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April 3, 2009

Stock Bonus Plan



An employer-sponsored qualified-retirement-plan established by an employer for the benefit of his employees and their beneficiaries.
Stock bonus plans are defined contribution plans, funded with employer contributions, but can include a 401(k) feature.
Contributions to Stock bonus plans are usually discretionary, i.e. the employer can chose whether to fund the plan on a year to year basis. However, some plans are designed to allow the employer to choose whether it wants to adopt a mandatory-contribution feature in the plan
Earnings in a Stock bonus plan accrue on a tax-deferred basis. Contributions and earnings are taxable to the participant when withdrawn from the participant’s Stock bonus account
Referring Cite
IRC § 401(a)(23); Treas. Reg. §§ 1.401-1(a)(2)(iii) and 1.401-1(b)(1)(iii)
Additional Helpful Information
  • A stock bonus plan must meet certain requirements, which includes the following (Certain exceptions apply: see IRC § 409 (h) ):
    • A participant who is entitled to a distribution from the plan must have a right to demand that his benefits be distributed in the form of employer securities, and if the employer securities are not readily tradable on an established market, the participant must be given the right to require that the employer repurchase them under a fair valuation formula.
    • The employer must provide a put option for a period of at least 60 days following the date of distribution of stock of the employer and, if the put option is not exercised within such 60-day period, for an additional period of at least 60 days in the following plan year
  • In certain circumstances, the term “employer securities” shall include any securities of the employer held by the plan.

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