3938 / Can an employer contribute property other than money to a qualified plan trust?

The U.S. Supreme Court has held that an employer’s transfer of unencumbered property to a defined benefit plan in satisfaction of a funding obligation is a prohibited transaction.¹ The Court left open the question of whether a transfer of unencumbered property that is not in satisfaction of a funding obligation might be permissible without violating prohibited transaction rules.

The Department of Labor has expressed the view that a contribution of property other than cash that reduces a sponsor’s funding obligation would be a prohibited transaction in the absence of a statutory or administrative exemption, whether it is made to a defined benefit or a defined contribution plan; a contribution in excess of amounts needed to meet a plan’s funding requirements may be permissible, provided that acceptance of the contribution is consistent with the general standards of fiduciary conduct under ERISA.²

Certain contributions of employer stock and employer real property are exempt from the prohibited transaction rules ( Q 3980). Furthermore, there is an administrative exemption for the contribution of a life insurance policy to a plan if certain conditions are met ( Q 3974). This exemption also protects self-employed owner-employees and more-than-5-percent shareholder-employees of S corporations from the prohibited transaction rules of Title I of ERISA ( Q 3980).³ If only a sole proprietor or partners and their spouses participate in the plan, Title I of ERISA does not apply.⁴