ERISA Benefits Law Desk ReferenceERISA Benefits Tech, LLC

Part 9 · Chapter 3

ESOP Fiduciary Duties, Valuation, and Enforcement

Law stated as of October 3, 2026 · ESOPs and Employee Ownership

Scope and status

This chapter covers the fiduciary side of ESOP practice: the §408(e)/§3(18) adequate-consideration framework, valuation standards and their case-law development, the trustee process distilled from the DOL's fiduciary process agreements (GreatBanc and its successors), the 2026 shift in DOL enforcement posture (FAB 2026-01; removal of ESOPs from the national enforcement projects; the employee-ownership initiative), private litigation mechanics including the arbitration line, and ESOP-company M&A. This area is largely case-law and process-agreement driven, not regulation driven: there is still no final adequate-consideration regulation — which is precisely why process discipline, not rule-matching, is how ESOP fiduciary risk is managed. The DOL posture and the rulemaking timetable are moving — verify before relying on them.

Citations are to primary authority (ERISA §§3(18), 404, 406, 408(e), 409, 502; Code §4975(d)(13); the 1988 proposed regulation at 29 C.F.R. §2510.3-18(b); the DOL process agreements; and controlling case law). Related questions are treated elsewhere: the tax-side transaction conditions (exempt loan, §1042, §409(p)) in this Part's leveraged-transactions chapter; general fiduciary/PT doctrine in Part 3 (Fiduciary Duties and Prohibited Transactions); and the deal overlay in Part 25 (Employee Benefits in Mergers and Acquisitions).

Threshold framing. Virtually every closely held ESOP stock transaction is a prohibited transaction with an affirmative defense: the plan is buying from (or selling to) the employer, its owners, or other parties in interest (a trade with an unrelated party is not a §406(a)(1)(A) transaction, so confirm the party-in-interest predicate), and the deal survives only under ERISA §408(e) — acquisition or sale of qualifying employer securities for adequate consideration, with no commission, by an eligible individual account plan. The fiduciary who must establish the defense is the trustee that approved the price. Structure every engagement around building that record before closing.

Sections

Part A is shown in full. The other sections are listed by title; their text is available to subscribers.

Part A — The Fiduciary Cast and the §408(e) Gate

A1.Who the fiduciaries are in an ESOP transaction

Part 9, ch. 3, § A1

The trustee (institutional or individual; engaged as independent transactional trustee or serving as ongoing directed/discretionary trustee) makes the purchase decision and carries the adequate-consideration burden. The board/sponsor appoints the trustee — appointment and monitoring of the trustee are themselves fiduciary functions, while the decisions to establish the plan, set benefit levels, and sell the company as shareholders are settlor/shareholder acts. Selling shareholders and management on both sides of the deal are the classic conflict — insiders who negotiate against the plan while holding plan-side roles invite §406(b) and co-fiduciary claims, and non-fiduciary sellers who benefit from a breach face knowing-participation liability. Statute: ERISA §§3(21), 404, 406(b), 409, 502(a)(3); Case law: Harris Trust & Sav. Bank v. Salomon Smith Barney, 530 U.S. 238 (2000) (nonfiduciary liability); Walsh v. Vinoskey, 19 F.4th 672 (4th Cir. 2021) (seller knowing-participation liability where seller knew or should have known of the overpayment). Statute: ERISA §412(a).

A2.The §408(e) exemption

Part 9, ch. 3, § A2

ERISA §406 would prohibit the ESOP's acquisition of employer securities from a party in interest; §408(e) (and Code §4975(d)(13)) exempts acquisitions and sales of qualifying employer securities by an eligible individual account plan if: (1) for adequate consideration; (2) no commission is charged; and (3) the plan is an EIAP satisfying §407. Statute: ERISA §408(e); Code §4975(d)(13). Failure of adequate consideration destroys the exemption — making the transaction a per se prohibited transaction with restoration, §4975 excise, and §409 breach exposure stacked on top. Under Cunningham v. Cornell University, 604 U.S. 693 (2025), a plaintiff states a §406(a) claim by pleading the elements of the prohibited transaction; the §408 exemptions, including §408(e), are affirmative defenses the fiduciary must plead and prove (as the Seventh Circuit had already held for §408(e) in an ESOP case, Allen v. GreatBanc Trust Co., 835 F.3d 670 (7th Cir. 2016)). Case law: Supreme Court — Cunningham; Case law: Circuit — Allen.

Part B — Adequate Consideration

  1. B1The statutory definition and the 1988 proposed regulationSubscribers
  2. B2SECURE 2.0 §346 and the rise-and-fall-and-return of the rulemakingSubscribers
  3. B3The valuation case law — what courts actually policeSubscribers

Part C — The Trustee Process (the GreatBanc-Style Agreements)

  1. C1The GreatBanc agreement and its progenySubscribers
  2. C2Counseling framework for the transaction fileSubscribers

Part D — DOL Enforcement Posture (2026)

  1. D1From national project to recalibrationSubscribers
  2. D2FAB 2026-01 — fairness principles for pending ESOP investigationsSubscribers
  3. D3The employee-ownership initiativeSubscribers

Part E — Private Litigation Mechanics

  1. E1The arbitration line — effective vindicationSubscribers
  2. E2Claims, parties, and protectionsSubscribers

Part F — ESOP Companies in M&A

  1. F1Selling the ESOP companySubscribers
  2. F2Buying an ESOP company — diligence setSubscribers

The first Part of each chapter is open to everyone. The remaining sections, with their authority and practice points, are available to subscribers and to clients of ERISA Benefits Law Group, PLLC whose engagement includes access.

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