401k vs. Keogh

Is a sole-proprietorship or partnership who wants to establish a 401(k) considered a Keogh plan? My understanding is there is no longer a distinction as they are now qualified plans that include a self-employed individual. If that is the case, I would like to confirm that SEC rule 144A does not apply then to restrictions regarding the use of CIT's for these plans.

I think plan of sole proprietorship or partnership is still an H.R. 10 "Keogh" plan for purposes of 144A. That would kick you out of 144A(1)(F), but that should only be a problem if you have no common law employees in the plan, otherwise you would have 144A(1)(E).

The Securities and Exchange Commission on August 26 voted (3-to-2) to adopt amendments to several rules, including Rule 144A and its defined term, qualified institutional buyer.

Here’s the prepublication text:  https://www.sec.gov/rules/final/2020/33-10824.pdf

The amendments add a new 17 C.F.R. § 230.144A(a)(1)(i)(J).  It includes as a qualified institutional buyer (with the $100 million threshold) “[a]ny institutional accredited investor, as defined in rule 501(a) under the Act (17 CFR 230.501(a)), of a type not listed in paragraphs (a)(1)(i)(A) through (I) or paragraphs (a)(1)(ii) through (vi).”  Page 159 (emphasis added).  That cross-referenced defined term includes a bank.

The SEC’s explanation of the final rule states:  “The scope of Rule 144A(a)(1)(i)(J) encompasses . . . bank-maintained collective investment trusts.”  Page 91.  And it does so even if the collective trust admits “H.R. 10” plans.  Page 89.

The final rule becomes effective 60 days after publication in the Federal Register (which has not yet happened).

So in essence, as long as they have additional common law employees taking home a W-2 they would fall under this determination: "Any employee benefit plan within the meaning of title I of the Employee Retirement Income Security Act of 1974" therefore not determined to be an H.R. 10 plan for the purposes of being able to invest in a CIT qualified as a QIB? Sorry, I'm punching above my weight class in regards to this. Also, as a point of clarity would any sole-prop or partnership setup for owners then be the only plans still qualifying as an H.R. 10 plan? I appreciate your help!

I agree with Luke --any plan with a self-employed individual as the owner would have the title of HR-10 Plan--back in the day, HR 10 was the title for the  Congressional legislation setting up plans for self-employed individuals and I recall that Congressman Keogh was the sponsor.

For tax law, an “H.R. 10” plan describes a plan that happens to include as a participant a self-employed individual that Internal Revenue Code of 1986 § 401(c) treats as if she were an employee.  For example, a retirement plan of PricewaterhouseCoopers LLP might include thousands of workers who are not PwC’s employees but rather are self-employed individuals.

For some securities laws, that a retirement plan includes a self-employed individual might affect whether an issuer or offeror meets an exemption that excuses registering a security, or whether a person is one or more of several kinds eligible to buy an unregistered or restricted security.

The rule I describe above soon will simplify ensuring that a trustee of a collective trust fund can meet conditions to be a qualified institutional buyer, even if the collective’s participating trusts include some held for a retirement plan that includes a self-employed individual.

The new rule is a big deal.  To assure treatment as a qualified institutional buyer, some banks and trust companies administering some collective trusts denied admission to a retirement plan that includes a self-employed individual, even if the plan’s fiduciary met conditions that would allow a participation within exemptions from securities registration.  Soon, that restraint will no longer be necessary.

Thanks Peter!