investing 401k deferrals in in house funds

[Guest billy bong]

an investment company that manages 2 funds, not publicly traded, has just started a 401k plan and is offering its 2 funds as investment choices to its employees. they are waiving any management fees associated with the investment of these assets.

would this be considered a prohibited transaction?

[Jon Chambers]

This is both a securities law and ERISA question, and I'm not sure I'm qualified to fully respond to either. I'm aware that investment management firms can offer their own publicly traded (ie, mutual) funds through their own plans at the best possible fee structure, or better, with no PT concerns. I worked with one mutual fund company that offered its new funds through the plan, but they waited until the funds went public before offering them. My gut says that you may have all sorts of accredited investor issues, and probably exclusive benefit issues also, if the primary purpose is to generate "seed" money to bring the funds to critical mass. But you really need an expert's opinion on this one.

[Guest greymann]

You should be in good shape here. Take a look at PTE 77-3.