Matching contribution options

[Dan]

A client is considering beginning to contribute a match. However, they are considering different ways to fund it. They have asked about offering the option of receiving the match in cash or in privately held company stock.  The administrative complication is obvious.  But would this funding arrangement be permissible?

[CuseFan]

Yes, but as you know very well I'm sure, "can" does not mean "should".

[Larry Starr]

18 hours ago, Dan said:

A client is considering beginning to contribute a match. However, they are considering different ways to fund it. They have asked about offering the option of receiving the match in cash or in privately held company stock.  The administrative complication is obvious.  But would this funding arrangement be permissible?

Not in my practice!  Just the annual problem (and COST) of valuing the stock each year would be prohibitive in most situations.  And I think they have to be very careful with how the stock gets in the plan to avoid prohibited transaction  issues.  If the client insisted, they would be doing it with a different firm; we just don't need the headache that goes along with this.  You may feel differently and that is just fine with me.

[Luke Bailey]

19 hours ago, Dan said:

They have asked about offering the option of receiving the match in cash or in privately held company stock. 

Do you mean the participants are going to be given a choice? That could make it worse from a securities law standpoint in terms of disclosures that would be required so that participants can make informed decision.

Note that you will find very few IRA custodians willing to take the rollover, if any, so sponsor will need to come up with the cash soon enough, and will have less of it because of the cost of the valuations as noted by Larry.

 

[Dan]

 

On 1/23/2020 at 3:37 PM, Luke Bailey said:

Do you mean the participants are going to be given a choice? That could make it worse from a securities law standpoint in terms of disclosures that would be required so that participants can make informed decision.

Note that you will find very few IRA custodians willing to take the rollover, if any, so sponsor will need to come up with the cash soon enough, and will have less of it because of the cost of the valuations as noted by Larry.

 

Yes, these participants would have a choice to receive matching contributions in company stock or cash.  I am concerned about the disclosures as well, among a number is related issues. Always more to learn.

Thanks for your responses.