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Prohibited Transaction, yea or nay?


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An employer has a DB plan and a DC plan (pooled). He wants to terminate the DB plan, but it has some illiquid assets, and the employer is asking whether he could exchange it for some liquid assets in the DC plan. It feels like a PT. Is it? There may also be some exclusive benefit issues.

Dog

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One way for a defined-contribution plan (if its investment is not participant-directed) to buy another plan's asset is using an independent fiduciary. Among many other conditions and circumstances, it could work only if it's feasible for the dc plan to take on the asset without impairing the dc plan's liquidity needs (or anything else in the dc plan's interests). Likewise, the dc plan's independent fiduciary must satisfy herself that the price the dc plan would pay to buy the asset reflects a sufficient valuation discount for the lack of liquidity. As always, every person should get the advice of his, her, or its expert lawyer.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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