Do contributions to a pension plan have to be in cash? Can they be in securities? For example, if the employer is a sole proprietor can he contribute securites held in his stock portofolio without first having to redeem them for cash?

Short answer - yes, they have to be in cash for a PENSION plan. An employer could generally contribute unencumbered property to a profit sharing plan, as long as it was consistent with all normal Fiduciary standards.

You might want to look, among other things, at DOL reg 2509.94-3, DOL interpretive bulletin 94-3, Commissioner vs. Keystone Conslidated Industries, as well as ERISA 406-408, and IRC 4975.

Contributions of property will be deductible at the FMV of the property at the time of the contribution. You should consult with a tax advisor regarding the tax consequences of contributing stock to the plan, e.g, capital gains may not be available. If the stock have a net loss it may be better to sell the stock, contribute the cash and use the loss against capital gains.