Self Directed 401(k) Plan for Physicians

[SwimmingInBowelsOfERISA]

We love doctors, right? Always want a million and one ways to lose their money! I digress...

One of the docs my wife works with at a local hospital mentioned to her about some changes to their plan, she referred me and I spoke briefly with him. Then the CEO called me. Physician's group, a couple dozen docs and another 40 or so EEs. They currently have a SH-k with PS (not a new comparability) on an insurance company RK/custodian, self-trustees with a producing TPA also giving investment advice but hiding under the (soon to be much more restrictive) 5-part ERISA fiduciary investment advice exemption.

They were approached by a competitor advisor who is recommending they move to a self-directed custodian so the docs can invest in whatever they want, including non-publically traded securities, real estate, etc. I do not even know of any such custodians for a plan with non-owner participants.

I am an RIA only, 3(21)(A)(ii) IA or 3(38) IM depending on the plan. Just so everyone is clear, my advice began with "NOTORIOUSLY BAD IDEA!!!"

While I am very familiar with SDBA options with custodians (I don't recommend them), but none I know of allow anything other than publically traded securities. I've only seen the door opened to alt investments with solo-k plans. My question is this: Are there even any custodians that will custody assets for non-solo 401(k)'s that permit alt investments, like real estate, non publically traded securities, etc???

Not to worry, I would NEVER recommend it, but I'm simply curious if anyone has come across a custodian like this.

Thanks!

[Mike Preston]

I believe the IRA custodians that enable/allow these types of investments in IRA's also provide same for qualified plans. Very, very expensive.

Most true trust companies will agree to hold all manner of investments. All of them as Trustees, most as custodians. Very, very expensive.

[MoJo]

Equity trust will handle weird assets (they mostly do IRAs, but also will do qualified plans) and Schwab has been known to allow SOME non-publicly traded vehicles in their brokerage window (limited partnerships, etc., but not "hard assets and actual real estate).

But.... "Notoriously Bad Idea" is an understatement.... Bring up the "f" word ("fiduciary") - especially with respect to the non-docs but also with respect to each of the docs (as potential fiduciaries) and the problems their colleagues can cause the plan with weird assets....

[ESOP Guy]

it sounds like I am preaching to the choir here but if you really want to get a good idea of all the things that can go wrong do a search on this board on "real estate" and other such assets in plans.

A little searching and you will get hits on people asking things like what do you do now that RMDs are do and the plan only has illiquid assets like real estate. How do we pay the property taxes on the real estate and the plan has no cash and the sponsor doesn't want to put a contribution in the plan. I need to pay one of the non-owners and their balance is larger then the cash in the plan and we can't sell the illiquid assets. It goes on and on over the years.

Oh if that doesn't do it point out to them the IRS has proposed to start asking questions about if you owe Unrelated Business Income Tax on plan activity. Yeah they do these investments wrong and they can owe tax on the income.

[Belgarath]

There are very few phrases I hate, in the context of qualified plans, more than, "I read an article..." - and it seems like I hear that from doctors more than anyone.

I'm not sure what it is - they are very intelligent people, who do seem, as a class, to find more ways to self-destruct their plans than most other folks.

Maybe it is because the majority of plans/people simply don't have enough money to even think about some of the crazy/risky investment stuff.

I dunno...