A Big Win for ESOPs

For the past twenty years, employee stock ownership plans (ESOPs) have been the subject of intense regulatory scrutiny due to their inclusion on the DOL’s Employee Benefits Security Administration (EBSA) national enforcement project list. They were initially added as a project in 2005 during a period of increased concern over complex transactions and fiduciary conduct. The popular opinion at the time was that ESOPs were particularly vulnerable to abuse due to leveraged transactions, related-party dealings, and valuation challenges. As a result, they were targeted as high-risk and endured countless audits, investigations, and litigation activity. Since ESOPs were a recurring enforcement focus for such a long period of time, there has been hesitancy among business owners considering the vehicle as a succession or liquidity strategy, as well as more conservative deal structures and higher transaction costs.

A New Age for ESOPs

All of this changed on January 15, 2026, when EBSA announced that it removed ESOPs from its national enforcement project list (view the DOL’s full release here). The agency appears to have implemented a FY 2026 enforcement “reset” that has seemingly ended the “war” on ESOPs. EBSA’s new enforcement framework will now focus on areas where misconduct is more prevalent and harmful to participants, including:

• Cybersecurity
• Mental health parity
• Improper benefit distributions
• Retirement asset management
• Surprise medical billing
• Criminal abuse of contributory benefit plans

EBSA also announced that it will scale back its focus on missing participants, citing the launch of the Retirement Savings Lost and Found Database. The goal is to be more efficient and responsive and to prioritize serious transgressions.

What does removing ESOPs from the national enforcement project list mean for ESOP companies?

• Fewer “initiative-driven” investigations launched simply because a company has an ESOP
• More discretion for investigators to focus on actual red flags, not structural features of employee ownership
• Reduced risk of regulatory second-guessing based on evolving, unwritten standards
• A healthier environment for ESOP financing, transactions, and long-term planning

Maintaining Governance

While ESOPs are no longer a national priority, it is important to remember that they remain subject to ERISA governance, valuations must still be well-documented and defensible, conflicts must still be managed, and fiduciaries must continue to act solely in the interest of plan participants. The end of the enforcement project does not relax compliance standards, but it does signal a shift toward a more balanced and constructive environment, one that will create new opportunities for both existing and prospective ESOPs.

Please contact us if you have questions about the information outlined above; our seasoned and experienced employee benefit plan professionals are here to help. You can also learn more on our Employee Benefit Plan services page.

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