Employee funded retirement plan to horse farm

[Snaggletooth]

This Whole Thing Stinks

...to high heaven.

This is a fraudulent scheme, most likely breaking a dozen regulations, most obviously conflict of interest even if no statutory laws broken. In our most generous frame of mind, we've tiptoed around describing this plan for what it really is.

It STINKS!!!

[Burke]

I have a client that is an employee of a vet office. He is eligible to participant in the company retirement plan. The money goes to the owner's (vet) thoroughbred horse farm in KY. Can retirement funds be used for this? How would the horse farm have to be setup to accept employees retirement money? About $20,000 of my client money will go to this each year. Is this legal?

While such an investment might be legal in a self-directed IRA, I have never seen any discussion about an employee retirement plan. Additionally, even if it is in a self-directed IRA, self-dealing rules prohibit one from owning a business in an IRA if he is an officer of that business or owns a controlling interest. So I would be suspicious of it. If you do receive such documentation, please keep us informed as I would be most interested in the outcome. It sounds as if the employer is pitching this to his employees as a means of getting capital for who-knows- what. Of course, he could not use his own IRA funds to do it.

[Burke]

Additional information is available at the Dept of Labor's website. Some highlights:

"ERISA protects plans from mismanagement and misuse of assets through its fiduciary provisions".

"The primary responsibility of fiduciaries (those who have control over management or assets) is to run the plan solely in the interest of participants and beneficiaries. Fiduciaries must act prudently and must diversify the plan's investments in order to minimize the risk of large losses. They also must avoid conflicts on behalf of the plan that benefit parties related to the plan, such as other fiduciaries, service providers, or the plan sponsor."

"Fiduciaries who do not follow these principles of conduct may be personally liable to restore any losses to the plan, or to restore any profits made through improper use of plan assets."