Tax Facts

3731 / What special rules apply to the sale of employer securities to a defined contribution plan?



The IRC permits employers to make contributions to certain qualified plans in the form of employer stock, if the plan permits.1 The restrictions on prohibited transactions normally limit these contributions to certain profit sharing plans and plans established as employee stock ownership plans (“ESOPs”).2 ESOPs also are permitted to purchase stock from the employer under a complex set of ERISA and IRC provisions.



Planning Point: No employer should consider such a transfer or sale unless the decision is coordinated with ERISA-qualified legal counsel.








1.  IRC § 409.

2.  IRC § 4975.

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