Department of Labor Regulation 29 CFR 2510.3-101 contains what are commonly called the Plan Asset Rules. These rules can be complex, but they are important for all IRA LLCs because a violation of the plan asset regulation can be a prohibited transaction. The Department of Labor says:
“The plan asset regulation describes circumstances in which there is a ‘look through,’ which, if applicable, treats not only the interests in an investment fund owned by ERISA covered plans as ‘plan assets,’ but also the assets of the investment fund as ‘plan assets.’ If the look through applies, the ERISA fiduciary and prohibited transaction sections apply to parties dealing with the assets of the investment fund, such as the investment fund’s investment manager.”
The plan asset rules set forth the circumstances that can cause assets owned by an entity to be deemed to be assets of the ERISA qualified plan or the IRA unless an exemption applies. When the plan asset rules cause the assets of an entity to be deemed to be assets of the IRA, any transaction involving the entity and a disqualified person will be a prohibited transaction. If an IRA owns 25% or more of any class of equity interests in an entity the plan asset rules say that the assets of the entity are deemed to be assets of the plan. If your IRA owns 25% or more of the membership interests a limited liability company, the assets of the LLC are deemed to be assets of the IRA.
Here are some additional explanations of the plan asset rules:
- What is the Plan Asset Rule?
- Pensco Trust Company
- Carter Ledyard & Milburn LLP