are employer's 2 Plans a party-in-interest to each other?

[himt4]

A client’s DB plan is terminating. One of the assets of the Plan is a Limited Partnership that they cannot liquidate. In order to get all the Plan’s assets liquid, it would be nice if the client could purchase that Limited Partnership asset from the Plan so that the Plan would have liquid cash. However, the client cannot do this since that would be a prohibited transaction (i.e a Plan doing business with a party-in-interest).

The client also has a Profit Sharing Plan that they are not terminating. The Profit Sharing assets are pooled. Here’s our question: Can the Profit Sharing Plan buy the limited Partnership asset from the DB Plan? Would that be or not be a prohibited transaction?

[Guest Pensions in Paradise]

Regardless of the PT issue, how could this be viewed as a prudent investment for the PS plan? In my opinion the trustees of the PS plan would be violating their fiduciary duty if they were to purchase an asset which cannot be liquidated.

[KJohnson]

Plans generally are not parties in interest to each other for purposes of a 406(a) PT. However, if the fiduciaries of the two plans are the same, you would have some real 406(b)(2) prohibited transaction issues as well as the fiduciary issues mentioned by PIP.

[E as in ERISA]

Under 404 rules, the fiduciary of the profit sharing plan also has to act solely in the interest of the profit sharing plan participants. He has to evaluate the decision to buy based on the benefit to PS participants. If you start off by giving the reasons why it's good for someone else and no reasons why its good for them, then I think you fail the litmus test.

[rcline46]

Why sell, just distribute this asset as part of the distribution to the trustee/owner at the value being carried in the plan?

[KJohnson]

rcline's solution should work, provided that you document that you gave the opportunity for an in-kind distribution of the lp units to a population that would pass a 401(a)(4) BRF test. You could also have trouble dividing lp units if someone esle whats an in-kind or could have trouble if the owner's benefit is not enough to take care of the entire interest in the lp.

[Belgarath]

See Section 7.4(f) of the revised VFC program, as well as PTE 2002-51 as amended to conform with VFC. This may cover your situation, but I'd check with legal counsel.