News Archive

"Employee Stock Ownership Plans (ESOP) are on the rise, as is employee ownership in general, according to the Employee Ownership Initiative Report. The report also noted that mandates given to [EBSA] to promote employee ownership have not been properly funded."  MORE >>

"EBSA established the Employee Ownership Initiative and built a solid foundation for future programs in less than two years ... DEO built relationships with a wide range of federal, state, industry, and community stakeholders; spoke at events and generated articles and blogs; advised state partners and employers; and created a website to educate the public about employee ownership, employee participation, and related state programs."  MORE >>

"If the business operates as a corporation and the owners sold all or part of their shares to an ESOP, both the owners and the company could qualify for very significant tax benefits that would not be available if the shares were sold to a strategic or private equity buyer."  MORE >>

"In the last five filing years, the number of ESOPs at privately-held companies has been trending upward. During the same period, the number of ESOPs at publicly-held companies has decreased by 18%. The number of active participants at all ESOPs has grown by 781,872, with most of that coming from privately-held ESOPs."  MORE >>

"In October, the Western District of North Carolina dismissed a challenge to the investment strategy for [other investment account (OIA)] assets ... [holding] that the plaintiff failed to adequately allege that the defendants acted imprudently under ERISA, including because ESOP fiduciaries are exempt from ERISA's duty to diversify plan assets. The plaintiff appealed the October decision to the Fourth Circuit, making it the first OIA case to reach an appeals court." [Trull v. McCreary Modern, Inc., No. 25-0011 (W.D. N.C. Oct. 1, 2025; on appeal to 4th Cir. No. 25-2337, appellant's brief filed Jan. 5, 2026)]  MORE >>

"Section 280E of the Internal Revenue Code prevents taxpayers from claiming deductions for expenses related to carrying on a trade or business that involves trafficking Schedule I or II substances under the Controlled Substances Act (CSA).... In a non-leveraged ESOP, company contributions to the ESOP to buy shares are tax-deductible. In a leveraged ESOP, the company makes tax-deductible contributions so the ESOP can repay acquisition debt. The key benefit for cannabis operators is that ESOPs do not pay federal income tax on their proportionate share of S-corporation income."  MORE >>

"In most ESOP transactions, particularly leveraged buyouts, there is an inherent conflict between the goals of selling shareholders and the goals of the ESOP.... The independent trustee serves as the neutral fiduciary, charged with evaluating the transaction and deciding whether the ESOP should proceed. This includes the initial transaction forming the ESOP and any subsequent transactions involving an ESOP. The independent trustee works to make sure these inherently conflicted transactions meet regulatory requirements by remaining arms-length transactions."  MORE >>

73 pages. "The total number of pension plans grew ... to approximately 836,800, a 4.4 percent increase over 2022. The number of DC plans grew by 4.7 percent, while the number of DB plans decreased by 0.6 percent.... The number of 401(k)-type plans increased by 5.6 percent, from 686,000 to 724,700.... There were 81.6 million active participants in 401(k)-type plans, reflecting a 2.7 percent increase from 2022." [Also available: data tables in XLSM and XML formats; and Historical Tables and Graphs, 1975-2021.]  MORE >>

"An ESOP audit provides assurance that the right employees are receiving the right benefits at the right time. It also verifies that plan activity aligns with the governing plan document and accounting rules.... Auditor guidance and standards ... Phases of an ESOP audit ... Tips for a smoother audit ... Common pitfalls ... Valuation reviews: more than a compliance step ... Red flags in valuation reviews."  MORE >>

"[T]he American Ownership and Resilience Act (AORA) [HR 3248; S 1645] would expand pools of investment capital necessary to grow the field while respecting the original intentions of the founders of ESOP legislation to create not ephemeral employee ownership but stable, long term employee ownership which broadens participation in business ownership and strengthens the American economy."  MORE >>

"Private equity firms are seeking a new legal definition of an ESOP, a new structure of tax benefits only they can receive, and broad exemptions from five decades of employee protections embedded in [ERISA].... [S]ober analysis of their public assertions and privately shared plans surfaces tremendous problems for the future of existing, and not yet formed, ESOP companies."  MORE >>

"Pete Stavros, founder of Expanding ESOPs, shared ... a much more detailed public policy proposal with the ultimate aim not to promote ESOPs as we know them today, but to convince Congress to create a new type of qualified retirement plan under [ERISA] and to call them ESOPs. ... TEA agrees with some of the issues Expanding ESOPs highlights in its principles. However, the detailed STEP policy proposal is the wrong solution if the true goal is employee ownership and building retirement wealth for employee owners."  MORE >>

"Prevalent among public and private organizations alike, [annual incentive plans (AIPs)] often are reserved for senior professional and management positions. However, in [one] study, 52% of ESOPs extend AIP eligibility to all employees. This compares to only about one-third of private and public companies ... The prevalence of LTIs among ESOPs are more aligned with that of private companies at approximately 80%, compared to 99% among public companies."  MORE >>

28 pages. "A few of the most common forms of employee ownership are the Employee Stock Ownership Plan (ESOP), Employee Ownership Trust (EOT), Employee Stock Option Plan (ESO), Restricted Stock Units (RSU) and Worker Cooperatives (co-ops).... Employee ownership isn't meant as a replacement for wages or retirement plans. Rather, it is meant to supplement wages and help employees build generational wealth and greater autonomy in the workplace."  MORE >>

"S 2403, the Retire Through Ownership Act ... would ... [a]mend the definition of 'adequate consideration' under ERISA to provide a fiduciary with good faith reliance on the methodologies set forth under [Rev. Rul. 59-60] in determining the fair market value of an asset."  MORE >>

"[T]he Retire through Ownership Act (S 2403), could make it easier for companies to avoid legal challenges to the valuation of shares the ESOP acquires.... [T]he Employee Ownership Representation Act of 2025 (S 1728), would add ESOP representatives to the ERISA Advisory Council.... Both bills will now move to the House."  MORE >>

27 pages. "This paper looks at each of these risks based on the now-extensive research that is available on all of these issues. The data show that: [1] ESOP plan participants fare far better than com- parable employees in comparable companies in terms of retirement security ... [2] The default rate on ESOP leveraged transactions is close to zero.... [3] While ESOP firms do fail, they do so at a far lower rate than non-ESOP companies. [4] While litigation risk is a legitimate concern, only an average of about 17 cases per year make it to court, and the settlements are generally under $15,000 per participant."  MORE >>

"Despite these advantages, ESOP formation has slowed in recent years, largely due to legal uncertainty and post-closing litigation risk, particularly around valuation practices. That may be about to change, as bipartisan efforts in Washington seek to lower barriers and provide greater certainty, paving the way for a more ESOP-friendly environment."  MORE >>

"Procedural Notice 5000-872764 ... states, 'Regardless of the requirements stated throughout this SOP for business valuations, an independent business valuation is not required when the Lender is making a loan involving ESOPs for the types of loans discussed in this Paragraph B. In lieu of an independent business valuation, the Lender may use the valuation obtained by the ESOP that was made in accordance with ERISA specifications.' "  MORE >>

"The Balance the Scales Act (HR 2958) ... would amend ERISA to require that EBSA submit an annual report to Congress on so-called 'common interest agreements' (CIAs) or what the bill referred to as 'adverse interest agreements.' ... [The EBSA Investigations Transparency Act (HR 2869)] would require EBSA to submit an annual report to Congress providing a status update on its investigations in order to help the committee conduct 'effective oversight on investigations' by EBSA.... [T]he Retire Through Ownership Act [HR 5169] would create a safe harbor for ESOP fiduciaries that use IRS rules for appraising shares in ESOPs."  MORE >>

"[J]ob satisfaction is higher for employees in ESOPs than for observationally similar workers in non-ESOP firms and for [work from home (WFH)] workers than for their non-WFH peers.... ESOPs raise satisfaction by increasing worker participation on collective workplace or firm decisions while WFH raise satisfaction by increasing worker flexibility in their individual work activity.... ESOPs had more extensive WFH than non-ESOP firms during the COVID-19 pandemic."  MORE >>

"The new regulatory agenda for the [DOL] indicates that new regulations for ESOP valuations could come as soon as January 2026. The regulations were required by Section 346 of the SECURE 2.0 Act of 2022."  MORE >>

"To address the costs associated with the ESOP wind-down process, buyers should negotiate a dedicated escrow or reserve specifically for ESOP wind-down costs. This should be based on: [1] Estimated distributions and participant counts; [2] Projected legal, fiduciary and administrative costs (e.g., cost to administer participant distribution elections, obtain fiduciary tail policies, and seek an IRS determination letter); and [3] Potential audit and compliance expenses, including any expenses related to operational or other compliance issues for the plan."  MORE >>

"ESOPs tend to create wealth for a broader set of employees than 401(k) plans because they generally do not require employee contributions to the plans ... [T]he average ESOP account balance was found to be more than double the average account balance at a comparable conventional firm ($132,000 vs. $64,000). Further, nearly 80% of S corporation ESOPs also offer a 401(k) plan, either separate from or combined with the ESOP."  MORE >>

"If the ESOP owns 100% of the S corporation, the company effectively pays no federal income tax. If the ESOP owns less than 100%, the tax benefits are prorated ... For business owners, this creates an opportunity to redirect dollars that would otherwise go to taxes into company growth, employee benefits, or strategic investments."  MORE >>