A profit-sharing plan that invests solely in such instruments, for instance, would arguably be acting imprudently in light of generally accepted investment theory. The plan fiduciary would have to show that such a conservative choice is actually the best one from the employee's standpoint. In light of these arguments, the Department of Labor has moved against plans it has audited that have these features. In one case, the plan had to make back payments of tens of millions of dollars, representing the difference between what the cash investments yielded and what the accounts would have been had they been kept in company stock. A More Prudent Approach Most plans that shift stock to other investments actually make a cash transfer, in effect buying the shares.
Cash is put into the plan to cover the specific obligation to the terminated employee.
The employee's account now is entirely in other investments and the shares are shifted to remaining accounts for active employees. While this resolves one key issue, it leaves other issues. First, if a company does this, it should do it automatically for everyone who meets certain rules. In one case that recently came to our attention, two weeks before a company's valuation was to be delivered, a company moved a large stock account balance to a cash, CD-based investment. Second, it should have prudent rules for reinvesting.