Retire Through Ownership Act: New Rules Let ESOP Fiduciaries Rely on Appraisals, Changing Who Bears the Risk

The “Retire through Ownership Act” includes a small but mighty change to how Employee Stock Ownership Plans (ESOPs) handle asset valuation. Specifically, Section 2 of the bill amends the Employee Retirement Income Security Act of 1974 (ERISA) definition of “adequate consideration,” which is the legal standard for how much an ESOP can pay for company stock or other assets.

The Fine Print: Trusting the Experts

Right now, fiduciaries—the people legally responsible for managing the ESOP and acting in the best interest of the employees—have to be meticulous when determining what an asset is actually worth before buying it for the retirement plan. This bill introduces a key shield for those fiduciaries: they can now rely, in good faith, on a valuation provided by an independent appraiser. This reliance is only protected if the appraiser uses the specific valuation methods laid out in Internal Revenue Service Revenue Ruling 59-60 when calculating fair market value. This change applies to any valuation determination made after the bill becomes law.

What This Means for Your Retirement

If you work for a company with an ESOP, this change impacts the money in your retirement account. On the one hand, this could speed up transactions. If a company is transitioning ownership to the employees via an ESOP, having fiduciaries who can rely on an external expert makes the process smoother and faster. For the fiduciaries themselves—often company executives or board members—this reduces their personal liability risk, provided they hire a qualified appraiser and the appraiser follows the required IRS guidelines.

However, this shift also changes who bears the risk. Previously, the fiduciary had a higher burden of due diligence. Now, if the independent appraiser gets the valuation wrong—say, they overvalue the company stock—the fiduciary is largely protected, as long as they acted in “good faith” in selecting that appraiser and the appraiser cited the correct IRS ruling. The people who ultimately pay the price for an overvalued asset are the plan participants—the employees whose retirement savings are tied up in the ESOP. If the plan overpays for the stock, your retirement account is buying an asset that’s not worth what the plan paid for it.

The Practical Challenge of “Good Faith”

While the bill requires the appraiser to use a specific, established IRS methodology (Revenue Ruling 59-60), the key legal sticking point is that “good faith” clause. For example, imagine a situation where a company is selling stock to its ESOP. If the fiduciaries hire an appraiser known for consistently providing high valuations, did they act in “good faith,” even if the appraiser technically used the right formulas? This is where the vagueness of the provision could create headaches down the line, potentially making it harder for regulators to challenge transactions where the valuation seems inflated but the paperwork is technically compliant. This protection for fiduciaries simplifies transactions, but it also means plan participants need to pay even closer attention to how their ESOP assets are valued.