401(k) PSP - Converting to ESOP "in part" to use 404(k) divi

[Guest jvanheyde]

A traditional 401(k) PSP of a publically traded company has 15 investment options for self-direction. One of those options is "company stock." The company would like to amend the plan to take advantage of the Section 404(k) dividend deduction provision that was amended by EGTRRA.

The company is NOT going to make an employer contribution that is set aside in a newly created ESOP account. Instead, they want to take the position that the Company Stock Account in the self direction investment menu is the ESOP portion of the plan. The only money going into the plan represents deferrals and matching contributions.

Apparantly, the recordkeeper has seen this done on several occasions, and has even shown me such an amendment.

I don't see how you can take the position that an investment option is a plan or even a component of a plan designed to invest primarily in employer securities, even if you throw in all kinds of 409 and 4975(e)(7) language that applies to that investment option. We are talking about 401(k) deferrals and matching money that one day might be invested in a bond fund and the next day in company stock. How is that a plan or provision designed to invest primarily in employer securities?

If you've done this, have you gotten a determination letter on it yet?