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I wonder if they're drifting into a breach of fiduciary prudence. I guess the real question is just how illiquid is the investment? Is it truly unsellable or just devalued? Two entirely different things. I know of no land, short of a SuperFund site, that won't sell at some price. My one or two ideas are likely to cost more to setup and administer than the real estate is worth... such as putting it in an LP and distributing the LP shares in-kind. Or if the executive suite is so in love with the real estate, go in for a PLR to let the company buy it from the plan on the grounds of providing liquity to participants. They need to weigh the costs of 1) risk of being sued for fiduciary breach by maintaining an investment they know to be bad, 2) filing for a PLR and 3) cutting their losses and selling at the current market rate. And this thread needs to be tagged so when other people come asking about putting real estate in plans, we can point them to this as a case study in why it's a bad idea. I do believe that illiquidity is one of the potential problems about which people are commonly warned.

It might not be an issue if the participant chose to be in an illiquid asset. But it's likely a fiduciary issue if the participant wants the entire distribution. I think the trustee is on shaky ground.