Company Stock Issue

[fidu]

Is there any requirement for an ERISA governed fund to hold a specific amount of cash reserves based upon amount/value of company stock the fund holds?

thank you.

enjoy the weekend!

[MWeddell]

None that I'm aware of. For plans intended to satisfy the ERISA 404© rules, there's a requirement that the company stock trades be able to settle promptly. (I'm paraphrasing from memory, so look it up if this is relevant.) That may indirectly require that there be a cash component if the stock is thinly traded so that trades may not always settle promptly.

[mbozek]

Why does the plan need to hold cash for stock redemptions in a 401(k) plan? If the stock is publicly traded the SEC requires that the buyer produce cash for the purchase within three business days. If the emplyee terminates the stock is distributed as part of a distribution. In a dc plan all assets must be allocated to participant's accounts so how can the plan hold a reserve of cash?

[Guest dmj1998]

mbozek - i think fidu is referring to the cash portion of a unitized stock fund. if a plan holds stock in shares only, participants must wait the T+3 settlement period before they can purchase another investment. if the plan has a unitized stock fund, it is treated like any other mutual fund and allows for same day trading. in the unitized fund, the only investments are company stock and a small cash portion to handle redemptions.

fidu - i don't know of any requirements for cash positions in these funds. i would think that a prudent level would be dictated by the level of historical activity that participants have with the fund.

[fidu]

After looking into this further, I still have not found any requirement regarding required cash reserves in connection with a plan holding company stock.

Thus, I concur with all posted answers - so thanks, and as an funny, interesting (and true) aside to the T+1 issue, after speaking with bankers in India, they tell me the trade settlement process is sooooooooo sloooooooooo it is commonly referred to

as T+ ..........................Bisquits. in other words, there is little no situation that follows our current T+3 settlement process.

thanks again.