Managing Your ROBS Plan: A Quick Guide to Managing Plans Containing Qualified Employer Securities

Welcome! You now sponsor and manage a Retirement Plan. This guide will highlight some of the primary responsibilities you will have in managing your Retirement Plan. There are many responsibilities that come with sponsoring and managing a Retirement Plan and the Leading Retirement Solutions Team is here to help you. We would like to familiarize you with these responsibilities and requirements to help you manage your new Retirement Plan, and to make sure your Plan remains in compliance with Internal Revenue Service (IRS) and Department of Labor (DOL) regulations.

  1. Helpful Information Curated for QES Plans.
    1. 401(k) Plan Sponsor Responsibilities – A Quick Overview of Best Practices and Commonly Asked Questions
      1. Plan Sponsor is Ultimately Responsible for The Plan 
      2. Utilization of Investment Funds
      3. Setting Up Other Retirement Plans and Implications of Doing So
      4. Using Funds from One Corporation to Invest in Another Corporation
      5. Owner’s Opportunity to Invest into Plan Before Employees
      6. Know Your Enrollment and Payroll Dates, Especially if You Have Employees 
      7. Distributing Necessary Forms to Employees 
      8. Required Year End Forms and Actions
        1. Employee Census and Summary
        2. Internal Revenue Service Form 5500
        3. Internal Revenue Service Form 1120
      9. ERISA Bond Requirement
    2. Employees, Owners as Employees Information for QES Plans
    3. Need Additional Business Financing / Investing More Money into the Corporation
    4. Let’s Talk Investing: You Have Additional Monies in the 401(k) Plan
    5. Reducing Your Taxes with Your Retirement Plan

Welcome to Your New Retirement Plan

  1.  Helpful Information Curated for QES Plans. 
    1. QES 401(k) Plan Sponsor Responsibilities – A Quick Overview of Best Practices and Commonly Asked Questions
      1. The Plan sponsor is ultimately responsible for all aspects of the Plan. The Plan sponsor must ensure the Plan remains in compliance with federal regulations. The Plan sponsor is responsible for making sure that all deadlines are met, notices are distributed, and year end forms are filed. Please see the Plan Requirements’ and the Employees, Owners as Employees’ sections of this guide for more information about these requirements.
      2. Utilization of Investment Funds: To ensure that your 401(k) Plan remains in compliance with IRS and DOL regulations you must use the funds in a way that is compliant with federal regulations. Because the 401(k) Plan is an owner/shareholder of the sponsoring company (its own entity), the utilization of funds within the Plan are subject to federal regulations. If you are unsure about what does or does not constitute a prohibited transaction, please contact an ERISA attorney. If you need assistance with finding an ERISA attorney or guidance on what constitutes a prohibited transaction, please contact LRS for assistance.
      3. Avoid setting up another retirement plan with another service provider without contacting LRS beforehand, as this may affect your 401(k) Plan. Please contact LRS if you are considering setting up another retirement plan so we can inform you about how the two Plans will affect one another and compliance with federal regulations. There are federal regulations in place that require equal benefit offerings between the two plans.
      4.  If you use funds from the Corporation sponsoring the retirement plan to invest into or to buy another corporation, then the 401(k) Plan may have to be offered to all eligible employees of both corporations. Please contact LRS to perform a Control group review.  
      5. If the owner of the company is the only person eligible to participate in the Plan, then said owner has the opportunity to invest without the restrictions due to non-participating employees. The owner can contribute as much as they like (up to the annual contribution limits) without being capped by employee contributions.
      6. It is the Plan Sponsor’s responsibility to know your enrollment dates and payroll dates, these dates are especially important if you have employees. You can find this information on your Plan Administration Web Portal under the ‘Participant Highlights’ and in your Plan’s ‘Summary Plan Description’ within the ‘Eligibility’ section under ‘Employee Deferral Contributions, Safe Harbor Contributions and Non-Elective Contributions’.
      7. It is the Plan Sponsor’s responsibility to distribute the necessary notices to employees and plan participants. Please refer to the section You Hired Employees, Now What?’ for more information about the required distribution of notices.
      8. Required Year End Forms and Actions
        1.  It is very important that you fill out an employee census and summary for LRS. We use this information to complete IRS Form 5500 for your Plan. All employees should be listed on the census whether they are participating in the Plan or not.
        2. Your 401(k) Plan is a trust that is registered with the IRS as an entity under tax law. It is required that you file Form 5500 with the IRS and DOL every year. LRS completes your Form 5500 for you, however, to do this accurately we must receive an employee census and summary. It is then your responsibility to file Form 5500 with DOL. Please refer to the Plan Requirements section of this guide for more information.
        3. Internal Revenue Service Form 1120:
          • IRS Form 1120 (corporate income tax return) is required for your Corporation – You, the client, are responsible for filing a tax return each year with the IRS on behalf of your corporation.
          • If you need assistance finding a bookkeeper and/or CPA in your area, just ask!
          • C-Corp: It is very important that a tax professional understands who the owners of your Corporation are, and that the Corporation must retain its C-Corporation status.
          • Refer to: FAQS for the ROBS (Rollovers as a Business Startup) for more information.
      9. ERISA Bond is required once you have employees who are eligible for the 401(k) Plan.
    2. Employees, Owners as Employees Information for QES Plans
      1. Owners as Employees: What Owners (Stock Investors) Need to Know About Their Status as an Employee:
        • The owner must still meet eligibility requirements to participate in the Retirement Plan.
        • In order to qualify to participate in a company retirement plan, roll retirement monies into that plan, and invest those monies into your Corporation, an owner must be a bona fide employee of the company sponsoring the Retirement Plan you are utilizing for your business financing strategy.
        • Your contributions to the Plan must be through a payroll deduction after you begin taking compensation (a paycheck).  
      2. Tracking Your Work: For Leading Retirement Solutions to establish you were/are a bona fide employee of the Corporation you should track the hours that you work. This can be done by:
        • Time tracking software.
        • Excel spreadsheet
        • You can track by the day; you don’t have to track by the hour.
      3. Compensation as an Owner:
        • Business owners don’t always take compensation initially, or they may take compensation from the Corporation at irregular intervals. This is okay. Your Corporation should generate revenues sufficient to support any compensation you take.
        • You must understand how you are being paid:
        • If your accountant tells you to take a “draw” that suggests your accountant plans on reporting your Corporation as an “S-Corporation” which is not allowed by Internal Revenue Service regulations for the strategy you engaged in. Only apply to QES?
        • If you take a “dividend” from the Corporation, all owners of the Corporation must also receive their rightful share of the dividend. Remember, the 401(k) Plan is an owner of the Corporation and must receive a share of the dividend.
        • You need to take compensation as a W-2 employee to participate in the 401(k).
    3. Need Additional Business Financing or Plan on Investing More Money into the Corporation? 
      • There are a number of traditional and non-traditional business financing options that may be available to you if your business needs additional capital.
      • If you need additional 401(k) monies invested in the company or if you intend to bring additional investors into the company and/or intend to invest more monies into the Company, additional requirements are necessary that are specific to the Qualified Employer Securities (QES) strategy you engaged in.
      • One of the key legal requirements related to engaging in a QES transaction is that the stock purchased by the 401(k) Plan, in both the initial and any and all subsequent stock purchases must be purchased for “adequate consideration” as defined, in part by ERISA § 408(e)(1).
      • You can invest additional funds into the company; however, it is important that you contact Leading Retirement Solutions prior to investing any additional funds into the company so that we can provide you with information about additional requirements.
    4. Let’s Talk Investing: You Have Additional Monies in the 401(k) Plan: 
      • If your money is currently sitting in a cash state, earning no interest, asking us to invest your money in a money market fund would generate even a little bit of return, mutual funds, even more.
      • It can be helpful, in the event of an audit by the Department of Labor or IRS, for them to see that you are accessing not only non-traditional investments (private stock) but also more traditional investment offerings, like mutual funds.
      • Once investment options are made available, the plan is ready to receive further rollovers of your own outside investment accounts as well as employee’s rollovers when hired and contributions when eligible to participate.  This is an excellent hiring tool.
      • Your qualified 401k plan offers a higher level of legal protection for your retirement accounts than do IRA’s.  Bankruptcy and other litigation cannot attach Pension benefits and 401(k) accounts.
      • You have access to investment professionals who will advise on investing and retirement planning.
    5.  Reducing Your Taxes with Your Retirement Plan: There are a few possible ways to utilize tax breaks for businesses and business owners with a Retirement Plan. Some of these include: 
      1. Tax Credits: Tax credits are available to a company for retirement plan startup costs. 
        • You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a 401(k), 403(b) or other qualified retirement plan. 
        • You will find that tax credits reduce the amount your company owes to the IRS, dollar for dollar. A tax credit for retirement plan startup costs (the first 3 years your company sponsors a plan) is available to most companies. 
        • Talk to your accountant to determine what tax credits are available to your company. Tax credits have the reputation for yielding the better results because of how they directly impact how much you owe. 
      2. Tax Deductions through employer/company made contributions can reduce a company’s taxable revenue. 
        • Tax Deductions work differently as they reduce the company’s taxable revenue for the year. 
        • Tax Deductions are generally available to a company for most, if not all retirement plan related expenses that are paid by a company, including annual plan administration expenses, large plan audit expenses, ERISA bond expenses and much more. 
      3. Owner Contributions: Company owners can reduce their own taxable income through contributions into their Plan.
      4. Roth contributions made to a 401(k) or 403(b) Plan result in tax free earnings. 
      5. Retirement savings contributions credit – see IRS Form 8880, Credit for Qualified Retirement Savings Contributions.
      6. Once your company approaches profitability, let us know so we can talk tax strategy with you.
      7. For more information on this topic please visit: 

Leading Retirement Solutions

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  (800) 974-2814 (toll free)


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