Employer stock in 401(k) Plan

[Guest JBeck]

A non-ESOP (I know this is the ESOP forum but I am hoping that the question is close enough that you can answer) 401(k) plan permits participants to invest in employer stock. Participants can switch out of employer stock once a month. The employer has a stock buy-back plan for all stockholders, and wants to extend it to all shareholders, including participants in the 401(k) Plan. However, participants in the 401(k) plan really only own an interest in an employer stock fund, and not the stock. Also, since the employer stock is publicly traded, the price of the buy back and the fair market value of the traded stock may be different, and perhaps no prohibited transaction exemption. Any thoughts on whether this is doable are appreciated.

[RLL]

ERISA section 408(e) allows a purchase of employer stock by an employer from its 401(k) plan so long as no commission is charged to the plan and the purchase price is not less favorable to the plan than "adequate consideration." ERISA section 3(18)(A) defines "adequate consideration" for a publicly-traded stock based upon the prevailing market price or current bid/asked prices.

[Kirk Maldonado]

I agree with RLL that you can easily structure the transaction to comply both with ERISA and the Code.

However, there many very serious securities laws issues that may be implicated here, both on the state and federal level. You need to get securities counsel involved ASAP.