Department of Labor Regulation 29 CFR 2510.3-101 – the Plan Asset Rules

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:

Department of Labor Regulation 29 CFR 2510.3-101 – the Plan Asset Rules2019-03-17T14:14:37-07:00

What is the Plan Asset Rule?

All IRA owners who have made self-directed investments into an IRA LLC and anybody considering do so should read Jeff Nabers’ article called “What is the Plan Asset Rule?”  This rule turns assets owned by an entity into assets that are deemed to be assets of the IRA with the consequence that any transaction between a disqualified person and the entity is a prohibited transaction.

“The plan asset rule, among other things, is used to determine whether or not a retirement plan is involved in a prohibited transaction.”

See my post called “Department of Labor Regulation 29 CFR 2510.3-101 – the Plan Asset Rules.”

What is the Plan Asset Rule?2018-05-13T13:58:56-07:00

Department of Labor Advisory Opinion 2000-10A

[RK Summary:  The Department of Labor ruled that a prohibited transaction would not occur under Internal Revenue Code Section 4975(c)(1)(A) if an IRA owner caused the IRA to purchase a 39.38%  of limited partnership interests in a limited partnership in which the IRA owner was the sole general partner with a 6.52% interest and in which the IRA owner owned 12.11% through his investment in another entity despite members of his family also owning limited partnership interests in the same limited partnership.”  Note:  The IRA owner was Leonard B. Adler and he had money in the Fetner Family Partnership that invested money with the now infamous Bernard Madoff.]

The text of Department of Labor Advisory Opinion 2000-10A is below.

July 27, 2000

Hugh Janow
Janow & Meyer, LLC
One Blue Hill Plaza
P.O. Box 1606 Suite 1006
Pearl River, N.Y. 10965-8606

Department of Labor Advisory Opinion2000 – 10A
ERISA Section 4975(c)(1)(A)

Dear Mr. Janow:

This is in response to your request for an advisory opinion under section 4975 of the Internal Revenue Code (Code). Specifically, you ask whether allowing the owner of an IRA to direct the IRA to invest in a limited partnership, in which relatives and the IRA owner in his individual capacity are partners, will violate section 4975 of the Code.1

You represent that the Fetner Family Partnership is a New York general partnership that is an investment club (the Partnership), in which Mr. Adler, through a general partnership known as Esponda Associates (Esponda), and various relatives of Mr. Adler invest. Through his investment in Esponda, which is a pass-through partnership, Mr. Adler owns a 12.11 percent interest in the Partnership. Mr. Adler presently owns a 30.38 percent interest in Esponda. The only other partner in Esponda is David Geiger, who is unrelated to Mr. Adler. Esponda currently owns a 39.85 percent interest in the Partnership. (more…)

Department of Labor Advisory Opinion 2000-10A2019-03-17T14:14:13-07:00
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