Administrative Fees of the ROBS Plan Will Save You Money by Avoiding Expensive Compliance Failures

Tempted to Get Rid of your TPA? You Can’t Afford It.

Every business wants to reduce costs. What are you even paying your ROBS provider (or Third-Party Administrator, TPA) for, after the start-up? Have you ever been tempted to just fire them and save that monthly expense tied to your ROBS plan?

Let’s take a look at the services you get for your monthly administrative fees.

What Do the Fees Pay For in a ROBS Plan?

Third-Party Administrator (TPA) Services: 

• Annual Form 5500 Preparation. The company provides the data and signs the 5500, but the TPA does a boatload of compliance tasks to populate the compliance results in the Form. You need their software to complete the myriad calculations with your data. 

• Penalty for failure to file: $2,670 per day!

• Employee Communications Material. You must provide your employees a number of notices and statements regularly. Your TPA provides you the content of these communications. 

• Penalties for failure to furnish required notices vary, depending on the notice. 

• Plan document updates. Every 6 years, the plan document must be updated to comply with changes to the tax law. In between these 6-year restatements, there are usually interim updates, called Required Interim Amendments. Your TPA prepares these for you.

• Failure to update the plan document: your plan becomes disqualified, losing its tax benefits. Correction is available but it is expensive. 

There are many TPAs in the market, so changing TPAs is always an option. But DO NOT dispose of a TPA altogether. 

How Much Should You Expect to Pay Your TPA?

The fees associated with a ROBS plan vary depending on your provider and investment choices. Here’s a rough breakdown to give you an idea:

• ROBS Provider Fees: Typically range from $100-$200 per month for compliance upkeep. 

• Third-Party Administrator Costs: Can range from $1,000 to $3,000 annually, depending on the complexity of your plan. 

• Investment Management Fees: Often calculated as a percentage of your assets under management, averaging around 0.5% to 1%. 

By understanding these ranges, you can compare your current expenses with what’s considered standard across the industry.

Are Third-Party Administrators Worth the Cost?

Hiring a third-party administrator often feels like an additional expense, but they play an essential role in keeping your ROBS plan compliant with IRS regulations. Without them, you cannot file your mandatory Form 5500; if you tried to do it yourself, you’d make costly mistakes. 

How Can You Optimize Investment Management Costs?

Investment management expenses are a significant component of ROBS fees. To reduce these costs, consider:

• Low-Cost Funds: Opt for index funds or ETFs with lower expense ratios compared to actively managed funds. 

• DIY Management: If you have investment experience, managing your portfolio can eliminate advisory fees entirely. 

• Periodic Reviews: Regularly review your portfolio’s performance and make adjustments to minimize fees without sacrificing returns.

Small tweaks to your investment strategy can significantly increase your long-term savings. 

Should You Conduct Annual Fee Reviews? 

Conducting an annual fee review of your ROBS plan helps ensure you’re not paying for unnecessary services or overcharged expenses. During this review:

• Compare provider fees with others in the industry. 

• Assess whether your TPA still delivers value. 

• Evaluate the investment expenses for your chosen funds. 

Annual reviews act as a preventive measure, allowing you to correct any inefficiencies before they snowball into bigger issues. 

Why Running Your Plan Well Matters for Your Bottom Line

Every dollar spent on fees is a dollar that doesn’t contribute to your retirement or business growth. By proactively managing your costs, you:

• Maximize retirement savings. 

• Enhance cash flow for reinvestment in your business. 

• Better position yourself for long-term financial stability. 

Cost control is not just about reducing overhead; it’s about making smarter decisions that align with your financial goals.

Want to Take Control of Your ROBS Plan Costs?

Investment fees in ROBS plans can seem overwhelming, but they don’t have to. With the right strategies, you can significantly cut costs and improve your ROI. At ROBSresource.com, we break down complicated financial processes into bite-sized actionable advice. Subscribe for just $20/month to access expert tips, negotiating strategies, and a complete breakdown of the rules to get the most out of your ROBS plan.