Prohibited Transaction?

[Dougsbpc]

Suppose the owner of a small corp that sponsors a DB plan is also a participant in the plan. He also happens to be the trustee.

He owns 7% of the stock of a privately held company (not the company that sponsors the DB). Can the plan invest in that stock?

Something tells me that it may be a prohibited transaction. Use of plan assets for the benefit of a disqualified person. The disqualified person being him as a plan fiduciary. Suppose instead this was a publicly traded company. Then would it be a prohibited transaction?

[jpod]

If you can conjure up a realistic scenario under which one could show some self-dealing, or effect on his judgment as a plan fiduciary, then this might be a pt or at least an investment which a risk adverse person should avoid. However, this is very fact sensitive, and the fact that he owns 7% is not enough to make the plan-level transaction a pt. Of course, there are other issues to consider, such as the prudence of the investment generally (assuming it is a plan subject to Title I of ERISA), and liquidity issues.