ERISA §404(c) and Employer Securities

[Guest cjk]

In order to receive ERISA §404© protection in situations where the plan allows for investment in employer securities there is a particular "required disclosure." ERISA §404© states, "..In the case of plans which offer an investment alternative which is designed to permit a participant or beneficiary to directly or indirectly acquire of sell any employer security, a description of the procedures established to provide for the confidentiality of information relating to the purchase, holding and sale of employer securities, and the exercise of voting tender and similar rights, by participants and beneficiaries, and the name, address and phone number of the plan fiduciary responsible for monitoring compliance with the precedures. I have only seen this "confidentiality procedure" spelled out in one SPD after reviewing many of plans with employer securities. The trust document outlines the confidentiality procedure but my reading of ERISA §404© would suggest that a separate disclosure to participants would need to be provided. Am I missing something or is this a detail that is not being complied with by most plans with employer securities?

[E as in ERISA]

I believe that your analysis is correct, and like you I believe that most employers are not complying with it.

[E as in ERISA]

P.S. You're not a plaintiff's attorney are you?

[Guest cjk]

No, I am merely an actuary/consultant trying to keep track of details.

[Kirk Maldonado]

In my experience, confidentiality procedures like that only get implemented in connection with sensitive transactions, such as a tender offer for all of the employer's stock.

[E as in ERISA]

I think that this goes straight to the "Enron" issue of employees claiming that they felt pressured to hold stock -- i.e., they are saying that their choice of employer stock wasn't wholly voluntary. If there are no confidentiality procedures in place at all times or those procedures have not been published to employees, then the employer is not protected from the employees' choice of employer stock under 404©. The rule is actually in Labor Regs. Sec. 2550.404c-1(B)(2)(i)(B)(1)(vii). Further details are in Labor Regs. Sec. 2550.404c-1(d)(2)(ii)(E)(4)(vii)-(ix).