Definition of "employer" in 4975(e)(2)(C)

[shERPA]

Partnership of professional corps. Two PCs, one partnership, a classic affiliated service group. 3 separate, identical PS plans, one for each entity.

Can partner A's plan make a loan to the individual shareholder of partner B? B does not sponsor A's plan, is not a fiduciary, etc. However A, B and the partnership are a single employer per 414(m). 4975(e)(2)© and (H) define a disqualified person to include a 10% shareholder of an employer whose employees are covered by the plan.

Under a 414 definition of "employer" the proposed loan would be a PT as individual B is a shareholder of Corp B, which is part of the aggregated employer. However 414(m)(4) lists the specific code sections to which it applies and this list does not include 4975.

Still feels a little too close for comfort.

[Belgarath]

While it does seem odd, I agree - I think that a transaction such as you propose is not a PT (my initial gut feeling was just the opposite). Now, on the other hand, there would be the usual issues involved in lending money to anyone in terms of prudence, due diligence, diversification, etc., etc., and such a transaction might be scrutinized more rigorously than if the funds were lent to an "outsider" - but I really don't know.

I certainly would advise them to run this by ERISA counsel prior to such a transaction.

[shERPA]

Thanks much. Now I've learned of another wrinkle. A wants to make a big loan to B and B wants to make a big loan to A (from each other's plans). They want to jointly buy a building.

Even if A and B are not disqualified persons, I'm concerned this would be a PT under 4975©(1)(D) or (E). If A loans from his plan to B for the purpose of enabling B to partner with A to buy a building that will benefit A personally, then it seems like it fits one or both of these definitions.

[Belgarath]

That's a whole different Pandora's Box, and I agree. This would seem, to me at least, to clearly be self-dealing by a fiduciary.

All the more reason to involve ERISA counsel!