ROBS Basics

Question 1

ROBS - What is it?

Answer 1

Using retirement assets to purchase a business while keeping them tax deferred

Question 2

Prohibited Transaction

Answer 2

The use of retirement funds for purposes that don’t meet the criteria set forth by the IRS

Typically causes a taxable event

Question 3

Why C-Corp

Answer 3

C-Corps allow non-person entity (401K) to have ownership of the corporation

Question 4

Plan Sponsor

Answer 4

The employer that establishes the plan

Question 5

Fiduciary

Answer 5

Exercises any discretionary authority or control over the plans management or disposition of assets

Authority/responsibility over plan

Question 6

Plan Administrator

Answer 6

Manages the day to day activities of the plan

Hiring, eligibility, ruling on claims

Question 7

Trustee

Answer 7

Hold legal title to the plan’s assets to safeguard the investment

Question 8

Custodian

Answer 8

Possession of plan assets but lacks authority

Question 9

Fidelity Bond

Answer 9

A form of specialized insurance aimed at preventing certain losses to retirement plans

Question 10

Roll

Answer 10

Move one retirement account into another

Question 11

Qualified

Answer 11

Means that it was in a retirement account

Question 12

Securities

Answer 12

Means STOCK

Question 13

ROBS Compliance

What are the 5 major requirements?

Answer 13

1) Client’s Fiduciary Requirement/Responsibility
2) Adequate Consideration
3) “Operating Company”
4) Nondiscrimination Against NHCEs (non-highly compensated employees)
5) Bona-fide Employees

Question 14

Client Fiduciary Requirements

Answer 14

Fiduciary = highest level of duty

Duty of prudent investment = has to be prudent decision

Question 15

Adequate Consideration

Answer 15

Plan can not pay more than Fair Market Value for the plan for stock

Can pay less than FMV just NOT more

Question 16

Fair Market Value

Requirements to be considered FMV?

Answer 16

Willing buyer and seller

Both have knowledge of material facts

Neither is under compulsion to buy or sell

Arms Length Transaction

Question 17

Operating Company

Answer 17

Active Trade or Business actively conducting sales of a product or service

Question 18

Subsidiary

Answer 18

A company controlled by a holding company

Question 19

Non-Discrimination Against NHCEs (non-highly compensated EEs)

Answer 19

Compares Non-highly compensated EEs vs Highly compensated EEs

Benefits, Rights and Features must be the SAME for highly vs. non-highly

Question 20

Bona-Fide Employees

Answer 20

Must be active, bona-fide employees

NO silent investors

Question 21

401 (k) Adoption Agreement

What is it?

Answer 21

Adoption Agreement or AA is the governing document for the 401(k) plan

Question 22

Fidelity Bond

Bond amount requirements?

Answer 22

Bond amount equal to 10 percent of plan assets, or $500,000, whichever is less

Question 23

Operating Company

Exceptions that are not allowed?

Answer 23

The investment of capital

factoring, investment advisors, venture capital firms, day trader

Question 24

Operating Company

IRS Red Flag Activities?

Answer 24

Could be a hobby or a business - Farming, horse breeding, car racing

Question 25

Non-Discrimination Against NHCEs (non-highly compensated EEs)

What is the reason for rules?

Answer 25

Highly compensated EEs don’t need Govt protection

Question 26

What is a Highly Compensated Employee?

Answer 26

Owns 5% or more of the company comp test (around 120K)

Question 27

401(k) Adoption Agreement

What is included?

Answer 27

Information on how the plan should be operated

Elections regarding eligibility, matching, vesting, loans, withdrawals, retirment age and more

Question 28

Is Guidant a fiduciary?

Answer 28

Guidant does not act in a fiduciary capacity for any of our customers

We take info. provided to us & make sure the plan remains compliant