Understanding the Biden Administration’s NPRM on “Adequate Consideration”

And the Trump Administration’s Freeze

This article is the latest installment of QuickRead articles on ESOP regulations. Specifically, it focuses on the request, and status thereof, for the Department of Labor to clarify “adequate consideration” for the valuation of entities held in ESOPs.

This article is the latest installment of QuickRead articles on ESOP regulations.[1] Specifically, it focuses on the request, and status thereof, for the Department of Labor (DOL) to clarify “adequate consideration” for the valuation of entities held in employee stock option plans (ESOP). On January 20, 2025, President Trump issued an Executive Order freezing all former President Biden’s proposals that had not yet been made final, such as the Notice of Proposed Rulemaking (NPRM), a proposal which spanned crucial areas such as environmental policy, labor rights, consumer protection, and healthcare. Within the NPRM held “Proposed Regulation Relating to Application of the Definition of Adequate Consideration” from the Department of Labor Employee Benefits Security Administration.[2]

In the final days of President Biden’s administration, the DOL unveiled a significant regulatory proposal addressing the definition of adequate consideration under the Employee Retirement Income Security Act (ERISA).[3] This effort aimed to clarify and standardize how fiduciaries of ESOPs value employer securities, ensuring compliance with ERISA’s mandates and protecting participants’ financial interests. However, the inauguration of President Trump on January 20, 2025, brought a sudden halt to this initiative through a regulatory freeze.[4] This article delves into the Biden administration’s proposed regulation, the rationale behind the Trump administration’s Executive Order to freeze it, and what this means for ESOP stakeholders, fiduciaries, and plan valuators.

NPRM on Adequate Consideration

On January 16, 2025, the DOL announced a NPRM that sought to define adequate consideration under ERISA as it relates to ESOPs. This term is key in transactions involving employer securities, as ERISA prohibits fiduciaries from engaging in such unless the consideration of value reflects the fair market value standard. Historically, the absence of a clear regulatory definition has left fiduciaries navigating ambiguous legal waters, with courts offering inconsistent interpretations. This uncertainty has often led to disputes, potential under/overvaluation of securities, and risks to retirement plan participants.

Main Goals of the NPRM

1. Establish Valuation Standards: Provide a detailed framework for determining the fair market value of employer securities in ESOP transactions, ensuring that fiduciaries have a consistent and legally sound methodology.
2. Enhance Fiduciary Accountability: Clarify fiduciaries’ obligations in assessing valuations, reducing the risk of litigation stemming from valuation disputes.[5]
3. Protect Participants: Guarantee participants in ESOPs benefit from accurate and equitable valuations, safeguarding their retirement savings.
4. Promote Transparency: Offer clear guidelines to fiduciaries, valuation professionals, and employers, fostering trust and reducing uncertainty.

The NPRM proposed a step-by-step valuation process that emphasized the use of qualified, independent appraisers and required detailed documentation of valuation methods and assumptions. By aligning valuation practices with generally accepted principles, the regulation sought to mitigate risks of bias or error and enhance the integrity of ESOP transactions.

Proposed Timeline and Stakeholder Engagement

The NPRM was scheduled for publication in the Federal Register on January 22, 2025, initiating a 75-day public comment period. This was intended to allow stakeholders, including employers, fiduciaries, valuation professionals, and participants, to review the proposal and provide input. The DOL planned to refine the regulation based on feedback before issuing a final rule. But the timing of the announcement placed the proposal squarely in the path of a new administration with differing regulatory priorities.

Trump’s Regulatory Freeze

On January 20, 2025, shortly after assuming office, President Trump signed an Executive Order titled “Regulatory Freeze Pending Review.” This order halted the progression of pending regulations, including the DOL’s NPRM on adequate consideration. Such freezes are not unprecedented; they are a standard mechanism used during presidential transitions to provide new administrations an opportunity to review and align regulatory actions with their policy goals.[6]

Key Components of the Executive Order

1. Withdrawal of Pending Regulations: Any regulations that had been submitted to the Office of the Federal Register (OFR) but not yet published were to be withdrawn and subjected to review by newly appointed agency heads.
2. Postponement of Effective Dates: For regulations already published but not yet effective, agencies were instructed to consider delaying their effective dates by 60 days. This delay aimed to allow for a comprehensive review and determination of whether the regulations raised questions of fact, law, or policy.
3. Agency Review and Modification: Agencies were required to review the withdrawn regulations and assess their alignment with the Trump administration’s priorities. Based on this assessment, regulations could be modified, reintroduced, or abandoned.[7]

The Executive Order’s overarching goal was to review and ensure that regulatory actions inherited from the previous administration did not impose unintended economic or administrative burdens on businesses, particularly small enterprises.

Implications for the Adequate Consideration NPRM

Since the NPRM had been announced but not yet published, the DOL withdrew it from the publication process in compliance with the Executive Order. As a result, the planned public comment period did not commence, and the regulation entered a state of limbo pending review by the Trump administration’s DOL leadership.[8]

Rationale Behind the Freeze

1. Policy Recalibration: Regulatory freezes allow incoming administrations to evaluate whether pending rules align with their policy objectives. For the Trump administration, this included a focus on reducing regulatory burdens and fostering economic growth.
2. Economic Considerations: The freeze aimed to prevent the implementation of regulations that could impose costs on businesses, particularly those viewed as unnecessary or overly burdensome.
3. Administrative Review: By pausing regulatory actions, agencies had time to conduct thorough reviews of the legal, economic, and policy implications of proposed rules.

This approach, in the author’s opinion, underscores a commitment to balancing regulatory oversight with economic vitality.

Impact on Fiduciaries and Participants

The suspension of the adequate consideration NPRM leaves fiduciaries and ESOP participants in a state of continued uncertainty. Without the clear guidance that the proposed regulation sought to provide, fiduciaries must navigate complex valuation processes relying on existing, often inconsistent, legal precedents. This situation presents several challenges:

Fiduciaries

• Legal Risk: Fiduciaries remain vulnerable to litigation over valuation disputes due to the lack of standardized guidelines.
• Operational Complexity: The absence of a clear framework complicates the valuation process, potentially increasing administrative burdens and costs.
• Uncertainty in Decision-Making: Fiduciaries must rely on interpretations of case law and valuation practices, which may vary significantly depending on the circumstances.[9]

Participants

• Risk to Retirement Savings: Inconsistent valuations can affect the financial outcomes for plan participants, impacting their retirement security.
• Potential for Disputes: Disagreements over valuation outcomes can create tension between participants, fiduciaries, and employers.

Next Steps for Stakeholders

The future of government guidelines, from the referenced NPRM or otherwise, pertaining to adequate consideration remain unknown. Although NACVA/QuickRead will ensure to report updates as received, ESOP participants should take proactive steps to stay informed and engaged in the regulatory process.

1. Monitor Developments: Stay updated on announcements from the DOL and the Trump administration regarding the status of the NPRM.
2. Participate in Advocacy: Engage with industry associations and advocacy groups to voice support for or concerns about the proposed regulation.
3. Prepare for Public Comment: If the NPRM is reintroduced, stakeholders should be ready to provide detailed feedback during the comment period to shape the final rule.

Conclusion

The interaction between the Biden administration’s regulatory initiatives and the Trump administration’s freeze highlights the dynamic nature of policymaking during presidential transitions. While regulatory freezes offer incoming administrations an opportunity to reassess current proposals, they also underscore the challenges of ceasing or stalling them. By actively engaging in the regulatory process, stakeholders can help ensure that future regulations address their needs and promote equitable outcomes.[10]

[1] “Adequate Consideration” Defined?, Adequate Consideration Status Update Part I, and Adequate Consideration Status Update Part II

[2] https://assets-tea.s3.us-east-2.amazonaws.com/assets/public/2025-01/Proposed%20Regulation%20Relating%20to%20Application%20of%20the%20Definition%20of%20Adequate%20Consideration.pdf

[3] https://www.esopassociation.org/articles/department-labor-announces-proposed-adequate-consideration-rule-esops

[4] https://www.morganlewis.com/pubs/2025/01/executive-order-pauses-all-pending-rulemaking-activity-for-federal-agencies-impact-on-cfpb

[5] https://assets-tea.s3.us-east-2.amazonaws.com/assets/public/2025-01/TEA%20Adequate%20Consideration%20Regulation%20webinar%20presentation%20FINAL.pdf

[6] https://www.whitehouse.gov/presidential-actions/2025/01/regulatory-freeze-pending-review/

[7] https://www.thewbkfirm.com/industry/president-trump-issues-executive-order-for-regulatory-freeze-pending-review

[8] https://www.gibsondunn.com/impact-of-trump-administration-regulatory-freeze-memorandum-selected-regulations-and-agency-actions/

[9] https://www.planadviser.com/dol-proposes-rule-clarify-adequate-consideration-esop-transactions/

[10] https://www.employeebenefitslawreport.com/2025/02/inadequate-adequate-consideration-rules-withdrawn/

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Trisch Garthoeffner, ABV, CVA, MAFF, EA, MAcc, has 20+ years of experience in providing business valuation, financial forensic, and merger and acquisition consulting services. In 2020, she was elected to the NACVA Standards Board; in 2021, voted vice-chair; in 2022, voted chair; and is a current Executive Advisory Board advisor for the NACVA Standards Board. She is a past Florida state chapter president for NACVA, a current member of the NACVA exam task force, a board member and quarterly author for the QuickRead valuation periodical, a past treasurer of the Florida Academy of Collaborative Professionals, and a past vice-president of the Southwest Florida Chapter of Collaborative Professionals and current member. In 2024, Ms. Garthoeffner was nominated as a member of Business Valuation Resources (BVR) Leadership Council. On March 06, 2025, she will be in Washington DC with other NACVA representatives[1] to testify regarding NACVA’s collective input regarding the Treasury Department’s proposed rule – Regulations Governing Practice Before the Internal Revenue Service. In her spare time, she enjoys spending time with her daughter, exercising, antiquing, and fostering animals.

Ms. Garthoeffner can be contacted at (239) 919-3092 or by e-mail to trisch@anchorbvfs.com.

[1] T.J. Liles-Tims and Dalton Hopper.