Employer Stock and 401(k) Plan

Good morning, 

My wife has large percentage of her portfolio in her company/employer stock and we are trying to re-balance the portfolio. We are planning to sell a portion of company stock and transfer the cash to existing self-directed brokerage account within 401(k) and account is with Fidelity. 

The company’s share price is increasing, excellent management, and is a growth stock.  My question is, does 401(k) plans allow “Equity collars?” An equity collar consists of the simultaneous purchase of a "put option" and the writing of a "call option."

Most of the 401(k) administrators don’t know the nuts and bolts of finances. What is the best way to ask the administrator about “Equity Collars?” Could we transfer the shares to 401(k) self-directed brokerage account and use equity collar?

My wife doesn’t want to send a wrong signal to her employer by selling a large portion of company stock. Any suggestions and comments will be appreciated.  Thanks, Dabu.

Covered call options are permissible, but standard trust terms might not provide for them and the 401(k) investment product might not allow them, in part because they (the products) compensate the provider at a low margin and options are usually not “push the button” standard transactions.  Ask the provider if the arrangement is within the brokerage window menu.

Shame on the employer and the fiduciary if the employer can even find out what a participant chooses as investments.

While it might be legal I have never seen a plan that allows  it.  Plans aren't required to allow all legal investment choices.   If this plan does, great but I wouldn't hold my breath.  

what you need to be asking is if she can transfer the shares directly (which is one of your questions) and then what she can do in the self-directed brokerage account. Because I have never seen a 401k plan with employer shares that would allow what you are asking in a regular stock fund investment.  401k recordkeeping systems are not setup to do these type of trades/investments.  The average employee with employer stock knows much less about it than it seems you might. 

And in the end, like ESOP Guy said, you might still be told no.  It could be that the plan doesn't allow the shares to move to the self-directed account at all since the stock is already in the plan's fund lineup. The purpose of self directed is more to pick investments outside of that fund lineup.   They may or may not have a provision that states how many shares can be liquidated in a specific period of time.

Her best bet is to speak with the plan administrator and get a copy of the SPD and plan document to see what is allowed. One basic thing to check is whether she would be allowed to take a distribution of shares if she terminated employment (might have a higher chance if so).  And then, if so, to speak with the brokerage account on the other side about the equity collar.  I truly doubt the plan admin will have much knowledge beyond the basics.

I am not sure I have seen a self-directed brokerage account that allowed options.   They might exist but I haven't seen one.  

They exist, but not in the traditional retail 401(k) menu-driven marketplace (including a "brokerage window" as one of the menu options).  I agree with ESOP Guy that you are unlikely to have options available despite legality as a retirement plan investment.  It has nothing to do with employer securities, as such.

All,

Thanks to all of your replies. My wife contacted her 401(k) administrator and they indicated that "options" are not allowed in the self-directed brokerage account.  I am going to review 401(k) plan document and look in detail. The idea of "Equity Collar" came after reading Barron's Magazine article published on March 25, 2019. With regards, Dabu.