Company stock as an investment alternative in Section 401(k) plans

[Kirk Maldonado]

Are people generally aware that if employees can purchase employer stock through their Section 401(k) plans with their own contributions, the sale of those shares to them must be registered with the SEC? I've had a number of clients over the years that offered (publicly traded) employer stock as an investment alternative, without any consideration as to the impact that would have under federal securities laws. While compliance with federal securities laws is not too burdensome, it must be done.

[Guest beth beaube]

I know our firm has always registered such securities for our clients. I am suprised that there are people out there doing this that are unaware of the securties issues.

[Kirk Maldonado]

Unfortunately, I have encountered it several times before.

The typical scenario is that a publicly traded company has a Section 401(k) plan that is administered by an insurance company. The employer asks if they can add company stock as an investment alternative under the plan. The insurance company says that if the stock is publicly traded then it's OK. Needless to say, it becomes quite messy when we later advise the company that they needed to register the sale of the shares of company stock under the plan and about all of the SEC filings that weren't done. While the SEC compliance measures aren't that onerous, they can't be disregarded (either intentionally or unintentionally).

[Guest Dook]

I am interested to know what the requirements are. What filings need to be done both to register and ongoing? When must the filings be done?

Is there an SEC contact for an employer with questions?

Any and all information is appreciated.

[Kirk Maldonado]

It would take hours to explain all of the securities laws consequences. Read my Treatise on this topic. It is BNA Tax Management Portfolio #362.