Labor & Employment Law Daily Wrap Up, FEDERAL REGULATIONS—EBSA proposes revisions, exceptions regarding fiduciary transactions, (Jan 17, 2025)

By Patricia K. Ruiz, J.D.

Comments for both publications are due by 75 days after publication in the Federal Register.

The Department of Labor (DOL) Employee Benefits Security Administration (EBSA) published a proposed rule that would clarify the term “adequate consideration” as set forth under the Employee Retirement Income Security Act of 1974 (ERISA) and govern the fiduciary determination of fair market value in connection with certain employee stock ownership plan transactions. The DOL also published notice of a proposed class exemption for fiduciaries from certain prohibited transaction restrictions of ERISA and the Internal Revenue Code (IRC).

Adequate consideration under ERISA. The EBSA is publishing a proposed rule that would clarify the term “adequate consideration” as set forth under §3(18)(B) of ERISA and govern the fiduciary determination of fair market value in connection with certain employee stock ownership plan (ESOP) transactions involving employer stock. The EBSA also is withdrawing a 1988 proposed rule on a similar subject. The new proposal would provide formal guidance for acceptable standards and procedures to establish good faith fair market value for shares of a business to be acquired by an ESOP. The proposed rule would also govern the determination of fair market value in accordance with the definition of the term adequate consideration under §3(18)(B), as applied to certain ESOP transactions involving employer stock. Comments on the proposed rule are due by 75 days after publication in the Federal Register.

Proposed safe harbor. The EBSA is also publishing notice of a proposed class exemption from certain prohibited transaction restrictions of ERISA and the IRC. The provisions at issue prohibit fiduciaries, with respect to an employee stock ownership plan (ESOP), from causing the ESOP to purchase an asset from certain related parties, including officers, directors, and 10 percent or more shareholders of the employing company. The exemption would provide relief from these provisions to specific parties involved in an ESOP’s initial acquisition of non-publicly traded employer common stock from a selling shareholder: selling shareholders, any trustee that is independent of the employer and represents the interests of the ESOP in the transaction, any appraiser that is independent of the employer and represents the interests of the ESOP in the transaction, and any fiduciary of the ESOP with authority to hire, monitor, or fire the independent trustee. The proposed exemptive relief is subject to protective conditions designed to ensure any transaction relying on the exemption is prudent and based on a reliable appraisal of the stock’s fair market value. The DOL proposed that the exemption would be in effect for transactions that occur 60 days after the date it publishes notice of final exemption in the Federal Register. Written comments and requests for a public hearing on the proposal must be submitted within 75 days of the proposal’s publication in the Federal Register.

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