“Rollovers as Business Start-Ups (ROBS) – 401(k) Plan Business Financing…”, an article recently written by Attorney and CPA Matthew J. Kaftan, provides the most up to date information on how the Rollovers as Business Start-Ups (ROBS) transaction should be structured and also how the required 401(k) Plan should be properly administered over time.

Ongoing Compliance Testing and IRS Form 5500 Reporting

Attorney and CPA Matthew J. Kaftan has significant experience with the ROBS transaction and has provided an up to date, comprehensive article regarding the ROBS strategy. Mr. Kaftan particularly touches on a number of issues related to operating and maintaining the 401(k) Plan and the private stock held by the 401(k) Plan. A topic that stands out is Mr. Kaftan’s discussion about Ongoing Compliance Testing (page 27). Most business owners who have engaged in the ROBS transaction are, for the first time ever, responsible for sponsoring and managing a 401(k) Plan. The business owner is responsible for the information gathering process applicable to IRS Form 5500, which can be confusing and overwhelming. Oftentimes clients may leave out pertinent information, like the fact that their company employs other employees.

Failing to Offer the 401(k) Plan to Eligible Employees

We often receive calls from business owners who have engaged in the ROBS transaction; they now have other employees eligible to make new contributions to the 401(k) Plan and there is no one helping them or their employees. Failure to timely offer the 401(k) Plan to employees (beyond the company owners) results in further plan violations, breach of fiduciary duties and even prohibited transactions.

Read the Full Article

The article can be found in ROBS Update, Summer 2014 (the article starts on page 20).

Helpful Resources

The reporting, testing, and coverage obligations described above are set out in the following government sources.

• Department of Labor, Form 5500 series forms and instructions — the annual return, its schedules, and which form applies to a given plan.
• IRS, 401(k) Plan Fix-It Guide — how to find, fix, and avoid the most common operational mistakes, including excluding eligible employees.
• IRS, Rollovers as Business Start-Ups Compliance Project — the agency’s own account of what it examined in these arrangements and the failures it identified.
• Department of Labor, Meeting Your Fiduciary Responsibilities — the duties that apply to running a plan and selecting the people who service it.
• IRS, Correcting plan errors — the correction programs available where eligible employees were left out or a filing was missed.

Leading Retirement Solutions helps company owners who have engaged in the ROBS transaction and need to offer the 401(k) Plan to other employees. Where something has already been missed, our consulting and correction services cover the routes available. Contact our team at service@leadingretirement.com or (800) 974-2814 and we can help.