PS plan investment

[Guest babs51]

Pooled PS plan has $3 million in assets. They want to investment $100-$150K in an investment that will have no return for 5 years. Allowable, prudent, draw backs, etc.?

[Guest Pensions in Paradise]

What type of investment?

[namealreadyinuse]

Smells real bad from here and we don't even know anything about it.

[Guest babs51]

What type of investment?

Oil & gas exploration deal

[jpod]

If the plan fiduciary has undertaken reasonable due diligence and believes that the investment is prudent (which doesn't mean "not risky"), consistent with the ERISA diversification requirements and the plan's anticipated liquidity needs, then there's no problem. Watch out for capital call requirements and other fine points that could change the answer. Also, as is the case with any investment, but usually more of an issue when something more exotic is involved, beware of prohibited transactions.

[namealreadyinuse]

I pitty the fool who gets a distribution in the next five years.

Is TOTALLY independent? (prohibited transaction was the first thing I thought of).

[Guest Pensions in Paradise]

Allowable? Yes, assuming it is not a PT and the plan document allows for this type of investment.

Prudent? Probably not. Would YOU personally invest in something which may or may not return an investment in five years!!

I would recommend to the client that if they want to pursue this investment, they should convert the plan from a pooled investment account into self-directed accounts. Then the owner (who is really the one pushing for this investment) can use his own account for this investment. And not jeopardize the accounts of other participants.

[Bird]

Probably not. Would YOU personally invest in something which may or may not return an investment in five years!!

The original post said it wouldn't have a return for 5 years, not that it may or may not...I take that to mean no dividends or interest and yes, I might invest in it if I thought there was a probability of a high return at some future date, even if no annual returns for a period of years.

Having said that, I'd not want this in a plan if for not other reason than valuation problems. It should be independently appraised to get a true value each year; usually when I explain that the client loses interest. The smaller the percentage of the total assets, the more practical it is; it might be borderline practical/prudent in this size plan but then I'd also tell the client I'd have to charge more for the hassle factor.

I wouldn't change to self-direction either. Unless you're going to offer it to everyone (have fun with that) I don't see how it's not discriminatory if the owner is the only one able to get a piece.