Closely held employer stock valuation by plan fiduciaries

P/OPINION 75-141


                                                       3(18)✓
                                                       408



                        October 21, 1975



Dear           :

This is in reply to your letter of August 9, 1975, in
which you request a determination as to the fair market
value of the common stock of           , Inc., for purposes
of sections 3(18) and 408(e) of the Employee Retirement
Income Security Act of 1974 (the Act).

Your letter represents that          , Inc., maintains a
profit sharing and savings plan for its employees
which permits plan participants to elect to purchase
          Inc., common stock. Purchases and sales of
such stock by plan participants are first made from
or to the plan trustee, or, secondly, from or to other
               ,Inc., shareholders, or, finally, from or
to the company itself. Your letter states that such
transactions would constitute prohibited transactions
unless exempt from such prohibitions pursuant to the
provisions of section 408(e) of the Act.

In this regard, your letter represents that the transactions
referred to above would satisfy the conditions of section
408(e) requiring that the securities involved be qualifying
employer securities within the meaning of 407(d)(5) of the
Act, that no commission be charged with respect to such
transactions, and that the plan be an eligible individual
account plan within the meaning of section 407(d)(3) of the
Act. Your letter inquired however, whether such transactions
would meet the condition of section 408(e) requiring that
the transactions be for adequate consideration if, in view
of the fact that there is no generally recognized market
in           , Inc., common stock, such stock is valued once
annually at net book value by a plan advisory committee
pursuant to the terms of the plan.
2


P/OPINION 75-141


As your letter notes, section 3(18) of the Act defines
the term "adequate consideration" in the case of a
security for which there is no generally recognized
market as the fair market value of the security
as determined in good faith by the trustee or named
fiduciary with respect to a plan pursuant to the
terms of the plan and in accordance with regulations
promulgated by the Department. The Department of
Labor has not as yet issued such regulations and does
not, at the present time, contemplate making advance
determinations as to adequate consideration in the
case of individual purchases and sales of stocks. Such
guidelines as will be issued will be general guidelines
in the form of regulations under section 3(18) of the
Act.

In view of the fact that no regulations have been issued
under section 3(18), the-plan advisory committee should
make a good faith determination with respect to the fair
market value of the common stock of           Inc.,
utilizing recognized methods of determining the value
of stock in closely held corporations.

Sincerely,