Sponsor Lease from Partially Plan-Owned LLC

[Christine Roberts]

Company leases office space from an LLC that is 50% owned by the company's 401(k) plan. The specific nature of the plan investment is via the individual brokerage accounts of the company's 2 principals. Original plan investment was $150,000; LLC is now worth essentially what the building is worth (approx. $3 million). Total plan assets = about $2 million.

Company pays FMV for lease with built-in increases based on area Consumer Price Index. Leased space represents 25% of building space. Other tenant rents on similar terms. Although the lease is not directly between the plan and the plan sponsor, indirect PT would appear to exist under reasoning set forth in DOL Advisory Opinion 2006-01A (which involved IRAs, admittedly).

Is it sufficient to cure the PT that the plan sponsor gets out of the lease and leases elsewhere? If so, and presuming FMV rent, what damages to the plan, if any, did the PT cause? Is there any reason the principals should divest their LLC investment, other than to avoid annual cost of an independent appraisal of the LLC interest?

[Ron Snyder]

These are the kinds of questions that need to be directed to expensive attorneys rather than addressed on public bulletin boards. Would you really have your client rely on the opinion of a self-styled expert with a "handle" like VEBAGURU? (There are worse ones!).