Qualifying Plan Assets

[Lori Foresz]

Hi,

I have read the instructions to the Form 5500, but still need some help (if possible) in understanding the increased bonding/audit requirement for small plans.

An individually directed account plan has a participant who wants to invest in rental real estate. Despite the problems with UBTI (of which I still need to research) would this type of holding require an increased bond if more than 5% of assets? I think yes, but item 4 of the definition of Qualifying assets on the Form 5500 confuses me.

It defines qualifying assets as assets held in participant directed accounts for which a regulated financial institution (as described in #1) provides annual statements to the participant. Does this basically mean that even if the account is participant directed, qualifying assets must still be held by one of the institutions described in item 1? If so, then why even have item #4?

Any help in deciphering this is greatly appreciated?

Thanks