Rollover into plan includes employer stock

[Bird]

I dunno about this...employee worked for Wachovia Bank, now is in one of our plans and elected a rollover to the plan. Wells Fargo, which took over Wachovia, sends a check for part if his account and a stock certificate for the employer stock part.

I know that the stock could have been distributed to him, but I've never seen stock going from one plan to another. I'm inclined to take it and sell it in the new plan (pooled brokerage account so it can be done) and give him credit as a rollover for the sale amount. We sure don't intend to hold that stock just for him and I don't think it was a proper way to distribute it. Comments?

[QDROphile]

It may be a bit old fashioned to deliver stock certificates but it is really the most tangible way of transferring assets in kind. The certificate should have included an assignment or transfer power. The trustee can hold the certificate after transfer of title on the book of the company (deal with the trnasfer agent) or arrange for custody in electronic form, perhaps with a depositary arrangement. If you rearrange via selling and repurchasing, you may incur unnecessary transaction costs and that has fiduciary implications. Maybe you are not in a position to accept in-kind rollovers. If not, do not accept the rollover of the shares. Better to stick with your policy than botch the transfer and custody.

[Bird]

But what's the (tax) point of transferring the shares in-kind to another plan, or isn't there any? I understand that if shares are transferred to a participant, he gets favorable tax treatment, but if they are transferred to a plan, then it's just treated as a plain old rollover, right? I'm going to assume it's just a procedural thing`where he could have sold them within the plan first, and if he didn't, then they prefer to or have to keep that part of the plan as stock-only right to the point of distributing shares.

[movedon]

Do I understand correctly that this is a trustee-directed, pooled kind of a plan that the participant has chosen to roll his previous employer's plan's balance into? If so, then yeah, I think selling the shares and dumping the cash in the pool is the way to go, unless the trustee of the recipient plan wants the shares as an investment of the trust.

If, however, the recipient plan is a participant-directed type plan with individual brokerage accounts, I would think the shares could just go into the individual's account. I don't think there's any tax advantage to the in-kind transfer. I have known participants to want an in-kind transfer of a large holding (where they want to continue to own the investment) just to avoid losing out on any gains that happen while cash is in transit between the selling (distributing) plan and the buying (recipient) plan.

[Bird]

Do I understand correctly that this is a trustee-directed, pooled kind of a plan that the participant has chosen to roll his previous employer's plan's balance into? If so, then yeah, I think selling the shares and dumping the cash in the pool is the way to go, unless the trustee of the recipient plan wants the shares as an investment of the trust.

That's right; thanks for the confirmation.