Private Company Stock in PS Plan

[Guest vgallo]

We have a client who has created a C Corp and companion PS Plan. It has placed rollover IRA assets in the plan and then used liquid assets to purchase company stock(approximately 20% of PS Plan assets)

The current plan does not provide guidance or insight in how to "unwind" this plan to allow for current owners to acquire stock without prohibited transaction violation.

Does anyone have any ideas on how this might be accomplished?

My only thought is using a triangular transaction with a disinterested third partgy, having a boa fide business purpose(i.e. 3rd party busies stock from plan and then enters into a buy-sell arrangement with original owners)

Thank you in advance for your input and comments

[ESOP Guy]

I work with ESOPs not these ROBs as the IRS likes to call them.

However, you might want to look into the PT exception that allows a disqualified person to do actions that would normally be a PT if it is done because they are receiving a benefit as a participant.

Or put into English, I THINK you could distribute the shares at FMV in-kind to the participant. Once they are in their hand there are no more PT issues.

I know ESOPs have an exemption that allows them to sell shares back to the employer at FMV, but have never looked into if a ROB can do that also.

I am mostly sure you can do an in-kind distribution of a person's benefits without a PT. Note the plan document needs to allow for in-kind distributions which isn't a common feature in a plan document. But it could be amended.

Warning:

PT failures are very expensive. I would only use this forum or any forum to start the research. If the value of this stock is large ($10K) more it would pay to get good legal advice as failure will cost more.

[QDROphile]

An in-kind distribution is only possible if the participant is entitled to a distribution. If the distribution is because of plan termination, the termination will be consistent with the shady aspects of a ROBS transaction and may tip the scales if the arrangement is examined by the IRS. Because the distribution will be reported for income tax purposes, valuation will be in question and anything other than professional independent valuation will be frowned upon.

[ESOP Guy]

QDRO is correct there has to be a distributable event.