Transfer of stock as a co. contribution???

[David]

Can a company contribute, as a corporate contribution to the company's qualified profit sharing plan, the stock of a publicly traded company (not related). The corporation owns the stock and they want to "transfer" it to the plan as a company contribution. They would record it on the corporate books at the market value on the date of transfer, realizing any gain/loss for tax purposes. The company wants to avoid the transaction costs of selling the stock and buying it again for the pension trust.

[Guest Mr. X]

My recollection is that this would be permissible as long as the plan is not a pension plan.

[Kristina]

Complete documentation of the market value on the date of transfer must be maintained in the corporate records as well as the plan records as verification of the amount of the contribution.

I believe any plan can accept publicly traded stock as a contribution from the plan sponsor.

[Guest Mr. X]

I refreshed my memory by looking in the ERISA Outline book, third edition, page 7.232. It states that the Supreme Court ruled in Commissioner v. Keystone Consolidated Industries, Inc. (1993) that an in-kind contribution to a pension plan is a prohibited transaction. There is an exception only for qualifying employer securities.

[BeckyMiller]

This question falls into the "clear as mud" world of statutory authority.

It is clear that for the sponsor's tax return, the transfer of the property is treated as a sale or exchange. You have already recognized that.

What is not clear is whether it is treated similarly by the plan. It is pretty clear in any case where the sponsor has an obligation to fund the plan - such as a defined benefit pension plan or a money purchase plan. Personally, I would submit that such obligation also exists in cases of matching contributions in 401(k) plans or formula based contributions to profit sharing or stock bonus plans. But, other commentators may believe that I am too conservative on that interpretation.

One might also argue that where the Board has declared the amount of the contribution to the plan and later decides to settle that with a transfer of property that there has also been such an obligation created which would trigger a prohibited transaction.

What is not clear is where the contribution to the plan is totally discreationary and the company decides at the beginning of the discussion of any contribution that it would like to transfer unrestricted property to the plan. (I am assuming that the plan may otherwise hold such property.)

We had a client who desired comfort on such transaction in the early 1980s. We applied for a combined advisory opinion/prohibited transaction exemption request. The application was withdrawn after a conference with the Department where they gave us informal advise that they did not think the request was necessary under our facts.

I realize that the Keystone case was settled after this experience, but Keystone deals with a pension plan, not a discretionary contribution to a profit sharing plan. For more insight into the Department's position see Interpretive Bulletin 94-3. 29 C.F.R. 2509.94-3(B).