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In-Service Distribution of Employer Stock Fund Only?


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Can a 401k plan limit pre-59 1/2 in-service distributions to employer matching contributions that are invested in the employer stock fund only?  

The plan currently does not allow pre-59 1/2 in-service contributions at all so there would no anti-cutback rule issues.

The sponsor is considering eliminating the employer stock fund from the plan, but would like to give participants an option to keep the stock if they wish. 

 

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I know this isn't an answer to your question.  Nor is it a criticism or objection to the idea.  I am simply curious. 

 

Is this stock publicly traded?  if not, these people are going to have a hard time finding IRAs to hold the stock,  It isn't impossible but harder.   And if they don't put it in an IRA they have to pay taxes on a distribution when they are <59.5.

 

Obviously, if they are publicly traded those kinds of issue will pretty much go away. 

 

Like, I said I am curious because as the alias implies I work with a lot of plans that have employer stock so I have seen my fair share of stock distributions and what happens after the stock leaves the plan. 

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I know of no reason why an employer could not amend its plan in the way you describe, kmhaab. Of course, anyone not invested in employer stock who wanted to get an in-service distribution could simply make an investment change into employer stock, then cash out and take a distribution, right? Or would the plan be amended to not permit any further acquisitions of employer stock also?

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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