Stay in the Know

ESI Equity follows all current and pending litigation surrounding ESOPs; we remain active in industry forums and network with many other professionals on ESOP related topics. We continue to support The ESOP Association, including being a member of the national Valuation Committee along with Regional and Local Chapter Committees that work to educate and inform the community as a whole on various topics. We are also members of The National Center for Employee Ownership and ESCA, all of which are advocates for the successful continuance of ESOPs and employee ownership.

Department of Labor Regulatory Guidance and Clarity for ESOPs

Employee Stock Ownership Plans have two federal regulators – the Internal Revenue Service (IRS) and the U.S. Department of Labor (DOL). The DOL primarily serves as the watchdog looking out for the interests of employee owners in relation to the decisions made on their behalf by their ESOP Trustee(s). This oversight authority was granted under the Employee Retirement Income Security Act of 1974 (ERISA). While over 45 years has gone by since ERISA became law, the DOL has not finished and issued the body of regulations and guidance that companies should follow to ensure they are following the law. While the DOL proposed regulations in 1988, final regulations were never issued.

Since then, ESOP companies and professional advisors have done their best to navigate the regulatory nature of ESOPs. For example, ESOPs must perform an annual professional valuation and inform their employee owners of the value of the company as if it were offered for sale in the market. These valuations are complex, and while there are standard rules and practices for valuing companies, there is no clear guidance or rule on valuations for ESOPs before or after they are formed. This is why it is critical to use professional advisors who have ESOP experience.

Advocacy groups such as the ESOP Association continue to seek regulatory clarity from the DOL on a range of essential topic so that ESOPs companies can make solid business decisions without regulatory uncertainty and ESOPs become more transparent and understandable. Click here to view a fact sheet by The ESOP Association.

ESI Equity news image.