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Securities Registration Issues from Retirement Plans

2019.05.24  Stock Option Grants are not Sales.  In Lampkin v. UBS, the 5th Circuit reviewed long-standing securities law and held that "Where employees’ participation is an “incident of employment,” there is no bargained-for exchange that requires an affirmative investment decision37—under Daniel, the “exchange of labor” is insufficient.38" . The court further observed that --

  • The Court in Daniel rejected the idea that the exchange of labor was sufficient consideration in the context of a compulsory, non-contributory pension plan—the same logic applies to the option plan at issue here.45 Plaintiffs made no investment decision in the grant of the options, the Enron plans were compulsory and non-contributory. The fact that plaintiffs would eventually make an affirmative investment decision—whether to exercise the option or let it expire—at some point in the future is of no consequence. 

SEC Release 6281 - relevant quotes re retirement plan contributions:

  • In Release 6188 the staff expressed the view that the only types of employee benefit plans which are subject to the 1933 Act are those which are both voluntary and contributory on the part of participating employees. Some questions were raised in this regard about the types of plans that are considered "voluntary and contributory."
  • Many persons have asked the staff to discuss the availability of the Section 3(a)(2) exemption for interests in thrift, savings or similar plans which provide employees with several investment alternatives, one of which consists of securities of the employer. It is the staff's view that the exemption is available for such interests only if amounts invested in securities of the employer can be attributed to contributions made by the employer.

Matching Contributions invested in Employer Stock

  • SEC CD&I 139.33:  indicating -- through the converse of the analysis -- that an offer of employer securities will not occur – an no Securities Act registration will be required – if 401(k) plan does prohibits employee contributions from being invested in employer securities through the “brokerage window.”
  • SEC Release 33-4790: discussing when SEC registration of an employer’s action with respect to employee investment in its securities results in an “offer” that requires registration. Registration seems to be required only if employee contributions may be invested in employer stock.