Options as Plan Investments????

[Guest Phil L]

Is there any restriction on permitting the use of options (call options, put options, or LEAPS) in a qualified retirement plan? The owner of a business thinks that options are the greatest thing and wants to open the plan to segregated accounts. Of course, as the administration firm, we think he is crazy and we may elect not to provide services.

Anyway, the best outcome is for me to find some statutory or regulatory reason why this might not be a good idea. Any thoughts on this??????????????

Thanks.

[Ervin Barham]

Other than the fact that almost everyone of these "options geniuses" has lost their shirts on these things? I have been dealing with segregated accounts since 1980something and this comes up once a year or so. Not to be construed as investment advice, of course, but common sense could apply here.

However, options, puts/calls, etc., are not prohibited. Check the plan document carefully! Some plans may allow this, some may not. That may be your out or as you have already stated - you may not want to handle that kind of business.

You also need to watch out if they want to use margin accounts to try to do this, since you may run afoul of the Unrelated Business Income Tax in the debt related financing area.

Summary: Lots of potential pitfalls, but not necessarily illegal, depending on the plan document.

[Guest ERead]

I know that a lot of larger financial institutions do not allow the "Trust" to handle those types of assets, strictly from the risk point of view and the prudent man principle. I think an argument could be made that investing in options is too risky for a retirement plan, and may be a danger under audit. Especially in light of all the recent talk about investment education, if the principle is the only one trading in them, then you could also be discriminatory.... just my thoughts. Good luck

[Guest Craig Hoogstra]

What is the plan sponsor/fiduciary going to say to DOL if a plan participant files a complaint? Sounds like he needs an attorney to advise him of his chances......