Employer Stock in Profit Sharing Plan

[Dougsbpc]

We have a client who sponsors a profit sharing plan with pooled investments. The vice-president of the company will retire this year and wants to sell his company stock. The stock is worth about $300,000 and plan assets are about $4,000,000. The employer wants to know if the profit sharing plan can purchase the stock.

The plan is considered an individual account plan so we believe it could invest in company stock. The employer wants to know if the plan could purchase the stock directly from the vice-president. I would think the stock should be bought by the company and then bought by the plan.

Does anyone disagree?

Thanks.

[Kirk Maldonado]

Why do you think that the company should buy it first?

[pjkoehler]

Dougsbpc: An exemption from the PT rules, under ERISA Sec. 408(e), permits an ESOP to acquire qualifying employer securities from any party in interest, provided that the plan pays no more than "adequate consideration and is not charged a commission. If the stock is not readily tradable, then the transaction raises fairness and prudence issues. DOL proposed regulations requires an ESOP fiduciary that is not indepndent of the ESOP sponsor to engage an indepedent financial advisor to assist the fiduciary in determining that the plan is not paying more than "adequate consideration." DOL Prop. Reg. Sec. 2510.3-18(B)(1).