LLC interest treated as stock for Plan purposes.

[Guest Gary Rouse]

Under ERISA Section 407 a retirement plan may hold qualifying employer securities. Under the definition of a QES is the term "stock". I am unable to find a definition of stock. Would an interest in an LLC be considered stock for these purposes if the state in which the LLC is in treats as a corporation?

[Guest FAQ]

I have the same issue. LLC checks box to be taxed as a corporation. Can the LLC have an ESOP? Are membership interests qualified employer securities under ERISA? I haven't found anything yet to hang my hat on (beyond the Code and the check-the-box tax reg's).

[Kirk Maldonado]

My personal belief is that only a corporation has "stock." The interests in an LLC are, by definition, not "stock" because the entity is not a corporation.

[Guest b2kates]

I agree with Kirk, only corporations issue stock. LLCs are treated for tax purposes as partnerships. therefore an interest in an LLC, while a security evidencing ownership is a partnership interest.

[rcline46]

I don't think state treatment of LLC is relevant. The LLC for federal purposes can elect to be treated as partnership or as corporation.

I have not studied LLCs. However, if for federal purposes it is a corporation, I do not see why it cannot have an ESOP. Note that if a corporation, the owners would be receiving W-2 income, not K-1 income!

Our experience is that 99% of LLCs are treated as a partnership.

[Kirk Maldonado]

I disagree with rcline46.

The fact that a limited liability company is taxed as a corporation does not make it into a corporation.

[rcline46]

LLCs are a recent development in the business world. There is very little official guidance on them. In one of the Q & A columns it is implied they are not a 'real' corporation. I would posit that if ownership exists, and the owners receive a W-2, what else would it be? It is NOT a sole prop, it is NOT a partnership. Could it be an 'association'? Does anyone really know or has conservatism set in? (Note, this is not necessarily a bad thing!)

I would suggest spending the money to get an IRS letter ruling on whether LLC interest can be placed into an ESOP in the same manner as corporate stock.

[BeckyMiller]

See Letter Ruling 200008040, November 29, 1999 for a discussion about partnerships, ESOPs and controlled groups. It doesn't create a clear conclusion on this issue, but does lay out the framework to be considered in making the decision.

[Scott]

We recently requested an advisory opinion from the DOL that LLC interests constitute "qualifying employer securities" under ERISA. The DOL responded orally that it could not issue a favorable opinion. We took that to mean the DOL's position is "no."

[E as in ERISA]

I think that its not clear b/c:

Tax treatment of LLCs as corporations under the check-the-box rules is an IRS issue.

The definition of employer securities for purposes of ESOPs is primarily an ERISA issue.

[BeckyMiller]

But remember under the ERISA Reorganization Act of 1978, the IRS retained control over the prohibited transaction rules as they relate to statutory ESOPs.