Items allowed in a 401(k) Plan

[Guest KMB1978]

I have a large plan that would like to add a restaurant note into the plan. Is this possible? Are there limitations?

Does the purchase of the note need to be made available to everyone?

I have googled, and searched every which way but am unable to locate anything that references this matter....

[J Simmons]

I have a large plan that would like to add a restaurant note into the plan. Is this possible? Are there limitations?

Does the purchase of the note need to be made available to everyone?

I have googled, and searched every which way but am unable to locate anything that references this matter....

Possible, yes.

Limitations, yes. You'll need to have the note independently appraised annually. This might also trigger a larger ERISA bonding requirement. If this is a trustee's investment decision for pooled accounts of the Plan, then you need to make sure this is a 'prudent' investment for the Plan and its participants/beneficiaries. Part of that will need to take into account the likely liquidity needs of the Plan in order to make benefits payouts. Also, you'll need to take a look at how the note affects diversification of the investments. You'd need to vet this out to make sure that there is not too cozy of a connection between the restaurant operators and most anyone connected to the plan. You would not want to cause a prohibited transaction. UBTI should not be a problem if the note only calls for a fixed rate of interest, no extra kicker payable to the plan that is dependent on the financial fortunes of the restaurant.

Available to everyone? I suppose from this you have a participant-directed investments program in your Plan. If so, is it broad enough to allow for this note being purchased? If not, are you first going to amend? Keep in mind, if this amendment is to accommodate the desires of an HCE, then you might be hampered by 1.401(a)(4)-5 about when you can amend out of allowing such types of investments, as the timings of the two amendments together might amount to discrimination. Stepping back for a moment, do you want the headaches that would go from other such investments that other participants/beneficiaries might locate and want to invest in?

So, really, are publicly traded stocks, bonds and mutual funds all that limiting that the Plan really needs to invest in this note?