Stock Investment in DB Plan - Prohibited?

Perhaps I am reading too much into ERISA section 407(a), but I am very concerned . . . .

I was recently informed by the trustee of a DB plan client that its auditors were concerned about the DB plan's trust's investment in a particular stock. The plan is sponsored by a number of companies and the trust holds shares of a related company that, due to some very good years for the stock and bad years for other investments, are about 43% of the value of the trust. I am working on gathering information on all of the companies involved to see if I am dealing with "qualifying employer securities" and the 10% value limitation of ERISA section 407.

However, when reading ERISA section 407, it appears to state that a pension plan may not hold any amount of any security that is not a qualifying employer security as well as forbidding ownership of qualifying employer securities in excess of 10% of total plan asset value.

Does this mean that the only stock a pension plan can own is qualifying employer securities, regardless of the percentage owned? Needless to say, the employers sponsoring the plan do not want to divest the trust of this stock.

Any comments (and citations) would be appreciated!

I believe that the 10% limitation applies to employer stock and property. Review these earlier discussions to see if they help:

http://benefitslink.com/boards/index.php?showtopic=16557

http://benefitslink.com/boards/index.php?showtopic=14565

The 10% limit only applies to employer securities. I would be concerned by having 43% of the assets in one security. It doesnt appear prudent - The plan should sell some of this investment and diversify into other investments. Q- What does the plan's funding policy statement say?

Thank you for the input - I went back to the statute and the regulations (and ignored the commentary I had read) and came to the same conclusion.

Also, I've only been asked to "opine" on the 10% limit issue, but had planned to mention that the 43% investment may violate the fiduciary duties of prudence and diversification. However, I believe that the high percentage was not an intentional act on anyone's part - more of a product of this stock doing well when the rest of the investments are not.

Thank you again!

It might be useful to inform them to expect a DOL audit since it is a disclosure item on the 5500 filing series, and the accountant's opinion if there is one.