In-kind PS deposit

Just never been asked this. Couldn't seem to find anything related in the BPD.

Can a Profit Sharing contribution be deposited 'in kind', ie transferred from a business account to a 401k plan trust?

To make it worse, they really want to transfer it from a personal account.

I think it's generally considered a prohibited transaction unless and exception applies. I've never had anyone do it fwiw. But you can try starting here and see if leads you where you want to go. But generally if I get the question, I say you should talk to your ERISA attorney and they usually come up with cash instead.

https://www.law.cornell.edu/cfr/text/29/2509.94-3

In Commissioner v. Keystone Consol. Industries, Inc., 508 U.S. 152, 159-162, 16 Empl. Benefits Cas. (BL) 2121 (May 24, 1993), the Supreme Court construed ERISA title II’s parallel text, Internal Revenue Code § 4975(f)(3), as extending, but not limiting, the reach of § 4975(c)(1)(A) [ERISA § 406(a)(1)(A)] to include as such a prohibited sale or exchange a contribution of encumbered property, even if that contribution is not used to meet a funding obligation. The Court held a contribution of property—even assuming the property was unencumbered, and the contribution was valued at the property’s fair market value—is a prohibited transaction.

See also Interpretive Bulletin [94-3] Relating to In-kind Contributions to Employee Benefit Plans, 59 Fed. Reg. 66,736 (Dec. 28, 1994) https://archives.federalregister.gov/issue_slice/1994/12/28/66734-66737.pdf#page=3, reprinted in 29 C.F.R. § 2509.94-3 https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-A/part-2509/section-2509.94-3.

Also, an inquirer likely has mistaken assumptions about why one might want to contribute securities or other property that is anything other than money.

Isn't there something where it's even worse to try to contribute property to a pension plan (DB, MPP) compared to a PSP?

The Labor department’s nonrule Interpretative Bulletin (cited above) arguably tolerates a contribution of property made with no obligation:

“For example, where a profit sharing or stock bonus plan, by its terms, is funded solely at the discretion of the sponsoring employer, and the employer is not otherwise obligated to make a contribution measured in terms of cash amounts, a contribution of unencumbered real property would not be a prohibited sale or exchange between the plan and the employer. If, however, the same employer had made an enforceable promise to make a contribution [even a profit-sharing contribution] measured in terms of cash amounts to the plan, a subsequent contribution of unencumbered real property made to offset such an obligation would be a prohibited sale or exchange.”

Under that view, a contribution of property other than money might not be a prohibited transaction if treated as a discretionary nonelective contribution about which no written or oral promise had been made.

I express no view about whether that Interpretive Bulletin is a correct, or even permissible, interpretation of the statute.

A contribution of property other than money that purports to meet a funding obligation to a pension or money-purchase plan, or an obligation (however made) to a profit-sharing plan, is a prohibited transaction (and so does not satisfy the obligation).

The first question(s) would be "why" (and "what")?  To avoid commissions? Not worth the risk. Because it is a hard-to-sell asset, such as real estate? No way. And doing it from a personal account is a definite no.

6 hours ago, Bird said:

And doing it from a personal account is a definite no.

If this was a totally discretionary profit sharing contribution then it would be permissible if made by the employer, so as the Bird tweeted, transferring from a personal account is a deal breaker.

On 8/17/2022 at 3:22 PM, CuseFan said:

If this was a totally discretionary profit sharing contribution then it would be permissible if made by the employer, so as the Bird tweeted, transferring from a personal account is a deal breaker.

if all of the conditions that Peter outlined were met (e.g., this is not fulfilling an obligation to contribute, but totally discretionary) and the individual account owner owned 100% of the employer, you could treat it as a transfer first to the employer entity (contribution to capital) and then contribution by employer to plan, and do the necessary paperwork to document it. But the harder part is making sure that all of the conditions Peter described have been met. You'd need to check every detail.

And if there is no obligation or promise to be met, why would the employer make the contribution?

What type of in-kind asset?  Do they want to transfer over actual stocks instead of selling and re-purchasing them?

Yes - this was simply they did not want to sell stocks and mutual funds. Fortunately it's not one of those funny one-person owner plans that have all kinds of messed up investments that you find out after you have signed them on.  But that's another story...

Ultimately they recognized certain tax challenges and decided to go the traditional, and recommended route of selling the investments.

Would a transfer to the retirement plan have been treated as a sale or exchange for Federal income purposes?

15 hours ago, Peter Gulia said:

Would a transfer to the retirement plan have been treated as a sale or exchange for Federal income purposes?

I think it would, Peter. And the deduction would be at fair market value. Contribution treated as disposition.

Which means the contributor's purpose for contributing securities rather than money would be defeated for Federal income tax purposes.

5 hours ago, Peter Gulia said:

Which means the contributor's purpose for contributing securities rather than money would be defeated for Federal income tax purposes.

Well, maybe. It's possible they just wanted to make a contribution, without having any obligation to do so, and thought that the property was a great asset for the plan. Who knows.