Section 423 Plan That Has a First Refusal Right Qualifies as ERISA Plan

A company's Section 423 employee stock purchase plan allows employees to purchase shares at a 15% discount at either the end or the beginning of its offering period. Once employees have purchased the shares, they must provide the employer notification of their intent to sell the stock if the sale is to occur within two years after the grant of the right to purchase or one year after exercise. The company then has 10 days to repurchase the shares at the lower of the price at which they bought them or the current market price. If the repurchase occurs, the deduction to the employer, and the taxable amount to the employee, are determined by the actual price paid for the shares.

In Private Letter Ruling 200102042, the IRS ruled that this plan would qualify under Section 423 of the Internal Revenue Code.