s-corp bank stock in 401k

[Guest padmin]

S-Corp bank wants to add company stock to existing 401k plan( all other investments daily valued). Are there any restrictions on this? The stock is valued quarterly.

[A Shot in the Dark]

It can be done. There are may issues, legal and administrative that must be reviewed and processed. It will require competent ERISA and securities counsel.

Regarding your direct question, the 401(k) Plan must be amended and restated to include all ESOP provisions, thus making a KSOP, as an ESOP is the only qualified retirement plan that can hold "'S" Corp. Stock.

[BeckyMiller]

Well, I agree with the results that "A Shot in the Dark" suggests, but not why. A profit sharing plan is a permissible shareholder in an S Corporation. Per Section 1361( c )(6) - any 401(a) plan can be a shareholder of an S corporation. BUT, only ESOPs are exempt from the associated unrelated business income tax on the trust's share of any pass-through income. Also, for such a shareholder, unrelated business taxable income includes both the pass-through income and any gain or loss on any disposition of the stock. According to the Blue Book, this includes the distribution of shares to a participant as part of the plan's normal operation. SO - though permissible, it may not be a wise economic decision (did someone say "fiduciary conduct?") to put S corporation stock into a profit sharing plan.