401(k) Buy/Sell Program for Employer Stock

[ERISA25]

The Plan document allows the plan administrator to establish a buy/sell window during which participants may buy or sell employer stock. We would like to set up a window under which terminated participants may sell the ER stock held in their accounts to active participants. Does this raise any prohibited transaction issues? In most cases, a terminated participant will not be a party-in-interest, so would it just be a transaction between a party-in-interest (active participant) and a person that is not a fiduciary or party-in-interest (i.e., terminated participant). I'm still thinking through these issues, but any thoughts would be appreciated.

[QDROphile]

How are you going to make the market? Who gets to sell and who gets to buy and at what price? Your question implies that participants make both buy and sell decisions.

[ERISA25]

How are you going to make the market? Who gets to sell and who gets to buy and at what price? Your question implies that participants make both buy and sell decisions.

The company will have a valuation done within 30 days of opening the buy/sell window (window will last 60 days) that will serve as the FMV for the transactions. I am considering a number of options, but let's say that only terminated particpants may sell the employer stock and only active EEs may purchase.

[ESOP Guy]

Maybe I don't understand the use of your term terminated participant. If you are talking about someone who has terminated with the sponsor but still has a balance in the plan why don't you think they are NOT a party in interest.

On the other hand if you make a distribution of shares to these people (and they have no remaining balance in the plan) then they are no longer participants and then they would seem like they would not be a party in interest.

[ERISA25]

Maybe I don't understand the use of your term terminated participant. If you are talking about someone who has terminated with the sponsor but still has a balance in the plan why don't you think they are NOT a party in interest.

On the other hand if you make a distribution of shares to these people (and they have no remaining balance in the plan) then they are no longer participants and then they would seem like they would not be a party in interest.

I could be wrong on this, but I looked to the definition in E. 3(14). I do not see how a former employee fits in any of these categories unless they have some ownership of the company. Here's 3(14):

The term “party in interest” means, as to an employee benefit plan—

(A) any fiduciary (including, but not limited to, any administrator, officer, trustee, or custodian), counsel, or employee of such employee benefit plan;

(B) a person providing services to such plan;

© an employer any of whose employees are covered by such plan;

(D) an employee organization any of whose members are covered by such plan;

(E) an owner, direct or indirect, of 50 percent or more of—

(i) the combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of a corporation.

(ii) the capital interest or the profits interest of a partnership, or

(iii) the beneficial interest of a trust or unincorporated enterprise,

which is an employer or an employee organization described insubparagraph © or (D) ;

(F) a relative (as defined in paragraph (15)) of any individual described in subparagraph (A), (B) , ©, or (E) ;

(G) a corporation, partnership, or trust or estate of which (or in which) 50 percent or more of—

(i) the combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of such corporation,

(ii) the capital interest or profits interest of such partnership, or

(iii) the beneficial interest of such trust or estate,

is owned directly or indirectly, or held by persons described insubparagraph (A) , (B) , ©, (D) , or (E);

(H) an employee, officer, director (or an individual having powers or responsibilities similar to those of officers or directors), or a 10 percent or more shareholder directly or indirectly, of a person described insubparagraph (B) , ©, (D) , (E), or (G) , or of the employee benefit plan; or

(I) a 10 percent or more (directly or indirectly in capital or profits) partner or joint venturer of a person described in subparagraph (B) ,© , (D), (E) , or (G).

The Secretary, after consultation and coordination with the Secretary of the Treasury, may by regulation prescribe a percentage lower than 50 percent for subparagraph (E) and (G) and lower than 10 percent forsubparagraph (H) or (I) . The Secretary may prescribe regulations for determining the ownership (direct or indirect) of profits and beneficial interests, and the manner in which indirect stockholdings are taken into account. Any person who is a party in interest with respect to a plan to which a trust described in section 501©(22) of the Internal Revenue Code of 1986

 is permitted to make payments under section 4223 [29 USC §1403] shall be treated as a party in interest with respect to such trust.

[K2retire]

Although I didn't see it on your list, it is my understanding that a plan participant is also a party-in-interest.

[ESOP Guy]

Mary22:

Could not find anything quick that had a good cite and I have a full morning. But I did find an ASPA Q&A that seems to say what I am saying just doesn't tell you where they get it. Here it is:

http://www.asppa.org/Main-Menu/confswebcas...11/docs/qa.aspx

Look at the 2nd question down.

This area this Q&A is talking about is why I have always understood participant as part in interests. There is a class exemption in the PT rules for participant loans. My understanding is the reason you needed the exemption is the general rule would lead you to conclude you can't make the typical 401(k) loan.

Sorry, I can't help more maybe it will give you the clue to find more or more likely one of the people on the board that is really good at quoting the rules will help out.

[QDROphile]

The difference between ERISA and the tax code is not about participants, it is about employees. Compare ERISA section 3(14)(H) and Code section 4975(e)(2)(H), so maybe the ASPPA piece is not so much an authority on this question.

Also, ERISA says says that a participant who directs investment of the participant's account is not a fidiciary (for that reason); the Code says otherwise.

[ESOP Guy]

QDRO I am more then happy to be told I am wrong. So are you saying all employees are party in interest, but since the question is about ex -employees they are no longer a party in interest? (which is clearly is what Mary22 is saying so are you agreeing with her would be another way to put the question.)

[QDROphile]

I do not see anything in the definitions of party in interest or disqualifed person that says a participant is one by virtue of being a participant.

[Guest adric]

How are you going to make the market? Who gets to sell and who gets to buy and at what price? Your question implies that participants make both buy and sell decisions.