DC plan company stock limits

If plan documents and trust documents of an erisa governed decfined contribution fund are silent on the issue of amount of permissible company stock the plan can hold, is there a limit.

co worker tells me that they can hold up to 100% BUT ONLY if the trust agreement says they can, whereas my understanding was that if the plan/trust documents were silent, DCs can hold up to 100 (compared to DBs that can only hold up to 10%)

any guidance or relevant ERISA provisions would be greatly appreciated

as always - Many Thanks

The limit is 10% unless the document authorizes an employer stock fund. See ERISA Sections 404(a)(2) and 407.

Thanks MWeddell.

I am looking at 407, and see no mention of DB/DC specifics. However, it was my understanding that only DBs had the 10% limits. otherwise how could so many plans be so heavily invested in company stock?

Can anyone please provide some clarification on this issue.

Thanks.

ERISA Sections 404(a)(2) and 407 are full of references to an "eligible individual account plan." In other words, those are special rules that apply just to DC plans.

See ERISA Section 407(d)(3)(B) for the cite requiring that the plan explicitly provide for the employer stock fund.

I have scoured the ERISA regs for any clarification on whether there needs to be written permission in plan docs allowing for a DC to invest above 10% in company stock, but find

N O T H I N G

anyone aware of any private letter rulings or other guidance that may be useful

MWeddel is right on.

An "individual account plan", effectively, is a DC plan. Individual account plans are exempted from the 10% limitation of ERISA Section 407 "...only if such plan explicitly provides for acquisition and holding of qualifying employer securities..." ERISA Sec. 407(d)(3)(B).

That seems dispositive of your question.

ok, i think were half way there.

407(d)(3)(B) does indeed discuss indiv. acct plans (DCs) requirement that the plan docs/trust deed must explicitly provide for the acquisition and holding of employer securities . . .

BUT, I still DO NOT see any reference to THE PERCENTAGE OF EMPLOYER STOCK the plan is permitted to hold if the documents merely say "may invest in common shares of employer securities".

when the docs explicitly permit investing in employer securities but are silent on how much of it they can hold, , , whats the rule? only 10% or up to 100% ? ? ? ? ?

thanks again.

The general limitation in 407 is 10%. This is the only limitation I am aware of in ERISA. DC plans that contain language permitting the investment are not subject to this limitation. Therefore, there is no limit on the amount of employer stock.

Of course, if a plan by its own terms is limited to (e.g.) 50% employer stock, the administrator would have to abide by that.

The requirement that the percentage be stated in the plan is found in the Conference Committee Report to ERISA.

KIRK and STEVE seem to have diametrically opposed views on this. anyone out there able to break the tie?

Kirk: why do you think the writing requirement has anything to do with percentage. the way ERISA 407 reads is that it is requried to be in writing for DC plans but does not specifiy a percentage limitation.

I don't disagree with Kirk. The statute simply exempts individual account plans from the 10% limitation in they contain language permitting the investment. I don't think Kirk has referenced any statutory limit on such plans. If the plan contains a limit, it must abide by that limit. According to Kirk's post, the plan must contain a limit (which can be 100%). I was unaware of this requirement, but that certainly doesn't mean it doesn't exist.

Your plan document states that the plan "may invest in common shares of employer securities". Based on Kirk's post, your plan does not meet the criterea for the exception, and would be subject to the 10% limit.

ERISA conf. Rpt on 407: " For example, if a PS plan is to be able to invest half of its assets in qualifying employer securities, the plan must provide that up to 50% of the plan assets may be so invested. In this way the persons responsible for asset management as well as participants and beneficaries will clearly know the extent to which the plan can acquire and hold these assets."

Many thanks.

Can that conf. report be viewed anywhere on the web???

I am not aware that the ERISA legislative history is on any dol WEB site. I got this from hard copy RIA ERISA book

Thanks MB

I have the RIA series of 3 books. those? which book, what page please.

Everyone - Thanks once again.

RIA 2001 edition, Pension and Benefits Law P. 2084 ERISA section 407

THANKS guys.

That was exactly what I was lookin for. So correct me if im wrong, but for DCs, the rule seems to be that unless the plan provides something like "may invest greater than 10% in company stock" they violate provisions of ERISA if they hold more than the 10% of company stock.

THANKS EVERYONE,

have a great weekend.