by Cydney Posner
Today, Corp Fin posted a new CDI under both Securities Act Section 5 and Form S-8. The CDI involves the issue of whether a company-sponsored 401(k) plan that does not offer an employer securities fund as an investment alternative might still be deemed to be offering employer securities requiring Securities Act registration when the plan permits contributions to be invested through a self-directed “brokerage window” and does not prohibit employee contributions to be invested in employer securities through that “brokerage window.”
Corp Fin advised that whether there is an offer requiring registration “depends on the extent of the employer company’s involvement….In the context of providing a self-directed ‘brokerage window’ in which plan participants could trade in employer securities with employee contributions, where the employer company and the 401(k) plan do no more than describe the self-directed ‘brokerage window’ as part of the investment alternatives under the 401(k) plan, make payroll deductions, and pay administrative expenses not in any way tied to particular investments selected by employees and take no action to draw employees’ attention to the possibility of investing in employer securities through the ‘brokerage window,’ the staff would not consider the employer company to be offering its securities to its employees for purposes of Securities Act registration.”
Corp Fin based its reasoning on the SEC’s views expressed in an analogous situation regarding a stock purchase plan in Release 33-4790. In that release, the SEC “framed the question as whether there is an ‘attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security, for value’ within the meaning of Securities Act Section 2(a)(3).” This determination “turns on the degree and type of participation by issuers or their affiliates in the particular program. In the context of an open market stock purchase plan, the Commission said that registration would not be required if all communications of a soliciting character are furnished by or in the name of a broker, and the issuer or affiliate does no more than: 1) announces the existence of the plan; 2) makes payroll deductions; 3) makes names of employees available to the broker; and 4) pays no more than its expense of payroll deductions and reasonable fees and expenses for commissions, bookkeeping and custodial services.”
