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Employer Stock in Retirement Plans Toolkit
Practical Law Toolkit w-000-9940 (Approx. 5 pages)
Employer Stock in Retirement Plans Toolkit
by Practical Law Employee Benefits & Executive Compensation
| Maintained • USA (National/Federal) |
Resources to assist companies sponsoring qualified retirement plans and other fiduciaries in complying with the rules governing employer stock in retirement plans under the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code (Code), including resources on two common types of retirement plans that hold employer stock: 401(k) plans and employee stock ownership plans (ESOPs). This Toolkit also includes resources on employer stock-drop litigation and its implications.
Investments in employer stock can be made under certain circumstances by both defined contributions plans, including 401(k) plans, profit sharing plans, and employee stock ownership plans (ESOPs), and defined benefit plans, as long as certain requirements under the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code (Code) are satisfied, including requirements regarding:
- Assets that can be invested in employer stock. The aggregate fair market value (FMV) of employer stock held by a plan generally cannot exceed 10% of the FMV of the plan assets but there are exceptions for:
- eligible individual account plans, including profit-sharing plans, stock bonus plans, and employee stock ownership plans (ESOPs); and
- certain 401(k) plans.
- Meeting the prohibited transaction exemption for investing in employer stock since it is generally a prohibited transaction for a plan to purchase or sell employer securities.
- The type of employer stock that may be held by a qualified plan which must be qualifying employer:
- securities; or
- real property.
- The fiduciary considerations for qualified plans that hold employer stock. In addition to the fiduciary duties and obligations imposed on employers, entities, and individuals under ERISA, there are other additional duties and obligations that apply to the investment in employer stock by qualified retirement plans. These special fiduciary duties and obligations have also been the cause of litigation against fiduciaries of plans that hold employer stock. These cases are known as “stock-drop” lawsuits.
This Toolkit is a collection of resources to assist companies with the rules governing the requirements under ERISA and the Code for qualified plans to invest in employer stock and the fiduciary issues associated with holding employer stock in a qualified retirement plan. The Toolkit also includes resources discussing recent employer stock-drop litigation and its implications.