Trustee of PSP wants to purchase land with plan assets

[doombuggy]

The trustee/plan sponsor of a 1 person PSP (which covers just him) called me today to see if he could use about 1/3 of plan assets to purchase land. He told me that eventually, he would like to sell the property to his wife, via a 3rd party, as they want to build a home on it. Apparently, he laready communicated his "desires" to the broker, who after conferring with my boss, told him that it was not a good idea, and to speak to an ERISa atty in his state. I guess he didn't like that answer (he really wants the property, but I am guessing he doesn't have $700k sitting around to buy it). I wanted to find some documentation in the EOB (ERISA Outline Book) that talks about arms-lenght transactions. his thought process is to buy the property with the plan assets, and in about a year or 2 (after they sell something eles, I think), he wants to sell it to an in-law who would turn around and sell it to the wife (who is not a part of the plan, just the trustee/plan sponsor/participant's spouse). I'm thinking this could be prohibited, but wanted to site him. Anyone know where in the EOB I can find this? We have the 2009 edition, but any hints or tips would be helpful...

[Peter Gulia]

Even if the plan's purchase of the real property might not be a prohibited transaction, the plan's later sale to the trustee's wife (whether directly or indirectly through a strawman) would be. (For a plan not governed by ERISA, the citation is Internal Revenue Code 4975.)

But if the trustee wants to buy and later sell this property, it's a straightforward matter to get an individual prohibited transaction exemption. An exemption would require, among other conditions, using an independent appraiser or valuation expert so that the plan sells at the correct fair market value price.