IRS Memorandum AM 2019-002 highlights the importance of executing retirement plan documents for ROBS 401k plans and self-directed solo 401k plans as well as using the plan services of a solo 401k plan document or ROBS 401k Plan document provider that will also act as the plan document record-keeper.
Here is a quick summary of items found in the IRS Memorandum:
- A plan is considered adopted only if proof of adoption of the plan is provided. A validly executed plan document should be retained and upon audit given to the exam agent to support the qualified status of the plan. Upon failure to produce an executed plan, the employer has the burden to prove that it executed a plan document as required.
- In order for a qualified plan to be validly adopted, the plan document needs to be signed by the employer or someone authorized to by the employer to sign the document.
- A signed copy of the plan document needs to be retained by the employer or its authorized agents. Section 6001 requires that “Every person liable for any tax imposed by this Title, of for the collection thereof, shall keep such records, render such statements, make such returns and comply with such rules and regulations as the Secretary may from time to time prescribe.”
With so many solo 401k providers and ROBS 401k providers constantly propping up and folding after being in business for often less than a year or closing its doors after 3 years, it can be tough to ensure your plan does not fall out of compliance either because the original plan documents were not properly executed or the 401k plan provider never had you execute the required plan amendments. As the above IRS Memorandum details, IRS agents will not hesitate to deem the plan disqualified if signed plan documents and amendments are not provided when requested. To that end, make sure to retain signed copies of plan documents and that your plan provider does not leave you holding an empty binder.