PTE for the sale of assets between a plan and a party-in-interest.

[Guest Thornton]

A bank's common stock is publically, though thinly traded. The bank's 401(k) plan allows for segregated, directed investment accounts in a non-discriminatory manner. The bank president and several other participants have directed accounts in which they hold bank common stock. The bank president owns about 14% of the outstanding stock in his directed account, and with the

shares he now owns outside the plan, either directly or indirectly, controls over 50% of the common stock.

The president wants to take the bank private. The bank, which he and his family control, will offer owners of the stock cash or preferred stock. The president will take preferred stock. The other two participants have elected cash. The bank will probably redeem the preferred stock at a later date.

With regards to the president's directed account, without an exemption I believe we have a prohibited transaction with either the offer or the redemption. The problem is, how will the president ever get his money out of the plan?

I just read PTE 2002-51, which appears to offer relief. Am I correct? Any thoughts are appreciated.

[Belgarath]

To be honest, I never gave it a detailed reading. But I seem to recall that there was something about a limitation to 10% of the plan assets. Did you notice anything about this? With the numbers you give in your example, if it IS limited to 10%, then I don't think it would qualify. But you might want to double-check this.