At a glance
- Groom Law's benefits brief reads the change as codification of what courts should already be doing: the Act, in its telling, would hard-wire the adequate consideration standard with principles already on the books.
- Two ideas migrate from case law into statute.
- The amendment reaches determinations of adequate consideration made on or after the date of enactment, and Groom expects it will likely be several years before courts entertain lawsuits involving transactions subject to the new standard.
Congress has passed the Retire Through Ownership Act, S. 2403, and the most consequential line moves the exposure off the trustee: the bipartisan measure gives an ESOP fiduciary a good-faith reliance defense when an independent valuation expert or business appraiser has worked from the principles and methodologies of IRS Revenue Ruling 59-60. Groom Law's benefits brief reads the change as codification of what courts should already be doing: the Act, in its telling, would hard-wire the adequate consideration standard with principles already on the books.
Two ideas migrate from case law into statute. First, an ESOP trustee is not expected to be a valuation expert and may rely in good faith on a qualified independent appraiser, which turns the adequate consideration analysis toward the fiduciary's process rather than the number that process produced. Second, Revenue Ruling 59-60 itself arrives with the propositions Groom draws from the ruling: valuation is not an exact science, fair market value is properly expressed as a range, and an appraisal rests on informed judgment applied across a range of factors. Congress's stated hope is that the Act discourages meritless class action litigation, and that modifier is doing real work — the brief claims no decline in the total volume of ESOP suits, only that the weakest ones get harder to file.
The deterrent arrives years after the deals do
The amendment reaches determinations of adequate consideration made on or after the date of enactment, and Groom expects it will likely be several years before courts entertain lawsuits involving transactions subject to the new standard. Deals already signed and appraisals already delivered run on the old rule, leaving the bill's near-term value as a deterrent priced into future engagements rather than a docket cleared today — a limit the brief concedes in saying the results will take time to measure. Groom's own conditional language says "if enacted" and "assuming it becomes law," so passage is not yet the trigger; the effective date turns on enactment. With EBSA's own adequate-consideration rulemaking still pending, the statute would arrive ahead of the agency rule written to define the same term. A statutory reliance defense is also a materially harder thing for a later administration to narrow than a sub-regulatory position, which is a durable win for sponsors even if the litigation headline is modest.
If the trustee has statutory cover for a good-faith reliance, a post-closing challenge has to attack the appraisal and the appraiser — the same shift our prior coverage predicted when the bill reached the president. That is, on balance, the right design for the problem, and it is not obviously cheaper for anyone involved. Expert-intensive claims against valuation firms cost more to bring and more to defend than a streamlined fiduciary-breach count, so the economics of filing a claim shift before the filing rate does. Watch the appraiser engagement letters, which the new standard quietly makes the operative risk document.
Reported by the Policy & ERISA desk from Groom Law — Benefits Brief, "Congress Passes Bipartisan ESOP Valuation Legislation". Published . Corrections