Real Estate in a DB Plan

[eilano]

DB Plan wants to buy a building for approx 1M (which will be almost 90% of the plan assets)in which a portion will actually house the plan sponsor of the DB plan. We are sure this would be a PT – however client would like actual sites. Comments?

[WDIK]

One of the choices may be IRC Section 4975(c )(1)(D) -

D) transfer to, or use by or for the benefit of, a disqualified person of the income or assets of a plan;

[A Shot in the Dark]

There are a number of prohibited transaction exemptions for transactions similar to the example you have given. Your client should also review any number of those exemptions so they can see examples of the process, complexity, etc. of these types of transactions.

[jpod]

You'll never get an exemption if you're using 90% of the plan's assets. Aside from pt issues, this is pretty close to a per se fiduciary breach (to invest 90% in one non-diversified asset), assuming the plan is subject to Title I of ERISA.

I am imagining that this is a small plan (physicians perhaps?). If he/she/they wish to own the building, wouldn't they be better off taxwise and otherwise owning it himself/herself/themselves and renting it to the plan sponsor, even if a mortgage is necessary?