Long-Awaited Guidance on ESOP Valuation Standards

On October 15, 2026, the Retire Through Ownership Act was signed into law, amending the Employee Retirement Income Security Act of 1974 (ERISA) to provide protection to fiduciaries of employee stock ownership plans (ESOPs) who rely on independent valuations of privately held stock. This change permits fiduciaries to rely in good faith on valuations prepared by independent valuation experts or business appraisers who use the methodologies established under the Internal Revenue Service Revenue Ruling 59-60, which describes the factors used to form a valuation of the stock for a closely held business. This change is effective for valuations made on and after the date the law was signed.

Due to the U.S. Department of Labor’s (DOL) lack of clear regulations on how “adequate consideration” is determined, ESOP plan sponsors, plan trustees, and other fiduciaries have long faced uncertainty and the potential for class action lawsuits and/or DOL enforcement action when setting up and maintaining an ESOP with privately held stock, even when retaining and relying on assistance from valuation professionals. The amendment to ERISA provides express statutory guidance for reliance on independent valuations and is intended to reduce the risk of lawsuits and agency enforcement, providing a welcome framework to fiduciaries and employers considering ESOP transactions.

Revenue Ruling 59-60 has been in force since 1959, and valuation experts are widely familiar with its standards. Generally, it identifies factors relevant to determining the fair market value of privately-held stock, including the nature and history of the business, the general economic outlook of the industry, the business’s financial condition and book value, and the business’s earning capacity.

As always under ERISA, fiduciaries must meet complex obligations under Section 404 of ERISA, including duties of prudence and loyalty, and structure the ESOP to comply with exemptions from the prohibited transaction rules. Fiduciaries should continue to carefully select and oversee valuation professionals and evaluate valuations they receive.

For more information, please contact a member of our Compensation and Benefits team.

© Arnold & Porter Kaye Scholer LLP 2026 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.