3822 / What valuation requirements apply for employer securities held in employee stock ownership plans (“ESOPs”)?

Editor’s Note: Guidance on valuation for ESOP holdings has been extremely scarce, resulting in extensive investigation and litigation on the part of the Department of Labor. For over 50 years, ESOP stock has been valued without the benefit of formal final regulations. As of late 2025, according to the DOL's latest regulatory agenda, guidance on ESOP valuation could come as early as January of 2026. By way of background, an important prohibited transaction exemption exists to protect ESOPs when acquiring employer stock. One key condition that must be satisfied under the exemption is that the employer stock must be acquired for fair market value—known as the “adequate consideration” component of the exemption. In 2024, pursuant to a mandate contained in the SECURE Act 2.0, the DOL released a proposal that would have provided clarity on how to satisfy the PTE. The Trump DOL promptly withdrew that proposal. The now-withdrawn proposal contained two key elements that would have to be satisfied to qualify under the existing prohibited transaction exemption: (1) a fair market value test and (2) a “good faith” determination of the fair market value. The Trump-era DOL has indicated that it will be more ESOP-friendly when compared with prior administrations.

With respect to plan activities, all valuations of employer securities that are not readily tradable on an established securities market must be made by an independent appraiser whose name is reported to the IRS. For this purpose, an independent appraiser is an appraiser who meets requirements similar to those imposed under the charitable deduction rules of Section 170(a)(1).¹