Is land allowed in a DB?

[Dennis Povloski]

I know that one of my TPA clients has a land investment in his DB plan (a restaurant franchise, actually), but one of my full service clients asked if he was allowed to put land in his DB. I told him that I thought he could, but there were some special rules on the valuation, bond coverage, etc. When I went to look that up in the ERISA Outline Book, it appears that land is not allowed in a Pension Plan. Am I understanding correctly?

Any help is appreciated! Thanks!

[Belgarath]

Very short answer, which can be expanded upon tremendously:

Yes, a pension plan can purchase land, subject ot all normal fiduciary prudence, diversification, liquidity, prohibited transaction rulews, etc., etc..

However, the employer may not CONTRIBUTE land to a PENSION plan - contributions must be made in cash. See DOL reg. 2509.94-3, Interpretive bulletin 94-3, ERISA, and various court cases, including Keystone.

[Dennis Povloski]

So the employer could use the cash in the DB to purchase land, but they couldn't contribute land directly, right?

Another question...if they manage to use plan assets to purchase a parcel of land, since the land is not a qualifying asset will it have to covered 100% by a fidelity bond. If the land is covered 100% by the fidelity bond, and it is more than 10% of the total assets does that satisfy the fidelity bond coverage for all plan assets?

[david rigby]

Some earlier discussion that may be relevant:

http://benefitslink.com/boards/index.php?showtopic=20594

http://benefitslink.com/boards/index.php?showtopic=26931

http://benefitslink.com/boards/index.php?showtopic=25867

http://benefitslink.com/boards/index.php?showtopic=21218

[Ron Snyder]

Others have responded appropriately to your question. Of course a DB plan can purchase and hold land/other real estate.

But how is a "restaurant franchise" an investment in land? It seems that more than prudence and diversification issues are presented by your facts.

[Guest Glen]

Another consideration is the location of the land purchased. The land must be located where it is subject to SEC rules; in the U.S. We had a client who followed all the rules about purchasing land, except that the land was located in Canada. Lovely place, huge mess.