Profit sharing(company stock)

[Guest Stiggy]

Hi folks, my problem is that my wife has a fair amount of company stock(~170k) in her profit sharing plan at work. The company is being bought out and it sounds like we need to liquidate the money. I assume we can move it over to an IRA without tax consequences? Please advise if this isn't enough information and I'll get additional details as needed. Appreciate your help.

[JanetM]

It doesn't sound like distributable event. There are only certain situations where participant is allowed to remove funds from a plan. Termination, disability, death........

You need to get the summary plan description to see what the options are. What you should do it you are worried is sell the stock and put the funds in another investment option inside the plan.

[Guest EAS]

Your wife should be eligible to move the stock or cash (if liquidated) from her PSP into an IRA as a direct rollover. You are right, there is no tax consequence, but it willl be a reportable event.

EAS

[david rigby]

Your wife should be eligible to move the stock or cash (if liquidated) from her PSP into an IRA as a direct rollover. You are right, there is no tax consequence, but it willl be a reportable event.

Maybe not. As pointed out by JanetM, nothing can come out of the PS plan unless there is a distibutable event. Check SPD.

If the employer is being acquired, the stock in the plan will be replaced by the purchase price (which could be cash or stock of the buyer, or combination).

[John G]

Sometimes the plan continues as is. Sometimes, the plan is merged into the acquirers plan. It all depends upon the initial agreement... and sometimes that can change after the deal is done.

Your employer will probably hold meetings to explain your options. You may be able to elect to roll the funds over into and IRA, but that may be specifically prohibited by the terms of your plan. You can contact the HR dept and ask them, but don't be surprised if it takes a while before the two companies have worked out the details.

IF you wife has stock options outside of the plan, they may be immediately vested and you may be required to exercise or lose your options. Just another thing to think about if she has any company granted stock options.

[mbozek]

Generally when a company is taken over the stock in the plan is exchanged for the acquiror's stock. There is no termination of the plan nor a distribution of the stock. In any event the plan sponsor will determine what becomes of the stock in the plan after the buyout and will notify the particpants of their options.

[GBurns]

All that was posted is that "The company is being bought out ". Whether this is by an individual, a group of individuals or by another entity is not known.

It is not known that the company is being taken over and if there will be any stock in an acquirer that will be exchanged.

Since she has stock, Has she been made an offer for her stock? Has she evaluated whether her stock will be worth more or less after? In any case, Can she even liquidate this stock on the open market, anyhow?

[Guest Stiggy]

Thanks for all the info. The company is being bought out by another company, the profit sharing plan used to have money placed into my wife's 401k(separate line item on her 401k statement) each year and she could put it into a variety of mutual funds as she saw fit. About 4 years ago that changed and the company contribution went into their stock(including all previous years). Now, the company is being bought out and she will realize a 40% increase on the stock price value of her shares(from their current market value). That's great for us, but we don't have any choice but to receive the proceeds(at least that is what they are saying to her). Since to me it's all part of the 401k umbrella, I assumed you could move that to an IRA. She still has her 401k contributions for over 20 years that still will be part of the 401k at her work. Hope this helps to clarify the situation. I wanted input from those folks in the field to see if the folks at her work(small company) have a clue on what's right and wrong! Appreciate your input. Sorry, should also mention that this has been a privately held company....

[mbozek]

If the stock is being exchanged for cash then she will be able to rollover her account to an IRA if the plan is terminated. If the plan is merged with the acquiror's plan she will be able to invest the cash in any option under the plan.

[John G]

This kind of big fish eats small fish happens a lot. Since the firm is currently privately held, the acquisition may have done you a big favor in both kicking up the value of the stock and liquidating your position. When you said you "don't have any choice", I suspect that they are referring to alternatives to cash out or liquidation. The lack of a choice in that case would be related to the terms of the buyout agreement. The little fish is not publicly traded so the SEC is probably not involved. It is unclear from what you said that after the company changed procedures about what subsequent investment options would be offered. You did not indicate if the new company is privately held or publicly traded. I am hoping for bigger firm, publicly traded... since you are likely to have better investment choices.

The continuation of the tax shelter is a completely seperate question. I would expect that the acquiring company will have some kind of plan were you can roll the funds and then make new investment choices. You should never have to be in a position to get paid off in cash. Any liquidation of shares should occur within the 401K and the proceeds should be able to be in some way redeployed. You may also have the option if the plan is terminated to roll over the funds into an IRA of your choice, then take charge of your own investments.

Your old and new management have a fiduciary duties to protect your interests. That includes preserving the tax shelter of the 401k and giving you a fair price for the stock. . While there is a chance the new firm wants to kill of the old plan, they have an incentive to encourage you to move to their plan because you would increase the asset base and potentially reduce their overhead percent.

There is a lot of money at stake here. If you have doubts about the options you are presented or the proceedures that the company says they "must" follow - then find yourself a good financial advisor and possibly a good attorney.