Illiquid Asset in PSP to 401(k) Conversion

[Christine Roberts]

PSP with pooled assets converts to 401(k); all assets liquidated and reinvested per participant direction, with one exception -- promissory note/deed of trust in name of plan.

Investment provider/TPA for 401(k) plan recommends that note be allocated (and reissued in name of) 401(k) account for one of the owners of the plan sponsor.

Five years of repayments remain on the note. Is this kosher? Can the note not be held in a suspense account? Seeking any comments.

[mbozek]

I think this issue need to be reviewed by counsel to determine what are the rights of the plan participants under the transferring plan. Have you read the plan document to determine how the participants interest is allocated in the note under the PS plan? If the note is reallocated in the name of a single participant how is the interest in the other participants credited under the 401(k) plan? E.g., if note is worth $10,000 and there are 10 participants each with a 10% interest in the note how can 1 participant have a 100% interest in the note in the 401(k) plan without the other participants being compensated. If the note pays an above average rate of interest how can a fid allocate the entire interest to someone who is at a least a party in interest? Also under the PT rules a fiduciary cannot use plan assets to benefit him/herself. I think each participant's interest in the note should be carried over to the 401(K) plan for the remaining 5 years of as an asset that is not subject to participant direction. PS I have never heard of a investment provider/TPA render the opinion that you have stated because they all caveat their advice with the admonishment that they not give legal or tax advice.