Jump to content

Party in Interest uses his company stock to buy real estate from profit sharing plan


Recommended Posts

Are we all in agreement that it is a prohibited transaction for a disqualified person to purchase, for cash, real estate held by the company's profit sharing plan (the real estate is not qualifying employer real property)? Seems clear that ERISA's basic prohibited transaction provisions control here (i.e., Section 406(a)(1)(A)).

Is the result any different if the disqualified person, instead of paying cash, exchanges his company stock for the real estate (assuming meticulous valuations of both the company stock and the real estate and assuming no commission is charged)? Or does the exemption under ERISA Section 408(e) trump the underlying prohibited transaction. The exemption under Section 408(e) provides that Section 406 does not apply where the plan's acquisition is for adequate consideration and no commission is charged.

If the exemption (Section 408(e)) trumps the underlying prohibited transaction (Section 406(a)), what is the policy that would allow a disqualified person to buy, for stock, something that he/she could not buy for cash?

Link to comment
Share on other sites

The transfer of the company stock to the PSP could be exempt under ERISA Section 408(e) if the PSP includes provisions that qualify it as an EIAP. But the transfer of the real estate to the party in interest as payment would not fall within the purview of the 408(e) exemption.

Seek an individual transaction exemption from DOL.

Link to comment
Share on other sites

RLL,

Thank you. So essentially we bifurcate the transaction so that on one hand we have an exempt transfer of stock by the party in interest to the plan in return for "payment" while on the other hand we have a non-exempt transfer of real estate to a party in interest in return for some form of payment?

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...