Defined benefit plan and off-shoring

[Guest Trustee]

Good morning, everyone -

I am new to this group. I am the trustee of a small defined benefit plan and am seeking guidance on off-shoring parts of the plan's investments. I have looked into the issue and reviewed ERISA section 404(b). As the plan itself, "indicia of ownership" are based in the U.S., and the plan is written to allow investments "anywhere", I believe the plan can directly invest in a plan owned foreign based LLC.

I know that some self-directed IRAs use local LLC + foreign LLC vs. only foreign LLC vs. only local LLC structures, but I'd need some clarification on this point.

Any guidance would be much appreciated.

[Effen]

Forgive my possibly stupid question, but what advantage do you gain by investing a tax deferred trust in off shore accounts? Why are you considering this?

[Guest Trustee]

Not a stupid question.

It is my duty as a trustee to grow and protect the assets of the plan. Geographic diversification is one strategy.

[david rigby]

Geographic diversification is one strategy.

would an international mutual fund satisfy?

(it's likely simpler, and many to choose from.)

[My 2 cents]

Presuming that there is no hidden motive for investing plan assets in a particular off-shore LLC and that the desire to make such an investment is solely to gain additional diversification of the investments, wouldn't safer, wider diversification be available through one or more mutual funds investing in foreign equity? Not that anyone should listen to me in selecting investments, but there are large cap international funds, smaller cap international funds, developing country international funds, etc. Why invest in one foreign company (and an LLC, not a big established company) when, for the same stake, you can invest in hundreds?

A US-based international fund (or two) would also generate fewer questions from the regulatiors.

Besides which, is it really a good idea for a qualified defined benefit plan to "own" any companies, domestic or foreign? Equity holdings, yes, control no.

[jpod]

The motivation for the question is indeed a mystery, but I have a more fundamental question involving the indicia of ownership rule. If a plan owns 100% of a US-based LLC, and the membership agreement and all other indicia of ownership of its LLC interest are held in the USA, is the rule satisfied regardless of where the indicia of ownership of assets owned by the LLC are held?