Prohibited Transaction

[Scuba 401]

employees of medical group will form LLC with plan assets which will purchase property and lease it to medical group. LLC will be open to all employees/doctors/participants.  My initial thought is it is a PT because the owners of the medical practice are  benefiting from the use of plan assets to lease property to their practice. however i am trying to pin down the legal basis and whether there are partnership interest thresholds that they might be able to stay below to avoid the PT. any thoughts? 

[K2retire]

I'm no expert, but I believe that the lease to a party in interest is the PT.

[Scuba 401]

2 hours ago, K2retire said:

I'm no expert, but I believe that the lease to a party in interest is the PT.

who is the disqualified person?  the LLC?

[Luke Bailey]

When you say that the LLC will have plan assets, do you mean that medical group lessor is the sponsor of the plan whose assets are in the LLC? Also, what percentage of the LLC is owned by the plan or related plans.

[Scuba 401]

42 minutes ago, Luke Bailey said:

When you say that the LLC will have plan assets, do you mean that medical group lessor is the sponsor of the plan whose assets are in the LLC? Also, what percentage of the LLC is owned by the plan or related plans.

the LLC is set up by participants (employees and owners) in the plan and funded with plan assets which are used to purchase the building which is then leased to the medical practice. 

[Luke Bailey]

Which plan? Is this a situation where each participant is using a self-directed account in the plan sponsored by the medical practice to own land that will be leased to the medical practice?

[Larry Starr]

2 hours ago, Scuba 401 said:

the LLC is set up by participants (employees and owners) in the plan and funded with plan assets which are used to purchase the building which is then leased to the medical practice. 

What you say makes no sense.  Please be very explicit about what the transaction is.  Employees who set up an LLC have no access to the plan assets just because they happened to set up an LLC.  What is actually being contemplated.  Be specific, and then we can tell you why it's probably illegal! :-)

[Bob the Swimmer]

Agree with everyone---DOL has a number of exemptions for sale-leaseback arrangements by medical groups, but we don't have enough info here.

[Scuba 401]

the participants (doctors) want to form the LLC but it would be open to all participants. they want to fund the LLC with the assets in their respective plan accounts.  the partners would be involved obviously and facilitate the use of the funds.  they want to use the funds from the LLC to purchase real estate and lease the real estate to the medical practice. 

larry i understand they wouldnt be able to access their plan accounts unless the fiduciaries were involved and are willing to make the LLC a plan investment which they want to do. 

[Larry Starr]

4 hours ago, Scuba 401 said:

the participants (doctors) want to form the LLC but it would be open to all participants. they want to fund the LLC with the assets in their respective plan accounts.  the partners would be involved obviously and facilitate the use of the funds.  they want to use the funds from the LLC to purchase real estate and lease the real estate to the medical practice. 

larry i understand they wouldnt be able to access their plan accounts unless the fiduciaries were involved and are willing to make the LLC a plan investment which they want to do. 

I still don't understand the proposed transaction. Let's start with this: how do they "fund the LLC with the assets in their respective plan accounts".  What do you mean by "fund" and how do you get the assets from their plan accounts (under what mechanism)?