESOP)

First, they were expected at the end of 2023, then the end of March 2024, but there is no sign yet (at the time of this writing) of the proposed regulations regarding ESOP valuations. The Department of Labor website page that has the agenda for the rule (click here to view) still has the March 2024 date.

No deadline: The regulations (which have no legal deadline) will clarify “adequate consideration” under Section 408(e) of the Employee Retirement Income Security Act (ERISA) of 1974. Guidance will be provided for “acceptable standards and procedures to establish good faith fair market value for shares of a business to be acquired” by an ESOP. It has been four decades since such regulations were proposed but never finalized. Valuation experts have long maintained that the DOL has been playing by its own valuation rules in its aggressive enforcement of ESOPs—rules that are not consistent with accepted valuation standards. After a long winning streak, the courts rejected the DOL’s valuations in several recent and important cases, alleging that the ESOPs overvalued (and thus overpaid for) the stock of the sponsoring companies.

Once the proposed regulations are issued, there will be a two-to-three-month public comment period before they are finalized. There is no word on whether or not there will be a public hearing.

Extra: The ASA has set June 11 as the date for its ESOP conference this year. Details are not yet available. A recap of last year’s conference is in the August 2023 issue of Business Valuation Update (subscription required).

Please let us know if you have any comments about this article or enhancements you would like to see.