sole prop cash balance plan

[thepensionmaven]

This is a cash balance plan for a sole proprietor with employees.  We completed the annual contribution calculation, client asking if contributions must be made in cash or he can transfer some personally owned securities into the plan as contribution.

I'm leaning towards "no"; the doc makes no mention.

[Lou S.]

I think you have to go through a lot of hoop show it is not a prohibited transaction if you make "in-kind" contributions. If they really want to go that route have them consult with an ERISA attorney who is familiar with the rules as they can be quite complicated.

[jpod]

A cash balance plan being a "pension" plan, with a minimum funding contribution obligation under the IRC, it is clearly a PT to the extent that property is contributed to satisfy the minimum funding obligation.  I think there may be authority to confirm, or at least suggest, that it is not PT if the property contributed is above and beyond the cash contributed to satisfy MF, but that should be researched first.  

[Effen]

I agree with Jpod.  My understanding is the MRC must be cash, but any amount over that can be in-kind, but I would definitely get the sign-off of an ERISA attorney.

[jpod]

Just to be clear, no need to spend money on an ERISA attorney on the fundamental issue:  You MUST contribute cash to satisfy MF.    

[John Feldt ERPA CPC QPA]

If they ask the Treasury Secretary, they may be able to get it allowed, however that is very expensive to try and very unlikely to get approved. Was GM able to do something like that?

[shERPA]

Commissioner v. Keystone, went all the way to the SCOTUS, held that contributing property to the plan to satisfy a funding obligation is a PT.  No reason to ask the Secretary or an attorney.  Sell the securities and contribute the cash proceeds, it will be much cheaper than trying to fight the PT battle. 

https://www.law.cornell.edu/supct/html/91-1677.ZO.html

 

[John Feldt ERPA CPC QPA]

That’s right, cash for minimum funding. Above that you may have other options, but you really never should do it in a small plan. 

https://www.chicagotribune.com/news/ct-xpm-1994-05-11-9405120061-story,amp.html

[Peter Gulia]

Without disagreeing with the other observations:

 

If one is considering contributing property other than money, here’s a list of prohibited-transaction exemptions for an “in-kind” contribution to a pension plan.

 

• PTE 2017-02 Aon Pension Plan (LP interests)

• PTE 2016-08 Baxter International Inc. (stock)

• PTE 2015-21 Idaho Veneer Company/Ceda-Pine Veneer, Inc. Employees’ Retirement Plan (real property)

• PTE 2015-16 Red Wing Shoe Co Pension Plan for Hourly Employees, Red Wing Shoe Co Retirement Plan & S.B. Foot Tanning Company Employees’ Pension Plan (stock)

• PTE 2015-07 Rock Wool Manufacturing Company Salaried Retirement Plan (real property)

• PTE 2014-10 Family Dynamics, Inc., Pension Plan (notes)

• PTE 2014-06 AT&T Inc. (together with AT&T Inc.’s Affiliates, AT&T) (preferred membership interests)

• PTE 2014-02 ABB Inc. Cash Balance Pension Plan; Cash Balance Pension Plan for Certain Represented Employees of ABB Inc.; Pension Plan for Employees of the Process Analytics Division of ABB Inc. Represented by the Laborer’s International Union of North America, Local No. 1304; Pension Plan of Fischer & Porter Company; ABB Inc. Pension Plan (U.S. Treasury securities)

• PTE 2012-12 Weyerhaeuser Company and Federalway Asset Management LP (assets)

• PTE 2012-06 Retirement Program for Employees of EnPro Industries (GIC)

• PTE 2012-01 The Kemper Corporation Pension Plan (stock)

• PTE 2011-23 Bayer Corporation (U.S. Treasury securities)

• PTE 2011-13 Ford Motor Company (amendment to PTE 2010-08) (LLC interests, notes, warrants and stock)

• PTE 2010-12 Chrysler LLC (stock and note)

• PTE 2010-08 Ford Motor Co. (LLC interests, notes, warrants, and stock)

• PTE 2008-06 The Swedish Health Services Pension Plan (securities and mutual fund shares)

• PTE 2006-19 Kaiser Aluminum Corp. and its subsidiaries (stock)

• PTE 2006-03 The Zieger Health Care Corp. Retirement Fund (LLC interests)

• PTE 2005-05 RG Dailey Co. Inc. Defined Benefit Plan (stock)

• PTE 2005-04 Wheeling Pittsburgh Corp. (WPC) and Wheeling Pittsburgh Steel Corp. (stock)

• PTE 2005-02 Roy A Herberger Defined Benefit Pension Plan (stock)

• PTE 2004-08 Kinder Morgan Inc. (stock)

• PTE 2004-01 United States Steel and Carnegie Pension Fund (timber rights)

• PTE 2003-26 Northwest Airlines Pension Plan for Salaried Employees et al (stock)

• PTE 2002-24 Carl Mundy Jr Defined Benefit Plan (stock)

• PTE 2000-40 Washington County Hospital Association Employees Cash Balance Plan (securities)

• PTE 1998-51 US West Inc. et al (stock)

• PTE 1998-02 First Bank System Personal Retirement Account (interests)

• PTE 1996-77 Mewbourne Oil Co. Inc. Plan (securities)

• PTE 1996-21 WW Taylor Jr MD PC Money Purchase Pension Plan (securities)

   

  The hyperlinks lead, in series, to the Federal Register notices.  Reading these can help a practitioner discern conditions the Labor department likely would require.

   

  If the business owner can sell his securities, why wouldn’t he?

   

[Bird]

46 minutes ago, Fiduciary Guidance Counsel said:

If the business owner can sell his securities, why wouldn’t he?

The question might go away if he it is explained to him that he'd have to pay tax on the gains just the same as if they were sold.  I suppose the motivation might be to save transaction fees but those fees should be minimal.

[shERPA]

That is a really nice list of PTEs to have linked all in one place, Peter.  Thank you.

Yes, what’s the going rate for stock transactions, $5 - $10?  Trivial compared to even asking an attorney about a PTE, let alone actually applying.  Bird likely identifies the underlying issue, he’s thinking that contributing rather than selling would avoid the taxable gain.  Once he understands that’s not the case, the motivation to do this goes away. 

[FPGuy]

Securities can be public or private e