401(k) assets

[lexi]

A 401(k) owns an interest in a business (e.g., LLC, LP, etc.).

The owners want to remove the business interests from the 401(k) by buying out the interests (at book value).

Would this be a PT?

I have found a vast amount of literature detailing the mechanics of how you use a 401(k) or IRA to invest in companies but nothing regarding how you get the business interests OUT of the 401(k) account or IRA. Is it as simple as buying out the interest?

[rcline46]

First, you need a third party to value the business. There are several that specialize in partnerships, LLCs and so forth. Either your accountant, yellow pages or internet would be a source for names.

Second, if the purchaser(s) are also involved with the plan sponsor or as trustees to the plan, it will be a prohibited transaction. You will need to apply for a PT exemption and/or private letter ruling to avoid some nasty results.

And the always good advice - get an attorney whose practice is primarily ERISA to guide you.

[Peter Gulia]

It's likely that a currently-serving plan fiduciary - if he or she is a potential buyer, is a relative of a buyer, is a subordinate of a buyer, or otherwise has an interest or conflict that could compromise his or her best judgment as a fiduciary - must hand off this negotiation and transaction to a special-purpose independent fiduciary. In my view, engaging the independent fiduciary needs to happen first because the selection of the valuation expert needs to be free from compromising interests, and letting the independent fiduciary engage the valuation expert is the simplest way (and usually the only practical way) to get that independence.

Also, some proposed transactions involve a difficult issue about how the plan raises money to pay the fees of its fiduciary, valuation expert, and lawyer. Again, the solution must be designed to avoid a conflicting interest for those who represent the plan.