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What plan violations does RPG most often identify as a result of the ROBS Audit?

November 02, 2012

The list of “obvious” violations is long.  In a large number of cases, individuals who purchase a ROBS transaction unintentionally self-deal with their retirement assets, e.g. purchasing extravagant vehicles or pay themselves lavish compensation packages that business revenue certainly can’t support. In other cases, individuals engage in a ROBS transaction but never establish a viable, ongoing business but use all of their retirement money to pay him/herself compensation.

Other “not as obvious” violations occur because plan sponsors, are not aware of the administrative, reporting, and fiduciary responsibilities required of a retirement Plan under federal law.  It is our experience that many people who purchase a ROBS transaction would not have done so if the promoter had fully disclosed all of the responsibilities required under federal law and the associated costs.  As a result of the promoters’ failure to disclose these obligations, many of these responsibilities go unfulfilled, ultimately resulting in fiduciary violations and/or plan disqualification.

In many cases, the promoter tells their clients that they do not have to comply with certain governing laws, e.g. they do not have to disclose the right to purchase employer securities to employees, obtain regular appraisals from an independent qualified appraiser, and many other required fiduciary actions. We know clients rely on the Promoter for advice, because the Promoter presents itself as an ERISA and tax expert; unfortunately for clients, they are not.  Reliance on advice provided by promoters will not protect you from the consequences of fiduciary violations or plan disqualification.

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