The ESOP Association’s recent National Conference in Washington, D.C. brought together industry leaders, practitioners, and employee owners to advocate for employee ownership. Mary Beth Gray and Chris Wingard represented Kleinbard’s Business and Finance Group at the Conference. Hundreds of employee ownership advocates engaged directly in advocacy by meeting with Congressional staffers to advance legislation that would strengthen the employee ownership ecosystem. A consistent message throughout the event was the need to create a more predictable regulatory environment and expand access to capital to support ESOP formation and growth.
The advocacy efforts focused on two key bills, the Retire Through Ownership Act (RTOA) and the American Ownership and Resilience Act (AORA). RTOA seeks to establish clear, consistent standards for determining “adequate consideration” in ESOP transactions. Today, uncertainty in valuation expectations has created friction among fiduciaries, appraisers, and regulators, which can lead to costly disputes and litigation risk. RTOA would provide a defined framework for valuation practices, reduce ambiguity in enforcement, and give plan fiduciaries a clearer path to demonstrating compliance. The ensuing reduction in risk would in turn encourage more business owners to consider ESOPs as a viable succession strategy. AORA focuses on increasing capital for ESOP transactions, which is one of the biggest barriers to ESOP expansion. The bill would enable companies that are selling to ESOPs to access financing through “Ownership Investment Companies” which would provide funding to facilitate ESOP transactions. This federal loan program would be administered through the Department of Commerce and would not impose additional costs on taxpayers. AORA has received bipartisan support and would substantially improve the financing flexibility and liquidity options available for ESOP transactions. AORA co-sponsor Todd Young noted “this legislation will make it easier to establish or expand employee-ownership, incentivizing American businesses and creating new economic opportunities.”
The conference concluded with a keynote address by Daniel Aronowitz, Assistant Secretary of Labor, and head of the Employee Benefits Security Administration (EBSA), who outlined a notable shift in the U.S. Department of Labor’s approach to ESOP regulation. Aronowitz emphasized a commitment to “clear regulatory guidance” and “fair and evenhanded enforcement”. He stressed that the DOL will curb litigation abuse and limit the second-guessing of fiduciary decisions. Under Aronowitz’s leadership, EBSA has enacted a more reasonable and predictable approach to enforcement.
For more information on ESOPs and whether it may be the right structure for company, please contact Mary Beth Gray or Chris Wingard.
