Cash Only: In-Kind Contributions to Defined Benefit Plans are Often Prohibited Transactions

Defined benefit retirement plans are subject to minimum funding requirements. As a result, the actuary will provide the plan sponsor with a funding range at the close of each plan year, ranging from the minimum required contribution on the low end to the maximum deductible contribution on the high end. In other words, a deposit equal to some amount within the funding range must be made to the trust, or else penalties will apply.

For the best plan results, it is recommended that this funding deposit be made in cash.

Some employers attempt to make in-kind deposits to the trust, such as employer securities or real estate, in order to satisfy their funding obligations. We strongly discourage making in-kind deposits to defined benefit plans, as doing so will most likely be considered a prohibited transaction*. If a prohibited transaction occurs, significant taxes will apply until the transaction is corrected.

* In-kind contributions to defined benefit plans may be permitted if the requirements of certain prohibited transaction exemptions are satisfied. These exemptions, however, are very involved and require that extensive criteria are met. Please consult with your pension professional before making an in-kind deposit.

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