ESOP legislation gains bipartisan support: A look at recent Senate bills

With the proposed rules shelved and the fast-approaching January 2026 deadline, the recent congressional push aims to provide a legislative solution. Specifically, the Retire Through Ownership Act, sponsored by Senators Roger Marshall (R-KS) and Tim Kaine (D-VA), seeks to create a “safe harbor” for trustees. It would allow ESOP fiduciaries to rely in good faith on appraisals from independent appraisers that follow the principles and methodologies set forth in IRS Revenue Ruling 59-60, a standard for valuing closely held stock. This proposed legislative bipartisan path appears to address critics of the withdrawn proposed “adequate consideration” rule that overemphasized the accuracy of the final valuation price, potentially penalizing fiduciaries even if they followed a prudent, good-faith process. The bill explicitly allows ESOP fiduciaries to rely in “good faith” on the valuation principles and methodologies outlined in the long-established IRS Revenue Ruling 59-60. This provides an objective standard for determining fair market value.

By allowing ESOP trustees to rely on independent appraisals that follow accepted IRS guidelines, the bill removes a huge cloud of uncertainty for trustees who rely in good faith on qualified appraisals. As one ESOP association official put it, it’s about providing the “certainty” needed for owners to confidently pass their business to employees. Yet, even if enacted into law, the bill may not be enough to result in a meaningful decline of ESOP litigants; a more likely outcome is that plaintiffs’ attorneys will shift their focus to whether a fiduciary’s reliance on an independent appraisal is in good faith or whether the independent appraisal did in fact reflect the principles in IRS Revenue Ruling 59-60. Nonetheless, this bill is a positive indicator of growing bipartisan support for employee ownership in Congress. For the small-town manufacturer or the family-owned construction company, this clarity could be the push needed to finally make the transition, securing their legacy while empowering their workforce.

A seat at the table: Employee Ownership Representation Act of 2025

The Employee Ownership Representation Act of 2025, sponsored by Senator Bill Cassidy (R-LA), aims to give ESOPs a more formal voice within federal government bodies, specifically the DOL. The bill proposes several changes, including expanding the ERISA Advisory Council, which advises the DOL on retirement policy, with two new members representing employee ownership, establishing an Advocate for Employee Ownership within the DOL’s Employee Ownership Initiative to help educate the public about ESOPs, work with other federal agencies, and assist in resolving disputes, and creating a new Office of Employee Ownership. These changes address concerns that the DOL’s Employee Benefits Security Administration (EBSA) historically has shown a bias against ESOPs.

Broader Legislative Landscape

While the two bills above have advanced, other proposed bills were either withdrawn or remain in discussion:

• The Employee Ownership Fairness Act (S.1727), which would have allowed ESOP and 401(k) contributions to be counted separately for purposes of the annual limits applied to defined contribution plans, was removed from committee consideration, though sponsors of the bill indicated their intent to refine the bill and may bring it back for a vote in the future.
• The Employee Ownership Financing Act (S.2458) proposes a large loan program within the DOL to support transitions to employee ownership. This fund would provide the necessary financing to help workers purchase a majority stake in their companies, turning them into ESOPs.
• The Promotion and Expansion of Private Employee Ownership Act (S.2461) aims to provide additional incentives and assistance for businesses, particularly S corporations, to adopt ESOPs. The bill provides tax deferral incentives for S corporation owners selling to an ESOP, offers technical assistance for those interested in establishing an ESOP, and helps small, ESOP-owned businesses retain their Small Business Administration certification.

The unanimous advancement of several of these bills through the Senate HELP Committee is a promising sign that bipartisan momentum for employee ownership is growing. The bipartisan support for ESOP legislation reflects a broader view that employee ownership can enhance retirement security and business performance. While the path to a full Senate vote is still ahead, these legislative efforts aim to make employee ownership a more appealing option for business owners planning for succession and for employees seeking financial empowerment. By focusing on statutory fixes and increased representation, these bills attempt to provide a more stable and supportive framework for employee ownership than the flawed DOL regulatory process offered.