October 5, 2009

Employer Stock or Employer Securities

Your Guide

Definition

Employer stocks or employer securities, refers to shares of stock, bonds or debentures issued by a corporation with interest coupons or in registered form.  The corporation must be the plan sponsor ( employer that adopts the qualified plan), in order for the security to be treated as ‘employer stocks’ for qualified plan purposes.
Securities of parent or Subsidiary Corporation of the employer corporation can also qualify as employer stock.
The NUA on distributions of employer stocks are taxed at capital gains rate, when the stock is sold.
Cite
IRC § 402(d)(4)(E)
Additional Helpful Information
  • Parent corporation: The term “parent corporation” means any corporation (other than the employer corporation) in an unbroken chain of corporations ending with the employer corporation if, at the time of the granting of the option, each of the corporations other than the employer corporation owns stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
  • Subsidiary corporation :The term “subsidiary corporation” means any corporation (other than the employer corporation) in an unbroken chain of corporations beginning with the employer corporation if, at the time of the granting of the option, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

Written By

Retirement Dictionary Staff

Frequently Asked Questions Regarding

Answer

Yes. You are not treated as an active participant for any taxable year because of the following:
• You are covered under social security or railroad retirement
• You receive retirement benefits from a previous employer’s plan
• The only reason you participate in a plan is because you are a member of a reserve unit of the armed forces and both of the following conditions are met.
o The plan you participate in is established for its employees by:
1. The United States,
2. A state or political subdivision of a state, or
3. An instrumentality of either (a) or (b) above.
• You did not serve more than 90 days on active duty during the year (not counting duty for training).
• The only reason you participate in a plan is because you are a volunteer firefighter, and both of the following conditions are met.
o The plan you participate in is established for its employees by:
1. The United States,
2. A state or political subdivision of a state, or
3. An instrumentality of either (a) or (b) above.
o Your accrued retirement benefits at the beginning of the year will not provide more than $1,800 per year at retirement, (when expressed as a single life annuity commencing at age 65).

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