Valuing closely held employer securities for a plan

P/OPINION 76-16

                                                     3(18) ✓
                                                     408(e)

                    January 26, 1976



Dear          :
This is in further response to Mr.           ' letter of
November 10, 1975 to           and your phone conversation
of December 23, 1975 with                and
of my staff.

According to Mr.        ' letter of November 10, 1975,
exemption pursuant to section 408(a) of the Employee
Retirement Income Security Act of 1974 (ERISA) to permit
a proposed profit sharing plan to purchase qualifying employer
securities from existing shareholders, primarily the
Chairman of the Board of Applicant, at "book value" subject
to adjustments as provided in article IX of the Applicant's
By-Laws. You indicate that the proposed plan would function
similar to an "ESOP" in that an individual participant's
accounts would be credited directly with shares of qualifying
employer securities.

          letter requests a ruling that section 408(e) of
ERISA is applicable to the proposed purchase of employer
securities. Section 408(e) of ERISA provides, in part,
that sections 406 and 407 shall not apply to securities
(as defined in section 407(d)(5)): 1) if such acquisition
or sale is for adequate consideration, 2) if no commission
is charged with respect to the acquisition or sale, and
3) if the plan is an eligible individual account plan
(as defined in section 407(d)(3)).
P/OPINION 76-16

Under section 3(18) of ERISA the term “adequate consideration,”
in the case of a security for which there is no generally
recognized market, means 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 of Labor. The Department
has not 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. Such guidelines as will be issued
will be general guidelines in the form of regulations
under section 3(18) of ERISA.

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

To the extent the position expressed in this letter
is inconsistent with our letter dated January 15, 1975,
the views set forth herein are controlling.

I regret any inconvenience which may have resulted
from our correspondence. If I can be of any assistance,
please do not hesitate to contact me.

Sincerely,