ESOPs in the New Administration
Getting up to speed
Employee ownership through Employee Stock Ownership Plans (ESOPS) sets up a trust that holds shares in the company on employees’ behalf, which they receive upon retirement or leaving the company. Benefits of ESOP ownership include boosted productivity, increased retention, reduction in the wealth inequality gap, and much more. Over 6,500 ESOP companies in the United States empower over 10 million employee-owners, including WinCo Foods, Publix Super Markets, and Brookshire Brothers.
Historically, ESOP regulations have been lacking, leading to a leveling off of growth in the number of ESOPs. Advocates argue that new regulations are necessary to reduce risks, cut costs, improve transparency, and assist companies in maintaining ESOPs. Last week, the Biden Administration dipped its toe in the water to address these issues.
Following the inauguration, President Trump froze all pending Executive Branch agency regulations, including the Department of Labor’s draft regulatory guidance published last week. Where do ESOP regulations stand, and where are we going?
A Brief History
In 1974, Congress passed the Employee Retirement Income Security Act (ERISA) to set minimum standards for employee benefit plans. This act outlined fiduciary responsibilities, rights of participants, and guarantees of termination of benefit plans. However, it didn’t provide any guidance regarding ESOP trustees until 14 years later.
In 1988, the Department of Labor proposed an “adequate consideration” regulation, but it was left untouched until 2022, when the Setting Every Community Up for Retirement Enhancement Act (SECURE 2.0) was passed. The lack of guidance from 1988 to 2022 contributed to a plateauing in ESOP formations over 34 years, but SECURE 2.0 introduced tax incentives to encourage business owners to adopt ESOPs.
On January 16th, 2025, the Biden Administration proposed a Notice of Proposed Rulemaking (NPRM) for ESOPS. But four days later, the Trump Administration took office and froze all Biden Administration proposals, including this one.
Two Regulations
The Department of Labor under the Biden Administration, proposed two regulations:
Proposed Regulation Relating to Application of the Definition of Adequate Consideration
Defines “adequate consideration” and “govern the fiduciary determination of fair market value” for ESOPs AND ensures “good faith process”
Creates class exemption and EBSA safe harbor standards
The ESOP Association, the largest pro-ESOP lobbying group, didn’t like the regulations. They believe the Safe Harbor Proposal sets up an “impossibly high” standard and that the Adequate Consideration Proposal lacks clarity.
What To Expect Next?
A few things could likely happen from here now that the Trump Administration is in full swing. First, they could draft new regulations, using the proposed ones under the Biden Administration as an outline. Second, they could toss the proposed outlines and start from square one. And lastly (but hopefully not), these regulations could be left unaddressed. Luckily, the ESOP Association reports that it is in “high-level communication” with the Trump Administration to work on a regulatory and legislative track for the regulations.