When you establish a Rollover for Business Startup (ROBS) arrangement, you take on a role that most business owners have never held before: you become the trustee of your own company’s 401(k) plan. This role carries specific legal responsibilities under the Employee Retirement Income Security Act, better known as ERISA, and understanding those responsibilities is a critical part of operating a ROBS-funded business correctly shown to you by Business Funding Trust.
ERISA is the federal law that governs employer-sponsored retirement plans in the United States. It sets standards for plan operation, funding, and fiduciary conduct. As the plan trustee — which is typically the business owner in a ROBS arrangement — you are a fiduciary, meaning you have a legal duty to act in the best interest of the plan and its participants.
What You Need to Know
In practical terms, your fiduciary duties include acting prudently in all plan-related decisions, following the terms of the plan document, ensuring plan assets are used solely for the benefit of plan participants. This is simplified by having any employee contributions invested into standard mutual funds.
The employer stock exception is central to ROBS: ERISA generally requires retirement plan assets to be diversified, but there is an explicit exception that permits qualified retirement plans to invest in qualifying employer securities. ROBS is built on this exception.
One common area of concern is the dual role you occupy as both the business owner and the plan trustee. Many providers want to make it sound difficult to be compliant. That simply is not the case. Once the company is funded you can focus on running your business. The interaction with the plan at that point is through payroll contributions.
Working with a simplified plan and keeping contributions in normal mutual funds makes compliance quite easy.
Ready to Take the Next Step?
Ready to explore whether your 401(k) can fund your entrepreneurial dream? Contact Business Funding Trust today for a free consultation. Our specialists can walk you through your options, help you understand the process, and lead you to a successfully funded business.
