"[P]laintiff alleged that the ESOP's OIA ... would be worth more today had those assets been invested in a portfolio including stocks and bonds. The court largely denied the defendants' motion to dismiss.... While the court recognized that there may have been 'good reasons' for maintaining a high OIA cash balance (for example, liquidity to facilitate stock repurchases), it declined to give weight to Defendants' alternative explanations at the pleading stage." [Dawson-Roberts v. Norman S. Wright Mechanical Equipment LLC, No. 26-1171 (N.D. Calif. Jun. 25, 2026)] MORE >>
13 pages. " Selling to an ESOP is expensive, usually costing 2% to 4% of the sale price,... The cost of selling to a non-ESOP buyer generally ranges from 4% to 9% of the deal, ... [M]any sellers balk at the costs of setting up an ESOP, even if they will ultimately pay more to sell to another buyer.... In an ESOP sale, the company pays some of the fees up front and the rest at close. While these fees are tax-deductible and thus have a significantly lower real cost, they still come up front." MORE >>
"EBSA's goals as described by [Assistant Secretary of Labor Daniel Aronowitz] are consistent with potential Congressional action that would curtail the litigation risks and eliminate the regulatory burdens that have hindered plan sponsors and fiduciaries. Proposed legislation, for example, would end the [DOL's] practice of entering into common interest agreements with plaintiffs' law firms; require investigations to conclude within a reasonable timeframe; and reverse plaintiff-friendly Supreme Court precedent for ERISA prohibited transaction claims, including claims that an ESOP overpaid for employer stock." MORE >>
"Taken at face value, [FAB 2026-01] should end efforts by the DOL to try and hold ESOP trustees liable if the DOL disagrees with subjective valuation determinations made by the trustees' independent valuation advisors.... ERISA permits an ESOP trustee to cause an ESOP stock transaction if the transaction is for 'fair market value as determined in good faith' by the trustee. As so many courts have held, this standard is not a valuation standard, it is primarily a standard of conduct.... There are, however, uncertainties that remain." MORE >>
"One notable aspect of [FAB 2026-01] is EBSA's shift in focus toward the ERISA fiduciary duty of loyalty ... accompanied by a shift away from prudence issues.... While the [FAB] could be interpreted as a signal that EBSA will be taking a less aggressive stance on ESOP valuation issues going forward, sponsors of ESOPs should be mindful that, regardless of EBSA's focus, participant litigation can still result from violations of the duty of prudence and issues involving ESOP valuation issues." MORE >>
"While the majority of ESOP litigation in recent decades has dealt with operational issues, by far the most important and costly litigation has focused on prudence issues related to valuation. [FAB 2026-01] suggests that the EBSA will take a less aggressive stance on this going forward." MORE >>
"Employee stock ownership plan (ESOP) fiduciaries, sponsors, and service providers should be particularly interested in the new guidance [FAB 2026-01], which rejects certain past practices that many in the ESOP space have long considered abusive." MORE >>
"A federal judge in Chicago certified a class of former employees suing the consulting firm West Monroe Partners, allowing their claims to proceed collectively based on allegations that the company undervalued its stock and shortchanged workers cashing out of its defined contribution employee stock ownership plan....Weeks after those employees were paid out, West Monroe sold a 50% stake in the company to a private equity firm at $1,616 per share -- more than three times the earlier valuation, raising questions about whether employees were paid fair market value." [Daly v. West Monroe Partners, Inc., No. 21-6805 (N.D. Ill. Mar. 27, 2026)] MORE >>
"[T]he judge ruled that the decision to releverage was a corporate decision appropriately made by the board of directors. The fiduciary obligation rests with the ESOP trustee, GreatBanc, to make sure that the price that the ESOP pays is at fair market value and that the terms of the deal are not harmful to the plan participants." [Shipp v. Central States Mfg., Inc., No. 23-5215 (W.D. Ark. Mar. 30, 2026)] MORE >>
"In entering judgment for the company-side defendants, the court held that 'no reasonable jury could find that the two-step releveraging transaction was anything but a corporate decision' outside of ERISA's scope that was 'made with the financial health of the company in mind.' As such, the members of the company's board of directors and/or executive management team could not be liable as ERISA fiduciaries, except to the extent they had a duty to monitor the trustee." [Shipp v. Central States Mfg., Inc., No. 23-5215 (W.D. Ark. Mar. 30, 2026)] MORE >>
"Agreeing to indemnify others in a transaction would impose additional liabilities and financial risks on the ESOP without providing any participant benefit. That kind of risk assumption would be inconsistent with the trustee's fiduciary duties and would almost certainly constitute a breach under ERISA." MORE >>
"The court emphasized that ESOP trustees must actively investigate red flags and advocate for plan participants, rejecting arguments that a trustee may simply rely on process formalities. Although this litigation remains in the early stages, the court's refusal to dismiss most ERISA fiduciary claims reinforces the judiciary's expectation that ESOP fiduciaries must actively safeguard participant interests." [Sawlaw v. GreatBanc Trust Co., No. 25-0624 (W.D. N.C. Mar. 2, 2026)] MORE >>
"The [ERISA Litigation Reform Act's (HR 6084)] main provisions would: [1] Change the burden of proof for adequate consideration ... [2] Change the current burden of proof to require plaintiffs to prove that service provider fees were not reasonable and not necessary. [3] Ensure that the expensive and time-consuming process of discovery does not occur until a court has decided a claim may move forward." MORE >>
"Several recent federal district court decisions have focused on the scope of the ESOP diversification exemption and reached different conclusions as to whether ESOP fiduciaries can be held liable for failing to diversify the ESOP's non-employer stock assets.... Until there is further clarity from the courts or [DOL], ESOP fiduciaries should not assume that the diversification exemption bars all challenges to the investment of an ESOP's non-employer stock assets." MORE >>
"The Trump administration is reorienting the [DOL's] approach to employee stock ownership plans, signaling it will pursue fewer lawsuits and investigations while focusing on awarding grants.... ESOP attorneys and advocates suggest the combination of re-calibrated enforcement, a forthcoming valuation regulation, and more education and outreach could lead to more employee-owned businesses." MORE >>
"A February 17, 2026, memo to the [FASB] from the Private Company Council (PCC) ... raises the issue of whether the FASB should reconsider its current rules for accounting for ESOP repurchase obligations in private companies. Drawing on NCEO research, the memo says that private company ESOPs have grown significantly since the FASB last looked at this issue in 1993." MORE >>
"The report notes that from 2013 through 2023, the number of ESOP participants grew by 8%, driven largely by leveraged ESOPs and nonleveraged public company KSOPs. The number of nonleveraged stand-alone ESOPs declined.... [T]he report estimates that these firms employ 13,520 people and have a total combined revenue of $806 million, with the number of worker co-ops doubling over the last 10 years." MORE >>
"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 >>
