Debt/Mortgage as investment?

[Leopurrd]

Hi everyone,

I posted this on another topic board but didn't get an answer - can anyone here help? Thanks....

I've read everywhere (including right down to the code) that the plan can have "qualifying employer real property" in the plan. The IRS website even mentions that this can be mortgaged by the plan (I realize that you have to watch for a PT).

However, what I cannot find are specifics about mortgages in a qualified plan- how much can be mortgaged, specifics of payments, etc.

Can anyone point me in the right direction? I'm looking for specific citations, etc. Also, if anyone knows of any examples it would really help!

[Ron Snyder]

However, what I cannot find are specifics about mortgages in a qualified plan- how much can be mortgaged, specifics of payments, etc.

Is this a change of subject, or are you still referring to employer real estate?

Assuming you mean employer real estate, are you referring to a situation in which the qualified plan owns a facility used by the employer in its business and leases it to the employer? Or are you referring to some other arrangement?

A mortgage obtained by a qualified plan on ANY real estate might give rise to UBIT (unrelated business income tax), by creating "debt financed" unrelated business taxable income. See Code section 512 et seq.

Mortgages make great investments: several clients have invested their funds into first and second mortgages to obtain a prudent, secured investment. However, when the plan goes the other way, becoming the borrower instead of the lender, several problems may ensue. This is more so with respect to employer real property. You mention PTs; DoL would have to grant a private ruling (ERISA exemption letter) with respect to such a transaction. Search through the EBSA website and you will find a few examples of situations that the DoL has granted exemptions for.