Glossary of ROBS Terms

This is usually the ROBS corporation as the plan sponsor. Not the same as the plan’s Third Party Administrator (TPA), which is the service provider who sold you the plan document and who does annual compliance testing and 5500 preparation for a fee. As the Plan Administrator, the ROBS corporation must monitor plan operations to ensure that the plan is run in accordance with the provisions of the plan document. The Administrator has fiduciary duties of care and loyalty and must ensure that the plan is maintained for the exclusive benefit of the participants and their beneficiaries. In this role, the ROBS corp is responsible to hire and monitor all plan service providers, including the TPA.

To adopt the plan is to sign the plan document. It is the legal act that makes the plan or amendment effective, as of the Effective Date stated in the document.

The signed part of the plan document, usually about 60-75 pages long, it contains all of the Employer’s elections for plan design, such as eligibility service requirements, the types of contributions to be made to the plan, the normal retirement age under the plan, the forms of distribution, etc. It goes with the Base Plan Document to form the entire plan document.

Two or more service entities related by some common ownership and/or a business relationship, as defined by Internal Revenue Code section 414; for retirement plan compliance purposes, all entities in an ASG are treated as a single employer.

Investments other than traditional 401(k) plan investments (such as mutual funds or other publicly traded securities); examples of alternative investments are real estate, qualifying employer securities (ROBS stock), and other private equity investments.

A thing of value owned by a person, a trust, an estate or a business entity. For example, your ROBS stock is an asset owned by the ROBS plan.

The lengthy part of the plan document (100-150 pages) that governs plan operations as dictated by IRS and DOL regulations, which may not be changed by the Employer who adopts the plan. With the Adoption Agreement, it forms the complete plan document.

The governing body of a corporation elected by the shareholders of the corporation. Actions taken by the Board to manage the corporation’s business (such as issuing corporate stock, redeeming stock, or selling the corporation’s assets) must be formally recorded in a written action with specific provisions. The Board elects officers to sign records and legal documents on behalf of the corporation; officers may include President, Treasurer, Secretary and Vice President.

A document recording the decision of the corporation's directors in matters of corporate governance, such as stock issuance, redemptions of stock, sale of the company, etc.

The money given to a corporation by an investor in exchange for ownership (such as stock, LLC membership units or a partnership interest). Capital is often used interchangeably with the term equity. The ROBS stock is the plan’s equity in the corporation.

Tax imposed on the increased value of an asset upon disposition, such as upon redemption or sale of stock.

Also called Employee Census - usually derived from payroll records, a list of all employees during a given plan year, showing their names, SSNs, date of hire, hours worked that year, annual compensation, status as terminated/not terminated, and date of termination (if any). The Census is used to test the plan annually as part of the Form 5500 compliance reporting. The TPA will require a ROBS company to upload the census via a secure internet portal.also called Employee Census - usually derived from payroll records, a list of all employees during a given plan year, showing their names, SSNs, date of hire, hours worked that year, annual compensation, status as terminated/not terminated, and date of termination (if any). The Census is used to test the plan annually as part of the Form 5500 compliance reporting. The TPA will require a ROBS company to upload the census via a secure internet portal.

Also called Share Class - a set of shares characterized by certain specified powers, pricing and other features, as authorized by the corporation’s board of directors under state law. Most ROBS plans have one class of stock, usually referred to as common stock, which has proportional voting power in corporate governance.

Also called Plan Contribution - the dollars paid into the retirement plan by a participant or by the employer, pursuant to the provisions of the plan document. There are annual limits on the amount of Contributions permitted, which are adjusted each year by the IRS. For example, the Contribution limit for an employee’s salary deferral contribution in 2024 is $23,000.

Two or related employers, as defined under IRC section 414(c), who are required to be treated like a single employer for employee plan purposes.

The individual members of the Board of Directors, elected by shareholders under state law, who are ultimately responsible for the management of the corporation. The directors have a fiduciary duty to the shareholders to run the corporation competently for the purpose of providing returns on the shareholders’ investments in the corporation. In a ROBS corporation, the corporate directors have separate fiduciary duties of care and loyalty to the retirement plan.

An entity created and granted authority under state law to conduct business; a for-profit corporation must issue stock to investor(s). State law requires certain initial formalities such as filing of articles of incorporation and election of directors and officers; further requirements are provided under state law. 

An annual compliance calculation, performed by the plan’s third-party administrator (TPA), using the employee census of the ROBS company; the test determines whether or not the plan benefits a sufficient number of rank-and-file employees as compared with company owners and highly compensated employees.

In plan jargon, this is the person or entity who safeguards plan assets. Also called a Fund Custodian. In a ROBS plan, the ROBS owner is usually the custodian of their ROBS stock, aka QES. A large financial institution such as Fidelity is the custodian of the non-ROBS stock assets of the plan, the mutual funds and other products in which a plan’s participants direct investment of their plan balance.

Money owed; an example of corporate debt is an SBA loan. Debt held by the ROBS corporation does not affect the corporation’s ownership.

Also called the Employee Benefits Security Administration of the DOL, or EBSA - the federal government agency charged with enforcing certain provisions of the Employee Retirement Income Security Act (ERISA). The main focus of the EBSA is to ensure that covered benefits are communicated correctly to employees and that ERISA plans (such as all ROBS plans) are operated fairly with regard to all eligible employees.

Also called Plan Distribution - the withdrawal from the plan of a participant’s plan assets, usually in the form of cash, in accordance with the terms of the plan document; such as upon termination of employment or termination of the plan, or when the plan participant has experienced a financial hardship.

With regard to the assets of a ROBS retirement plan, the DQPs include the plan sponsor and its employees, all individuals and entities that are plan trustees, fiduciaries and service providers, their employees, and the spouses, parents and children of any individuals who hold a position of control within any DQP entities. Also any entities in which a DQP holds a significant interest may also be a DQP, depending on facts and circumstances.

The sale or other disposal of an equity interest, such as stock held in a ROBS corporation. To de-ROBSify, a ROBS plan must divest itself of the qualifying employer securities (QES) held as plan assets. Examples of divestment are a redemption of the QES, or the distribution of the QES in-kind in a Net Unrealized Appreciation (NUA) transaction.

Cash earnings paid to shareholders by a corporation from net profits, as a return on the shareholders’ stock investment. In the case of a ROBS corporation, any dividends allocated to the plan are paid into the plan account of the ROBS participant.

Return on investment in stock or in any form of equity. Examples of investment earnings are dividends and redemption proceeds paid to the plan account of a ROBS participant. 

An agency of the Department of Labor that enforces the provisions of ERISA that govern the reporting requirements, employee communications and fiduciary duties involved in a non-governmental employee benefits plan.

A form of business enterprise identified under state or federal law and characterized by specific legal rights and characteristics. Examples of entities include LLCs, corporations, and trusts. 

The date by which a newly eligible employee must be permitted to enroll in the plan; the Entry Date follows the date the employee meets the plan’s age and service requirements for eligibility. The plan’s Adoption Agreement states this, and it varies, so check your AA. It could be the first day of the month or quarter following eligibility, or the first day of the plan year following, or even the first day of the next pay period following eligibility. 

Ownership of a for-profit entity. Examples include shares of stock and LLC membership units.

Employee Retirement Income Security Act of 1974, the foundational employee benefits law in the United States for non-governmental employers. ERISA governs nearly every aspect of plan creation, operations and termination. Many of ERISA’s provisions relate to the tax qualification of a retirement plan and certain other provisions describe the fiduciary duties and employee rights created by a retirement plan. 

ERISA’s fiduciary provisions and employee rights provisions are enforced by the Employee Benefits Security Administration of the Department of Labor; the tax qualification rules are elaborated and enforced by the Internal Revenue Service. Every ROBS plan is subject to ERISA. 

The informational return filed annually with the Department of Labor’s efast system, in which the Plan Sponsor certifies a large amount of required plan data for the year. It must accurately report employee information and plan financial data, among other things and is signed under penalty of perjury. It is available to the public. It must be filed by the end of the 7th month following the Plan Year End.

An individual or entity that controls assets for the benefit of certain third parties under the terms of a trust, with strict legal duties and bearing the ultimate responsibility for the maintenance and disposition of the trust. The ROBS plan is a trust, whose fiduciaries are the ROBS corporation as the Plan Administrator and the ROBS corporation’s directors as individual Plan Trustees. Corporate directors of a ROBS company are individually liable as fiduciaries. In any retirement plan, certain people and entities are co-fiduciaries with the corporation, usually the fund custodian of the traditional plan assets, and the registered investment advisor (RIA), whose service agreements describe and limit their fiduciary roles. Regardless of the presence of co-fiduciaries, the ROBS corporation has ultimate fiduciary liability for plan operations and compliance. 

An investor’s exchange of money for corporate shares (or other asset) for the purpose of financing the issuer, with the expectation that the issuer will reward the investor with a return on the investment.

One of the two federal agencies that enforces ERISA through examinations of retirement plans sponsored by employers.

Debt or other form of legal obligation.

The funds paid out by a corporation to all of its shareholders, pro rata, upon dissolution. It is the last act taken by a corporation, after winding down operations, collecting and liquidating all assets, and paying all expenses. For a ROBS owner, this is one method for their plan’s stock investment to be converted into cash.

Also called Board Minutes - a written record of the time, place and other relevant facts and decisions made during a formal meeting of the board of directors of a corporation or of a committee of the board. For example, minutes may record the establishment of a retirement plan, the authorization of a stock issuance, or the approval of a sale of the corporation to a buyer.

In a qualified retirement plan, a mathematical calculation comparing the benefits, rights and features provided to the non-highly compensated employees (NHCEs) compared with those provided to the highly compensated employees (HCEs).  Various nondiscrimination tests are required to be performed annually to ensure that the plan treats NHCEs fairly as compared with HCEs. The tests are performed by the plan’s third-party administrator (TPA), which in the case of a ROBS plan, may be the ROBS promoter such as Guidant, Benetrends or FranFund.

Federal and state tax imposed on wages, salaries and benefit distributions to an individual from tax qualified retirement plans under IRC section 72.

An individual who benefits under the terms of an employee benefit plan. In a ROBS plan, a participant is a current or former employee of the plan sponsor who has an account in the plan trust. The ROBS owner is a plan participant; other employees of the ROBS corporation are also likely eligible to become participants of the plan.

The formal document created by a third-party administrator (TPA) and adopted by an employer (the ROBS corporation) to describe the benefits, rights and features of a benefit arrangement for its employees. The retirement plan document form must be approved by the Internal Revenue Code. Virtually all ROBS plans are stated in pre-approved documents sold to them by their TPA, such as Leading Retirement Solutions, or by their ROBS promoter (Benetrends, Guidant, FranFund, et al.) Every TPA has its own form of plan document. The TPA is also responsible for providing the ROBS employer an updated pre-approved document to adopt, every 6 years. 

Defined in the plan document, the earnings that are used as the basis for plan purposes with regard to any given participant, such as, for example, W-2 wages.

Aka Fund custodian- the financial institution or other trustee hired by the Plan Administrator to keep plan assets safe. In a ROBS plan, the custodian of the employer stock held by the plan is the ROBS participant, who keeps the stock certificate and other stock records safe. The plan’s traditional assets are kept safe by the institutional trustee, such as Fidelity or Charles Schwab.

Maintenance of the transactional history of the plan’s receipts of contributions and investment earnings and of the plan’s distributions. The record keeper is usually the institutional trustee, for the h traditional assets;; for the QES, the record keeper is the ROBS corporation.

The last day of the plan year, chosen by the Plan Sponsor and stated in the plan document, usually on the first or second page of the Adoption Agreement. It is this date that determines the due date for the plan’s Form 5500 (7½ months after the PYE), and the date on which all plan assets, including the ROBS stock, aka QES, must be valued for 5500 reporting purposes. The PYE also may be used as a reference to determine service credits for eligibility for certain Employer Contributions to the plan.

A multiple employer plan administered by a Pooled Plan Provider (PPP) who sponsors the plan and in which a number of employers, including possibly a ROBS corporation, may participate. Compare this with the usual ROBS plan, which is a single employer plan sponsored by the ROBS corp.

An entity registered with the IRS to sponsor a specific kind of multiple employer plan called a Pooled Employer Plan (PEP). The PPP has extensive fiduciary duties to the PEP they sponsor, making the PPP an important co-fiduciary of the participating employers.

A form of ownership in a corporation with a claim to earnings on the stock; compared with common stock, preferred has a higher priority in receipt of corporate dividends, and usually has no voting rights.

The investment product, chosen by the plan, in which participant accounts are automatically invested whenever participants fail to select affirmative investments for their accounts. Usually a target date fund or similar product, the QDIA is an important plan feature and should be selected by the Plan Administrator in consultation with the plan’s Registered Investment Advisor (RIA).

Term defined under the Internal Revenue code, referring to the stock held by a qualified retirement plan in the corporation that sponsors the plan.

The entity that maintains the financial records of the plan trust, which holds the traditional investments of the plan, that is, the funds that are invested in publicly traded securities (the plan assets other than the ROBS stock). Usually the recordkeeper is the same as the plan’s investment custodian and institutional trustee, such as Fidelity, Schwab, American Funds, etc.

Action performed by a corporation to purchase stock from a shareholder in exchange for cash.

The transaction by which a corporation repurchases its stock back from a shareholder in exchange for cash.

An individual or entity accredited and licensed to assist an investor (the ROBS corporation as Plan Administrator) in selecting the menu of available investments options from which the plan’s participants may choose when directing the investment of their plan accounts. In a ROBS plan, an RIA is needed to assist in the curation of the plan’s list of traditional plan investment options, particularly the qualified default investment alternative (QDIA). 

Common term for a defined contribution retirement plan intended to comply with IRC Section 401(a) that invests in qualifying employer securities of the corporation that sponsors the plan pursuant to ERISA section 408(e).

A contract between/among shareholders of a privately held corporation in which the rights of each shareholder, and of the corporation itself, are described in the event that certain specified circumstances arise. For example, in the event a shareholder desires to divest itself of stock, the shareholder agreement might provide that the corporation has the exclusive right to buy the stock back from the shareholder.

Units of equity ownership in a corporation purchased by an investor, as recorded in the corporation’s stock ledger; instances of a given share issuance may be memorialized in numbered and dated certificates issued to the shareholder by the corporation; a shareholder subscription agreement is also evidence of share ownership.

Also Plan Sponsor - the entity that establishes and administers a qualified retirement plan as a benefit for its employees. The Sponsor of a ROBS plan is the ROBS corporation. 

Equity ownership in a corporation.

A document evidencing ownership in a corporation, issued by the corporation in which the number of shares, date of issuance and title of owner are stated.

A chronological list of the financial transactions dealing with the equity ownership (the stock) of a corporation.

A transaction in which all of the ownership of a corporation is transferred by a shareholder to a different person or entity in exchange for something of value, usually cash.

A two-way guarantee between a corporation and a new shareholder (subscriber), in which the corporation agrees to sell a certain number of shares at a specific price and, in return, the subscriber promises to buy the shares at that price.

A short version of the plan document, written in plain English, that must be given to all employees of the company to inform them that the plan exists, who’s eligible to participate, and the benefits provided under the plan.

The professional entity that maintains the form of the IRS-approved plan document for the ROBS corp, conducts annual compliance tasks in accordance with the plan document, and prepares the Form 5500 informational return for the plan. The TPA is hired by the ROBS corp and their role is described by the service agreement between the TPA and the ROBS corp. The ROBS corp has a duty to monitor the fees and performance of the TPA to ensure that the plan document is kept up to date and that the plan is operated in accordance with the terms of the plan document.

The publicly traded assets of the ROBS plan that are held by the plan accounts of participants whose accounts have received salary deferral contributions and/or employer profit sharing contributions; examples of traditional investments are mutual funds and target date funds.

A corpus of assets held for the benefit of participants and beneficiaries that have accounts in an employee retirement plan qualified under Section 401 of the Internal Revenue Code; a retirement plan trust is a distinct legal entity from the employer that sponsors the plan; it must be established by a written agreement between the plan sponsor and the trustee(s).

An individual or institution that accepts, safeguards and manages the assets of a Plan Trust for the exclusive benefit of the participants and beneficiaries that have accounts in an employee retirement plan qualified under Sec. 401 of the Internal Revenue Code. In a ROBS plan, the ROBS owner is usually the Individual Trustee of the qualifying employer securities (QES), aka “the ROBS stock” owned by their plan account.