The House of Representatives on Wednesday passed the Retire Through Ownership Act by a 401-14 vote, sending the measure to President Trump's desk after it cleared the Senate unanimously in October. The bill aims to resolve a decades-old ambiguity in how employee stock ownership plans (ESOPs) value privately held company stock, a question that has fueled litigation and deterred some business owners from using ESOPs as a succession tool.
Under current law, the Department of Labor has never issued a formal rule defining "adequate consideration" for privately held ESOP stock, even though that concept is central to ERISA's fiduciary duties. The ESOP Association, a trade group, has long argued that this regulatory gap creates confusion for fiduciaries and exposes them to legal risk. The new legislation would allow an ESOP fiduciary to rely in good faith on a valuation prepared by an independent professional appraiser who applies the methodology outlined in IRS Revenue Ruling 59-60, a long-standing framework for valuing closely held businesses.
"At its core, the Retire Through Ownership Act is about protecting employee owners and their retirement security," said James Bonham, president and CEO of the ESOP Association, in a statement after the vote. The bill's passage comes as ESOPs remain a niche but growing part of the succession-planning landscape for American entrepreneurs. According to an Aspen Institute research brief citing 2022 survey data, roughly 18% of U.S. employees—about 25 million workers—hold some form of ownership stake in their employer, with about 11 million participating in a formal ESOP.
For financial advisors, the legislation removes a structural obstacle that has made some business owners hesitant to pursue ESOPs as both a retirement and succession vehicle. The clarity on valuation standards could encourage more owners to consider ESOPs, particularly in industries like advisory firms where intangible client relationships make valuations inherently complex.
ESOPs have already gained traction inside the advisory industry itself. Berger Financial Group, for example, has used an ESOP to remain roughly 35% employee-owned following an outside investment, a structure that mirrors how employee ownership can serve as a succession plan for RIAs navigating founder transitions. Other firms have adopted different approaches: Creative Planning has opened direct equity stakes to about 10% of its workforce, and Edelman Financial Engines recently granted equity to more than 360 planners. As of last year, Mercer reported an employee ownership rate exceeding 50%.
For RIA principals, an ESOP functions as both a succession mechanism and a tax-advantaged transaction structure. As noted by national accounting and consulting firm Wipfli, sellers can potentially defer capital gains under Section 1042 of the Internal Revenue Code by reinvesting proceeds into qualifying replacement securities, while S-corporation firms can shield the ESOP-owned portion of the business from federal income tax. "By providing employees with a direct stake in the company's success, ESOPs can serve as a powerful retention tool," wrote Dan Pastron, a partner in Wipfli's tax and small business services groups. "This ownership mentality can be particularly valuable in an industry where personal relationships are paramount."
Traditionally, the tradeoff to that move has been complexity. Firms that use ESOPs take on repurchase obligations to buy back departing employees' shares, and valuations—already tricky for advisory practices built on intangible client relationships—must be refreshed annually by an outside appraiser. The new law does not eliminate those obligations, but it provides a clearer safe harbor for fiduciaries who follow the prescribed appraisal process.
The bill's passage is likely to be welcomed by retirement-plan specialists and advisors who work with business owners on exit planning. While the legislation does not change the underlying economics of ESOPs, it reduces one of the key legal uncertainties that have made some owners wary. As the bill heads to the White House, industry observers will be watching to see whether it leads to a uptick in ESOP formations, particularly among advisory firms looking for a succession path that keeps ownership in employee hands.
