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Glossary

TPA

Wage Deferral Contribution

Once eligible, an employee may choose to make a pre-tax contribution from their salary/wages to the 401(k). This is simply dollars that are removed from the employee’s paycheck on a pre-tax basis and deposited into their 401(k) account. These contributions are 100% vested.

Glossary

TPA

Profit Sharing Contribution

An employer may make a profit sharing contribution to the retirement plan on behalf of an eligible employee without the employee having to defer at all. Typically, Profit Sharing contributions are subject to vesting as outlined in the Plan Document. Profit Sharing Contributions are always at the employer's discretion.

Glossary

TPA

Employer Match

An employer may decide to make a contribution on behalf of their eligible employees that are deferring their own money to the 401(k). This type of contribution, if made, is limited to a certain percentage of salary, may have other restrictions, and is subject to vesting as outlined in the Plan Document.

Glossary

TPA

Participant Loan

Your plan may allow participants to borrow against their 401(k) Plan account balance. The IRS guidelines for participant loans are:
  • The term of the loan cannot exceed more than 5 years
  • You must charge a reasonable interest rate
  • You must make loan payments at least quarterly
  • You are limited to borrowing the lesser of $50,000 or one-half of your vested account balance
If a participant defaults on the loan, the entire unpaid balance becomes a taxable distribution.

Glossary

TPA

Participant Eligibility

Eligibility is defined in the Retirement Plan document. The plan sponsor determines eligibility, within statutory limits. A 401(k) Profit Sharing plan may not require more than one year of service for eligibility purposes or more than 1,000 hours of service during a 12-month period for purposes of determining 1-year of service.

Glossary

TPA

Enrollment

Employees must be introduced to the plan when they become eligible. This process of introducing newly eligible employees to the 401(k) is referred to as enrollment. The employer is required to provide the following documents if an employee is eligible:
  • A copy of the most recent Summary Plan Description
  • Wage Deferral Agreement
  • Beneficiary Designation

Glossary

TPA

Top Heavy

A retirement plan is deemed Top Heavy if more than 60% of the plan’s assets are attributable to Key Employees. The calculation in determining this ratio is made on the last day of the immediately preceding plan year.

Glossary

TPA

Key Employee Classifications

An employee who at any time during the current plan year fits into any of the following classifications, is considered to be a Key Employee:
  • Officers earning more than $170,000 annually
  • Any employee owning more than 5% of the company (The IRS attributes ownership of stock owned by the employee and his or her spouse, parents, children or grandchildren)
  • Any employee owning more than 1% and earning over $150,000 annually (not indexed)

Glossary

TPA

Highly Compensated Employee

Includes all employees who own more than 5% of the company during the prior or current year, as well as certain family members of those 5% owners. In addition, employees who earned more than $120,000 during the preceding year (indexed annually) are also considered Highly Compensated Employees.

Glossary

TPA

Retirement Plan Distributions

Generally, the retirement plan is put in place for long term savings. However, there are a few reasons in which you would request a distribution of your Retirement Funds prior to actual retirement. We have listed a few:
  • Hardship Distribution
  • Participant Loan
  • In-service Distribution
  • Termination Distribution

FAQS

TPA

Is my accountant able to perform the Third Party Administration requirements?

Maybe. A few accounting firms also offer TPA services, but you will want to confirm they understand that your plan is a ROBS plan. We have found that not all TPA’s will administer a ROBS plan. In addition, make sure your accountant understands the scope of the services required. Plan Administration is more than just filing the annual Form 5500; it entails keeping your plan document in compliance with changes in the law as well as tracking plan activity such as participant loans, distributions, contributions, etc. They also would be responsible for preparing the Form 5500 and Form 1099-R.

FAQS

TPA

Can my plan make another investment after the initial stock issuance?

Yes, but because the IRS requires that anytime that shares are bought or sold this must be done at current market value, you will need a third-party valuation. For more information, see the “Making a Second Investment In Your Plan

FAQS

TPA

What happens to the 401(k) Plan if I sell my company?

This situation does not differ from any standard sale.  The only thing you must remember is that your 401(k) Plan will be a shareholder of the company.  When it comes to distributing proceeds from the sale to shareholders, the cash must be deposited back into the 401(k) Plan. For more information, see “Closing a Plan

FAQS

TPA

How do I change my billing method?

Email the changes to billing@franfund.com or complete the following form and then mail it in to:

FranFund
505 Main Street, Suite 200
Fort Worth, Texas 76102
Download Billing Change Form

FAQS

TPA

What are the timing requirements for deposits of 401(k) deferrals?

The Internal Revenue Service regulations require participant contributions to a 401(k) plan be deposited to the plan on the earliest date they can be reasonably segregated from the employer’s general assets, but in no event later than the 15th business day of the month. However, this does not mean an employer can routinely wait until the 15th business day to deposit the funds, as the 15th business day is not a safe harbor.  The general rule is that the deferrals be deposited as soon as is reasonably possible after payday.

FAQS

TPA

What is the Form 5500?

An annual report of an Employee Benefit Plan is required to be filed with the Department of Labor and the Internal Revenue Service on annual basis.  The purpose of the filing is to report all activity for the plan year, such as distributions, contributions, income and fees.

FAQS

TPA

Who completes my Form 5500?

FranFund, Inc. will complete the 5500 and any necessary schedules for review based on information provided by the Plan Sponsor.

Glossary

Lending

Working Capital

Additional funds that may be used for any legitimate business expense.

Glossary

Lending

Total Project Cost

Includes the personal equity injection plus the additional funding needed to equal the capital required.

Glossary

Lending

Capital Required

This is the initial investment or required amount of investment necessary to conduct the business.

Glossary

Lending

Business Plan

This document details the objectives for the business and establishes processes and measures for meeting those objectives. This will include information about the history of the franchisor, your proposed business, the management experience of the owner(s) and an understanding of the marketplace.

Glossary

Lending

Start-Up Costs

Also called the initial investment, this is the total estimated cost for establishing the business, including the franchise fee, initial fixed assets, leasehold improvements, inventory, deposits, other fees and costs, and the working capital needed during the initial start-up period (first three months). It is also known as an Item 7 disclosure and can be found in the FDD.

Glossary

Lending

Franchise Disclosure Document (FDD)

This legal document is required by the U.S. Federal Trade Commission to be provided to prospective franchisees by franchisors. FDDs are updated annually and consist of 23 sections called items, which explain the company history, the fees and costs, contractual obligations, unit data and more. Don't make a move without reviewing it!

Glossary

Funding

Equity Funding

This is the cash injection made into a new business enterprise by the owner(s). Every business purchase requires some type of cash injection. There is no such thing as a "no money down" deal in franchising. In fact, most franchisors require a minimum investment from a new franchisee. Many people have the majority of their net worth tied up in their retirement accounts and homes, which can present a problem when trying to capitalize a business. If during your consultation with a FranFund financial consultant it is determined that utilizing retirement funds is a viable alternative for you, FranFund will assist you through the FranPlan.

Glossary

Funding

Debt Funding

The new business or franchise owner borrows money to capitalize the new enterprise. Debt can consist of an SBA or conventional loan, a line of credit or a home equity loan.

FAQS

Lending

What does FranFund charge?

FranFund offers our initial consulting services at no charge. Once a capitalization solution has been identified, and you engage us as your funding partner, FranFund charges a fee on a per product basis.

FAQS

Lending

What do lenders consider when reviewing your loan application?

Your FranFund financial consultant will work with you to develop a well-articulated, complete loan request package that addresses the key points lenders require. These key points are based on the 5C’s of Credit – Character, Capacity, Capital, Collateral and Conditions. To learn more about the 5C’s of Credit, give us a call at 877-FRANFUND.

FAQS

Funding

Is the FranPlan rollover process legal?

Yes, this funding option has been in use for many years and is governed by the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code of 1986 (IRC). You can count on our experts to make sure that your funding stays in compliance with all regulations.

FAQS

Funding

How does the FranPlan work?

The FranPlan is a proven capitalization solution that allows you to use an existing retirement account to fund your new business with no debt, no taxes and no penalties. And with our exclusive Safety Net Program, you can start the FranPlan business funding process risk and cost free.

FAQS

Funding

How long does the funding process take?

Many factors can affect funding time such as the source of funds and the scope of the project. For example, utilizing the FranPlan could get you funded in less than 15 business days, while a business loan may take up to several weeks. Your FranFund consultant will work with you to determine a timeline once you agree upon a capitalization strategy.

FAQS

Funding

How do I know which funding solution is right for me?

That’s where the FranFund team comes in. Your dedicated financial consultant will work with you to understand your financial needs and business goals, then identify and customize the best capitalization strategy to get you where you want to go.

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