Benefits Regulator’s ESOP Shift Heralds New Grants, Fewer Probes

The Trump administration is reorienting the Labor Department’s approach to employee stock ownership plans, signaling it will pursue fewer lawsuits and investigations while focusing on awarding grants.

A recent report to Congress outlined how the Employee Benefits Security Administration’s Division of Employee Ownership (DEO) is working to increase awareness around ESOPs.

Congress allocated $2 million this fiscal year for the office to promote employee ownership, though its other efforts may depend on future money from lawmakers given EBSA’s history of flat funding.

ESOP attorneys and advocates suggest the combination of re-calibrated enforcement, a forthcoming valuation regulation, and more education and outreach could lead to more employee-owned businesses. There are more than 6,400 companies with an ESOP in the US, totaling more than $2 trillion in assets as of January, according to the National Center for Employee Ownership.

“The sea change in the leadership has been great at this Department of Labor especially,” said Greg Facchiano, vice president of government relations and public affairs at the ESOP Association. “There is a role for the department to promote this, we just wanted some balance back, and you’re seeing that with this department.”

The WORK Act, passed as part of the SECURE 2.0 Act in 2022, mandated that the DOL establish the Employee Ownership Initiative to support ESOPs. The department in 2023 launched the initiative and established the DEO.

The division is led by Hilary Abell, its sole employee, and built relationships with employee ownership programs in several states and launched a website with resources for companies and workers, according to EBSA.

Funding Grants

The WORK Act authorized $50 million for a five-year grant program to promote employee ownership, but no money was allocated until Congress last month passed the Consolidated Appropriations Act of 2026.

EBSA will need to regulate around the grant program, detailing who can apply, what the deadlines are, and what the money can be used for, Facchiano said. There may also be reporting requirements that outline specific maximums one entity can apply for and how much can be used for overhead.

No grants have been awarded to date, but a DOL spokesperson said the agency is developing a framework for the grant program with the Employment and Training Administration.

“EBSA intends to take full advantage of the congressional grant authorization by using the funds to promote employee ownership to help American workers become stakeholders in the companies for which they work,” the spokesperson said.

ESOPs are one form of employee ownership plan, and enjoy bipartisan support in Congress. Proponents argue employee-owned businesses give workers a direct stake in the company’s performance and direction.

The ESOP Association’s preference is to support existing state government-run models that offer technical assistance and leverage funding to boost awareness and participation around employee ownership, Facchiano said.

Nine states have state-funded employee ownership initiatives, according to EBSA’s report to Congress. Five have initiatives within state agencies, and some base their efforts at public universities or nonprofits.

Chelsea Ashbrook McCarthy, a partner at Holland & Knight LLP, said EBSA could focus on education for the business community and company owners about ESOPs.

“There’s a number of business owners and businesses that may be great candidates for an ESOP, but whether an owner may consider an ESOP depends on what information the owner has about ESOPs when considering their options to transition ownership,” she said.

In its report to Congress, EBSA said some of its future work on employee ownership was dependent on available resources. That included increasing staff and budget for the DEO, partnering with other federal agencies like the Small Business Administration, and expanding educational programs.

“Let’s get some regulations and get some grants made and show what we’re doing with the money,” Facchiano said. “Then we can go back to Congress and say: here’s what we’ve done, let’s do more with more.”

Congress appropriated $191.1 million for EBSA for fiscal year 2026, the same amount as each of the past two years. A 2023 government report found the agency was facing added responsibilities with limited resources amid years of underfunding.

ESOP ‘War’

Grants and outreach operate separately from EBSA’s enforcement arm, which has historically investigated—and sometimes sued through the DOL—companies over the valuation of the stock executives give their workers.

EBSA removed ESOPs from its national enforcement projects in January. Assistant Secretary of Labor for Employee Benefits Security Daniel Aronowitz said he would “end the war” on employee-owned companies.

Tim Hauser, who retired in December after serving as deputy assistant secretary for program operations at EBSA, pushed back on that characterization.

“It’s not a war on ESOPs, it’s just a war on bad ESOP deals,” Hauser said. “You need to support the good transactions, and you need to have an enforcement arm that addresses the bad transactions, and finding the right balance can be challenging.”

Hauser said EBSA has “definitely supported” the employee ownership initiative, followed what Congress required in the WORK Act. But the allocation of grant money marks a major turning point for the initiative, he said.

The agency is expected to put out a regulation on “adequate consideration” for ESOP stock valuations after withdrawing a Biden administration version.

McCarthy said she would be looking to see a regulation that recognizes there is not one clear answer when it comes to valuation and gives discretion to independent trustees who are engaged in connection with ESOP transactions.

How the agency’s shifting regulatory, enforcement, and outreach efforts will shape litigation in the ESOP space could take years to play out, McCarthy said.

“It’s possible the short-term impact will be that we see the private plaintiffs filling in the space where the department may have otherwise brought a suit,” she said. “I don’t know that the immediate impact will be fewer suits filed, it may just be more suits filed by private plaintiffs than the department.”