Privately Held Company Stock in 401(k) Matching Account - 404(c) issue

[Guest ERISAGuy]

Situation: A privately held company makes its match in company stock and gives its employees the right to sell the stock and to move the proceeds into any one of a variety of other choices (which presumably qualify under 404©). The company does not allow the employees to reinvest the funds in the company stock account, however. Does the plan qualify under ERISA 404©? I need any assistance. Thanks.

[Guest earthy]

Based on your statements I don't believe this plan would meet the requirements of the DOL Regulation unless the plan offered the participants and beneficiaries "a broad range of investment options" from which to choose.

Under DOL Reg. 2550.404©-1©(2), the participant/beneficiary exercise of control of the investments in their individual accounts is a facts and circumstances determination.

Q: Have they amended the Plan to incorporate the Plan's alleged 404© operational provisions to avoid liability? This would also be needed.

[RLL]

ERISAGuy ---

I think 404© protection is available for this arrangement, so long as participants can freely direct the sale of employer stock, but only as to the investments other than employer stock.

But in a closely-held company, can such sales really be readily effected? If the sale is to the employer or to another party in interest, ERISA sections 408(e) and 3(18) require an independent appraisal as of the date of each sale.