§ 1107. Limitation with respect to acquisition and holding of employer securities and employer real property by certain plans
(a)
Percentage limitation
Except as otherwise provided in this section and section
1114 of this title:
(2)
A plan may not acquire any qualifying employer security or qualifying employer real property, if immediately after such acquisition the aggregate fair market value of employer securities and employer real property held by the plan exceeds 10 percent of the fair market value of the assets of the plan.
(3)
(A)
After December 31, 1984, a plan may not hold any qualifying employer securities or qualifying employer real property (or both) to the extent that the aggregate fair market value of such securities and property determined on December 31, 1984, exceeds 10 percent of the greater of—
(B)
Subparagraph (A) of this paragraph shall not apply to any plan which on any date after December 31, 1974; and before January 1, 1985, did not hold employer securities or employer real property (or both) the aggregate fair market value of which determined on such date exceeded 10 percent of the greater of
(4)
(A)
After December 31, 1979, a plan may not hold any employer securities or employer real property in excess of the amount specified in regulations under subparagraph (B). This subparagraph shall not apply to a plan after the earliest date after December 31, 1974, on which it complies with such regulations.
(B)
Not later than December 31, 1976, the Secretary shall prescribe regulations which shall have the effect of requiring that a plan divest itself of 50 percent of the holdings of employer securities and employer real property which the plan would be required to divest before January 1, 1985, under paragraph (2) or subsection (c) of this section (whichever is applicable).
(b)
Exception
(1)
Subsection (a) of this section shall not apply to any acquisition or holding of qualifying employer securities or qualifying employer real property by an eligible individual account plan.
(2)
(A)
If this paragraph applies to an eligible individual account plan, the portion of such plan which consists of applicable elective deferrals (and earnings allocable thereto) shall be treated as a separate plan—
(B)
(i)
This paragraph shall apply to any eligible individual account plan if any portion of the plan’s applicable elective deferrals (or earnings allocable thereto) are required to be invested in qualifying employer securities or qualifying employer real property or both—
(ii)
This paragraph shall not apply to an individual account plan for a plan year if, on the last day of the preceding plan year, the fair market value of the assets of all individual account plans maintained by the employer equals not more than 10 percent of the fair market value of the assets of all pension plans (other than multiemployer plans) maintained by the employer.
(iii)
This paragraph shall not apply to an individual account plan that is an employee stock ownership plan as defined in section
4975
(e)(7) of title
26.
(iv)
This paragraph shall not apply to an individual account plan if, pursuant to the terms of the plan, the portion of any employee’s applicable elective deferrals which is required to be invested in qualifying employer securities and qualifying employer real property for any year may not exceed 1 percent of the employee’s compensation which is taken into account under the plan in determining the maximum amount of the employee’s applicable elective deferrals for such year.
(3)
Cross References.—
(A)
For exemption from diversification requirements for holding of qualifying employer securities and qualifying employer real property by eligible individual account plans, see section
1104
(a)(2) of this title.
(B)
For exemption from prohibited transactions for certain acquisitions of qualifying employer securities and qualifying employer real property which are not in violation of 10 percent limitation, see section
1108
(e) of this title.
(c)
Election
(1)
A plan which makes the election, under paragraph (3) shall be treated as satisfying the requirement of subsection (a)(3) of this section if and only if employer securities held on any date after December 31, 1974 and before January 1, 1985 have a fair market value, determined as of December 31, 1974, not in excess of 10 percent of the lesser of—
(A)
the fair market value of the assets of the plan determined on such date (disregarding any portion of the fair market value of employer securities which is attributable to appreciation of such securities after December 31, 1974) but not less than the fair market value of plan assets on January 1, 1975, or
(2)
For purposes of this subsection, in the case of an employer security held by a plan after January 1, 1975, the ownership of which is derived from ownership of employer securities held by the plan on January 1, 1975, or from the exercise of rights derived from such ownership, the value of such security held after January 1, 1975, shall be based on the value as of January 1, 1975, of the security from which ownership was derived. The Secretary shall prescribe regulations to carry out this paragraph.
(3)
An election under this paragraph may not be made after December 31, 1975. Such an election shall be made in accordance with regulations prescribed by the Secretary, and shall be irrevocable. A plan may make an election under this paragraph only if on January 1, 1975, the plan holds no employer real property. After such election and before January 1, 1985 the plan may not acquire any employer real property.
(d)
Definitions
For purposes of this section—
(1)
The term “employer security” means a security issued by an employer of employees covered by the plan, or by an affiliate of such employer. A contract to which section
1108
(b)(5) of this title applies shall not be treated as a security for purposes of this section.
(2)
The term “employer real property” means real property (and related personal property) which is leased to an employer of employees covered by the plan, or to an affiliate of such employer. For purposes of determining the time at which a plan acquires employer real property for purposes of this section, such property shall be deemed to be acquired by the plan on the date on which the plan acquires the property or on the date on which the lease to the employer (or affiliate) is entered into, whichever is later.
(3)
(A)
The term “eligible individual account plan” means an individual account plan which is
(iii)
a money purchase plan which was in existence on September 2, 1974, and which on such date invested primarily in qualifying employer securities. Such term excludes an individual retirement account or annuity described in section
408 of title
26.
(B)
Notwithstanding subparagraph (A), a plan shall be treated as an eligible individual account plan with respect to the acquisition or holding of qualifying employer real property or qualifying employer securities only if such plan explicitly provides for acquisition and holding of qualifying employer securities or qualifying employer real property (as the case may be). In the case of a plan in existence on September 2, 1974, this subparagraph shall not take effect until January 1, 1976.
(4)
The term “qualifying employer real property” means parcels of employer real property—
(B)
if each parcel of real property and the improvements thereon are suitable (or adaptable without excessive cost) for more than one use;
(5)
The term “qualifying employer security” means an employer security which is—
(C)
an interest in a publicly traded partnership (as defined in section
7704
(b) of title
26), but only if such partnership is an existing partnership as defined in section 10211(c)(2)(A) of the Revenue Act of 1987 (Public Law 100–203).
After December 17, 1987, in the case of a plan other than an eligible individual account plan, an employer security described in subparagraph (A) or (C) shall be considered a qualifying employer security only if such employer security satisfies the requirements of subsection (f)(1) of this section.
(6)
The term “employee stock ownership plan” means an individual account plan—
(7)
A corporation is an affiliate of an employer if it is a member of any controlled group of corporations (as defined in section
1563
(a) of title
26, except that “applicable percentage” shall be substituted for “80 percent” wherever the latter percentage appears in such section) of which the employer who maintains the plan is a member. For purposes of the preceding sentence, the term “applicable percentage” means 50 percent, or such lower percentage as the Secretary may prescribe by regulation. A person other than a corporation shall be treated as an affiliate of an employer to the extent provided in regulations of the Secretary. An employer which is a person other than a corporation shall be treated as affiliated with another person to the extent provided by regulations of the Secretary. Regulations under this paragraph shall be prescribed only after consultation and coordination with the Secretary of the Treasury.
(e)
Marketable obligations
For purposes of subsection (d)(5) of this section, the term “marketable obligation” means a bond, debenture, note, or certificate, or other evidence of indebtedness (hereinafter in this subsection referred to as “obligation”) if—
(1)
such obligation is acquired—
(A)
on the market, either
(i)
at the price of the obligation prevailing on a national securities exchange which is registered with the Securities and Exchange Commission, or
(ii)
if the obligation is not traded on such a national securities exchange, at a price not less favorable to the plan than the offering price for the obligation as established by current bid and asked prices quoted by persons independent of the issuer;
(B)
from an underwriter, at a price
(i)
not in excess of the public offering price for the obligation as set forth in a prospectus or offering circular filed with the Securities and Exchange Commission, and
(ii)
at which a substantial portion of the same issue is acquired by persons independent of the issuer; or
(f)
Maximum percentage of stock held by plan; time of holding or acquisition; necessity of legally binding contract
(1)
Stock satisfies the requirements of this paragraph if, immediately following the acquisition of such stock—