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Qualifying Employer Securities

Pension law provides a provision for a corporation sponsoring a qualified retirement plan to hold shares of the sponsoring corporation as a plan asset. Shares held in the plan in this way are referred to as Qualifying Employer Securities. Having the option of including qualifying employer securities as a retirement option provides several advantages for a business owner. Often, when a company needs money to expand or cover costs during periods of slow business, it's only alternative would be to borrow the money, burdening the company with loan and interest payments. Qualifying employer securities allow the company to provide financing with equity from your retirement account instead, eliminating interest costs and freeing the company from the financial burden of regular loan payments. We refer to plans that allow investment in Qualifying Employer Securities as Equity Investment Plans.

Equity Investment Plans (EIPs)

An Equity Investment Plan is a profit sharing or 401(k) plan that allows plan participants to invest in shares of the company sponsoring the plan. If you have tax deferred assets in an IRA, 401(k), profit sharing or other qualified plan, you can roll those assets into an Equity Investment Plan and elect to invest that money in shares of your own business. You could also amend your current profit sharing or 401(k) plan into an Equity Investment Plan, and use your plan balance to invest additional capital directly into your business. This strategy allows you to improve your corporate balance sheet by increasing corporate assets and equity without incurring any additional debt.

By having your retirement plan make the investment in your business, you avoid taking a distribution and paying income taxes (plus a 10% penalty if under age 59Ĺ) on a distribution from your retirement plan or IRA. This can free up significant capital which can be used to:

When setting up an Equity Investment Plan, it is important that you keep the plan in compliance with certain ERISA regulations. Some compliance issues to consider are:

  1. An Equity Investment Plan must invest in shares of a plan sponsor that is a c-corporation.
  2. The retirement planís purchase or sale of shares of the plan sponsor may require a qualified independent fair market appraisal.
  3. The retirement plan must be properly communicated to all employees of the employer, and the right to invest in shares of the employer should be made available to all eligible participants.

You can adopt a new plan or amend your current profit sharing or 401(k) plan into an Equity Investment Plan. An Equity Investment Plan can be designed as a custom plan or one of our discounted EIP QuickPlans.

If you are interested in setting up or amending your current plan to an Equity Investment Plan, or would like more information on Equity Investment Plans, please contact the DBC office at 707-736-6937 or info@destel.com. To learn more, you can also visit our Equity Investment Plans website at www.equityinvestmentplans.com.


Destel-Bergen Corporation Retirement Plan Consultants | 707.736.6937 | e-mail: info@destel.com
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