Private Placement Assets Valuation

[K-t-F]

Client has a PS plan... he is only participant. Has invested in limited partnerships, to the tune of $1mil plus. My question is how to value these investments... From the K-1? Based on cost? Obviously based on cost would be the easiest... but if valued at cost, would that be accurate enough in the event of an audit?

[TBob]

We have been told by auditors in the past that they can not be valued at cost. In cases where the general partner could not provide a FMV we engaged an independant firm experienced with valuations of LP's for ERISA plan purposes. This firm would gather the information they needed from the LP and would send us a report telling us what to value it at. This has to be done each year.

The cost of the service was not prohibitive and was charged back to the plan/participant. This is simply one of the costs of investing in the LP.

In cases where the LP (general partner) would not provide enough information to the valuation firm, as I recall, they recommended reducing the value by a very significant amount. It is amazing how quickly information starts flowing when one of the owners in the LP see the value of their investment cut in half!

[K-t-F]

Even if there is only one participant in the plan and he is the trustee? I understand that rules are rules... your advice is appreciated. Just trying to make this as painless as possible for me and the client.

[TBob]

I guess I didn't read that far into your post. The comments that we received on this in the past did deal with plans with more than one participant however, the LP's were held in the segregated, self-directed account of the sole owner. That may not make a difference for your situation.

[Lynn Campbell]

In my experience I call the LP customer service each year and get the "ERISA Valuation per unit". That should suffice, right?

[Earl]

My experience with this is:

1. Are they supposed to get a market valuation? Yes, I know of no exception for Single participant plans or for segregated accounts.

2. Does anyone do it? No

3. Do all LPs have an ERISA valuation prepared? No (Some larger ones do)

4. What does the IRS look at in an audit? K-1, closing capital account value.

5. Does that make any sense? No

6. When is it a real issue? Multi-Participant Plan: Every valuation (since used for distribution amounts in a pooled Trust.) Single Participant Plans/Segregated Accounts: At plan termination, hard to rollover and (rolled or not) value to put on 1099.

7. Another real issue: UBTI

8. Anyone I know deal with that? No

I just tell people what the requirements are, tell them I have to put a number on it, tell them there may be taxes due on the income, it is their responsibility to give me the number and then I use whatever they give me.

Seems to me that if the IRS cared they could create a list of requirements (ERISA valuation and UBTI reporting of income distributions) for investments to allow them to take Qualified Plan investors.

Thats my long & short on it.