rblum50 Posted February 27, 2018 Report Share Posted February 27, 2018 A dentist has maintained a profit sharing plan for himself and one other employee for years. The assets in the plan, at the moment, consist of only a single real estate property. He has retired, stopped his practice and wants to terminate the plan. He can't find a buyer for the property and there aren't any other plan assets to pay out the other participant. He doesn't have the money to deposit into the plan or to pay out the other participant directly. Does he have to maintain the plan until a buyer is found so he can turn this asset into cash? Is this true and, if not, what are his alternatives? Link to comment Share on other sites More sharing options...
jpod Posted February 27, 2018 Report Share Posted February 27, 2018 Isn't the employee now a former employee and therefore entitled to his/her account balance from the Plan even absent a Plan termination? Would he be willing to spend money to secure a solid appraisal of the property and seek a prohibited transaction exemption from the Department of Labor, then borrow the money to enable him to personally purchase the property from the Plan? Link to comment Share on other sites More sharing options...
rblum50 Posted February 27, 2018 Author Report Share Posted February 27, 2018 Yes, the former participant is entitled to their account balance. I don't believe that he has any money to spend for anything. He is not even paying my bills. He is an honorable person and I know that I will be paid eventually. Link to comment Share on other sites More sharing options...
jpod Posted February 27, 2018 Report Share Posted February 27, 2018 Ok. I am out of ideas. Link to comment Share on other sites More sharing options...
ETA Consulting LLC Posted February 28, 2018 Report Share Posted February 28, 2018 Sometimes, the story is about everything that should've been done to prevent issues like this from arising. Liquidity has always been a priority when selecting the investments for a plan. In theory, there is no such thing as no buyer; there's just no buyer at the price being asked. This is also an attribute of liquidity (e.g. can I sell it quickly for what it's worth). Now that he's here, he'll probably end up taking a large loss. I would imagine the most important thing is paying out the employees the amounts they're entitle to under the plan. It would seem consistent to have the employees share in the investment losses. Then again, it was incumbent upon the trustee to guard against those investment losses. So, it is as bad as you suspect. However, it seems the only way forward is to liquidate at the lower value, terminate, and distribute. Good Luck! CPC, QPA, QKA, TGPC, ERPA Link to comment Share on other sites More sharing options...
rblum50 Posted February 28, 2018 Author Report Share Posted February 28, 2018 I totally agree that if he can't find a decent buyer, he should consider taking a large loss. Unfortunately, he has been exploring this possibility with very little luck. He had a friend that was willing to buy the property for about 60 cents on the dollar, but, changed his mind at the last second. I think that, at this point, he would be willing to accept almost any offer to get out of this problem. Link to comment Share on other sites More sharing options...
Bird Posted February 28, 2018 Report Share Posted February 28, 2018 Unfortunately sliding the price down does not necessarily trigger buyers in any kind of uniform manner. If someone is not willing to pay 60 cents on the dollar then the dollar is probably overvalued. Not sure what to say that is actually helpful here. For anyone reading this, it is another poster child for not having real estate in a qualified plan. K2retire 1 Ed Snyder Link to comment Share on other sites More sharing options...
John Cole Posted February 28, 2018 Report Share Posted February 28, 2018 The short term solution is to obtain a proper valuation of the land and distribute a fractional interest to the other participant. Then, the dentist can buy it from her, and she can roll it over if she wants to. imchipbrown 1 Link to comment Share on other sites More sharing options...
Luke Bailey Posted March 1, 2018 Report Share Posted March 1, 2018 Completely agree with John Cole, and of course the distribution of fractional interests to both of them on plan termination can be to an IRA. Of course, there are lurking issues of fiduciary liability here. The participant's getting a good price that reflects decent long-term rate of return is the best protection, unless owner wants to go to DOL and get a PT exemption to buy property him- herself or do VFCP. Luke Bailey Senior Counsel Clark Hill PLC 214-651-4572 (O) | LBailey@clarkhill.com 2600 Dallas Parkway Suite 600 Frisco, TX 75034 Link to comment Share on other sites More sharing options...
Bird Posted March 1, 2018 Report Share Posted March 1, 2018 I'm not sure you can force an in-kind distribution on a participant. I sure as heck don't want anyone foisting a fractional share of real estate on me in lieu of cash. AKconsult, Belgarath and Bill Presson 3 Ed Snyder Link to comment Share on other sites More sharing options...
JamesK Posted March 1, 2018 Report Share Posted March 1, 2018 Quote I sure as heck don't want anyone foisting a fractional share of real estate on me in lieu of cash. Not that that would solve your problem either since the participant, now part-owner, could go to court to force a liquidation of their partial interest. If this former owner is looking for a magic bullet, I don't think he's going to find one. The most practical solution so far is to reduce the price to the level where a buyer will pony up. But then s/he will face potential fiduciary liability. It's too bad that the owner didn't consider these issues when the purchase was made. I hope this is an income-producing property but what will they do when required minimum distributions are required to commence? Link to comment Share on other sites More sharing options...
david rigby Posted March 1, 2018 Report Share Posted March 1, 2018 On 2/27/2018 at 11:33 AM, rblum50 said: The assets in the plan, at the moment, consist of only a single real estate property. I'm wondering if this implies the plan had other assets sometime in the past. If so, what happened? Oh, we're back to the fiduciary liability question. I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice. Link to comment Share on other sites More sharing options...
Luke Bailey Posted March 3, 2018 Report Share Posted March 3, 2018 Whether you can force distribution in kind depends on the terms of the plan, I think. You probably can't. Might even have to amend the plan to NOT distributed in cash. Anyway, my post assumed a willing participant and an eventual sale of the property that provided a decent rate of return. I think the cautions expressed in some of the other posts, as well as my earlier, are all valid. Luke Bailey Senior Counsel Clark Hill PLC 214-651-4572 (O) | LBailey@clarkhill.com 2600 Dallas Parkway Suite 600 Frisco, TX 75034 Link to comment Share on other sites More sharing options...
Flyboyjohn Posted March 4, 2018 Report Share Posted March 4, 2018 VFCP is the way to go. Quick, easy, no filing fee, get forgiveness of fiduciary breach and PTE all in one package. Of course this assumes dentist can beg, borrow or has the cash to purchase the real estate from the plan. Given the lack of marketability suspect the purchase price will be original cost plus lost earnings using DOL calculator. Link to comment Share on other sites More sharing options...
BG5150 Posted March 5, 2018 Report Share Posted March 5, 2018 How can he know the employees (or his) account balance? Has the property been appraised and the FMV reported every year? Side note: if the property can't be off-loaded at or near appraisal price, is there something wrong with the appraisal--obviously over-valued? K2retire 1 QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left. Link to comment Share on other sites More sharing options...
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