Corporate shares transferred in trustee-to-trustee transfer to retirement plan in corporate spin-off were employer securities of corporation

Corporate shares transferred in a trustee-to-trustee transfer to a qualified retirement plan in connection with a corporate spin-off were “securities of the employer corporation” for purposes of Code Sec. 402(e)(4) and IRS Rev. Rul. 73-29, according to two IRS letter rulings. The net unrealized appreciation in the shares was excluded from gross income on distribution by the retirement plan to a participant or beneficiary on or before December 31, 2011.

The two companies, after the spin-off, were no longer affiliated employers. In addition, the one corporation was no longer the employer of the participants in the retirement plan. Accordingly, the shares in the retirement plan that represented the aforementioned corporate shares were not investments in employer securities subject to the diversification requirements of Code Sec. 401(a)(35). Thus, the investment restriction on these shares, which prevents the participants from purchasing more of the shares, does not cause the retirement plan to violate Code Sec. 401(a)(35).

Source: IRS Letter Rulings 201242019 and 201242020.

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For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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