ROBS Audits – DOL | Frank Selden Law

ROBS Audits – DOL

The purpose of a DOL audit is not to rehash past mistakes but to look at past events with a view toward improving future performance.  Findings from an audit can be used as a basis for adjusting policies, priorities, structure, or procedures in order to make operations as efficient, economical, and effective as possible. We also know exactly what the DOL looks for in an audit and essentially eliminate audit issues by the way our concept is designed.

There are two ways a ROBS setup can be audited: a DOL audit or an IRS audit. This post is about DOL audits. Click here for my blog post about an IRS audit. The best DOL webpage about their audit process is DOL audits.

The federal Department of Labor (DOL) enforces 401K plan employment rules. If you are the only employee of your corporation, this is not a major issue, although the rules do not contain an exemption based on single-member companies.  401K plans benefit all the employees of the Corporation that sponsored the Plan. Your become eligible based on your employment, not because you are a shareholder, director or officer of your company. All eligible employees must be offered the opportunity to invest in the company retirement plan.

ROBS DOL Audit Issue – Eligible Employees

Your 401K plan defines who is and who is not eligible to participate in your 401K plan. The plan might distinguish between an employee who is eligible to “participate” in the plan versus one who is eligible to transfer qualified funds into the plan. Participation is the ability to defer part of one’s salary into the plan. A typical definition for eligibility to participate is “any employee who works 1,000 hours in a 12 month period of time.” Eligibility to “transfer” often starts immediately for all employees, which allows you to transfer your funds into the plan immediately.

You make the 401K plan available to all employees who qualify according to the terms of the plan and do not make it available to people who do not qualify.

ROBS DOL Audit Issues – Investments

A 401K plan must contain a minimum number of investment choices. Many ROBS promoters do not set up their plans with investment choices other than the corporate stock. Sure, the plan documents allow for other investments, but, operationally, their setup functionally offers no other investments. The promoters leave it to the clients to set up such opportunities. Good luck with that. Under the new DOL fiduciary guidelines about to become mandatory, you will find that many investment companies are not interested in opening an account for a 401K plan they did not create. Yes, we have a solution for this, but I am not going to write about that here.

Must the corporation offer its company stock indefinitely? No. The corporation may limit the stock to a “reasonable” time frame.

ROBS DOL Audit Issues –Top Issues

The top DOL Plan audit issues :

  • Your plan design meets the minimum requirements for a qualified 401K plan.
  • Complete required annual filings, such as the 5500, in a timely manner.
  • All required notices are provided to employees in a timely manner.
  • You follow the plan, as written, for all concerned.

If you want a ROBS arrangement set up properly from the start, click on this link to schedule a phone consult (green button) or download our e-book.

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