Gary Posted November 25, 2008 Posted November 25, 2008 A one participant plan invested in loans. That is, they did what appears to be a private promissory note and loan that was secured by real estate. The appeal is interest rates on the loans of above 10%. Does anyone detect any problem with such arrangement? The loans are to non parties in interest. Thanks.
J Simmons Posted November 25, 2008 Posted November 25, 2008 Is the one participant an owner of the sponsoring employer? John Simmons johnsimmonslaw@gmail.com Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.
Gary Posted November 25, 2008 Author Posted November 25, 2008 Yes he owns the company that sponsors plan.
J Simmons Posted November 25, 2008 Posted November 25, 2008 Most of the concerns are allayed by the fact that it is a non-ERISA plan. The management of the loans and their repayment might pose a problem if performed by the one participant. There is a business corollary in the commercial sector. If a third-party company is not hired by the plan and paid to manage these loans and their repayment by the obligors, you could possibly have a UBTI concern. Also, if the one participant performs those tasks, it could be a prohibited transaction per IRC § 4975©(1)©, unless it could fit within IRC § 4975(d)(11). John Simmons johnsimmonslaw@gmail.com Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.
Andy the Actuary Posted November 25, 2008 Posted November 25, 2008 In the olden days (pre-PPA), you could have factored in the high rate of return into your investment rate assumption to avoid overfunding. With PPA, you have to be careful that the plan does not push the 415 envelope because it could become overfunded with the high rate of return. In particular, if the sponsor departs the earth prematurely. Also, and this is a legal question, can a plan distribute a loan as an asset in-kind? I.e., if the plan terminates before the loan is repaid, what happens (this question was relevant pre-PPA)? The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now