Assets transferred from 401(k) to ESOP

[Guest MC2]

Are there any legal ramifications of an employer converting an employee's 401k account to a a new class of stock that is placed in an ESOP? Upon the company's dissolution, the distribution that the employee received from the ESOP account was much less than the value of the employee's 401k account at the time of the conversion.

Thank you.

[QDROphile]

Definitely fiduciariy issues and possibly securities law issues, especially if the converted amount included elective deferrals.

[JRN]

Yes, there are big fiduciary and securities law issues here. On the fiduciary side, someone (the Plan Trustee?) made an investment decision to take existing plan assets and invest those assets in Company stock. Was that investment decision prudent? On the securities side, whenever you invest employee contributions in Company stock, you have a "sale" of securities that must be registered or qualify under an exemption. Possible remedy is that participants can sue to "undo" the sale, i.e., get their money back.

[Guest MC2]

It appears as though the ER converted the matching contributions that it made to the EE's 401k into company stock via an ESOP. The EE contributions were left in the 401k plan. Are there still fiduciary and securities law issues in this situation? From your posts, it seems as though there would not be a securities law problem in that the ER converted only its matching contributions into company stock and left the employee contributions in the 401k plan.