Can the ROBS Plan Loan Money to the Company?

The IRS ROBS description is specific: rollover assets enter a qualified plan, and the plan purchases stock of the new C corporation. The corporation receives capital because it sold stock to the plan. The plan receives employer securities. That is not a note, receivable, line of credit or guarantee from the corporation.^[S1][S5][S8]

A plan loan to the sponsoring company changes the legal question. ERISA section 406 bars a fiduciary from causing the plan to lend money or extend credit to a party in interest and also bars transfers or use of plan assets for a party in interest. Code section 4975 uses a parallel disqualified-person excise-tax framework.^{[S2][S4][S11]} Because the sponsor and owner-related entities commonly fall inside those definitions, the default answer is stop and obtain ERISA and tax review before treating plan credit to the company as available.

The same dollar can be described as capital, a loan, a draw, a bridge, a receivable or a rescue payment. The label is not enough. The payor, recipient, asset type, consideration and signer capacity decide the lane.

ERISA section 406(a)(1)(B) addresses lending of money or other extension of credit between the plan and a party in interest. Section 406(a)(1)(D) addresses transfer to, or use by or for the benefit of, a party in interest of plan assets. Section 406(b) separately addresses fiduciary self-dealing and conflicts.^{[S2][S4][S14]}

Code section 4975 applies excise-tax rules to prohibited transactions involving disqualified persons, including lending of money or other extension of credit and use of plan income or assets. It also defines correction as undoing the transaction to the extent possible and placing the plan in a financial position not worse than if the disqualified person had acted under the highest fiduciary standards.^[S11]

ERISA section 408 and Code section 4975 contain exemptions, but the exemption must match the transaction. The participant-loan exemption does not authorize employer borrowing because it is for loans to participants or beneficiaries under plan terms and nondiscriminatory conditions.^{[S6][S7][S12][S13]} The employer-security exemption addresses acquisition or sale of qualifying employer securities for adequate consideration and no commission, not a company note.^{[S6][S8][S11]}

An eligible individual account plan can have a special employer-security lane. ERISA definitions cover eligible individual account plans, employer securities, qualifying employer securities and adequate consideration. For an asset without a generally recognized market, adequate consideration means fair market value determined in good faith by the trustee or named fiduciary under plan terms and DOL regulations.^[S2][S5][S8]

That stock lane still needs fiduciary process. The fiduciary file should show valuation inputs, conflicts, why the investment fits the plan, how diversification duties were considered, no commission on the exempt stock transaction, and plan-document authority. A valuation report or provider workflow does not by itself eliminate loyalty, prudence, sole-benefit and plan-document duties.^{[S3][S8][S9][S14]}

A ROBS plan is not the corporation treasury account. Fiduciaries must act for participants and beneficiaries and for defraying reasonable plan expenses, follow prudent process, diversify unless the statute and facts support otherwise, and follow plan documents only where consistent with ERISA.^{[S3][S10][S14]}

When a struggling company asks the plan for cash, the participant-loan exemption conditions point to written plan provisions, equivalent availability, nondiscrimination, reasonable interest and adequate security for participant loans, not employer-borrowing approval.^{[S6][S7][S12][S13]} Separately, fiduciary duties require arm's-length credit terms, current valuation support, conflict-controlled approval and a prudent decision a fiduciary could accept from an unrelated borrower.^{[S3][S4][S9][S14]} Employer-stock rules do not turn every business rescue into a fiduciary investment.^[S5][S8]

Use this sequence as a screening map. It is not a safe harbor, approval checklist or substitute for plan counsel.

1. Identify the asset source: plan trust cash, plan-held stock, dividends owed to the plan, corporate cash, personal cash or third-party lender money.
2. If the plan is receiving employer stock for cash, analyze qualifying employer security, eligible individual account plan status, adequate consideration, no commission, valuation support and fiduciary process.
3. If the plan is lending cash or extending credit to the sponsoring corporation, stop before funding and run ERISA section 406 and Code section 4975 party-in-interest and disqualified-person analysis.
4. If the plan is lending to a participant, verify written plan loan provisions, equivalent availability, nondiscrimination, reasonable interest, adequate security, section 72(p) limits and amortization.
5. If someone proposes an exemption, require exact citation, conditions, documents, valuation evidence, signer capacity and counsel review before treating it as available.
6. If money already moved, preserve records, calculate what changed hands, stop informal repayments or relabeling, and evaluate excise tax, Form 5500 reporting, EPCRS, VFCP and plan qualification risk with counsel.

These examples are simplified screening illustrations. They do not resolve valuation, fiduciary status, exemption availability, excise tax, reporting, securities, corporate-law or plan-document issues.

Stop and escalate before funds, guarantees, collateral, dividends, receivables or plan-held shares are used when any condition appears.

• The payor is the plan trust and the borrower is the sponsoring corporation or an entity controlled by the owner.
• The memo says participant-loan exemption but the borrower, recipient or guarantor is the company.
• The plan receives a note, receivable, warrant, guarantee or informal promise instead of qualifying employer securities valued for adequate consideration.
• The valuation equals the cash the company wants without independent fair-market-value support and fiduciary minutes.
• Plan assets, dividends payable to the plan, redemption proceeds, participant contributions or employer securities are being used to support business cash flow.
• The same person signs for the plan, corporation and borrower without a written conflict, fiduciary and corporate-capacity record.
• An error has already occurred and the proposed fix is to backdate documents, relabel the transaction or keep it off Form 5500.

If a plan-to-company loan already occurred, avoid casual recharacterization. The file should identify the amount transferred, interest, repayment history, collateral, approval capacity, plan accounts affected, corporate books, valuation changes and participant impact. Code section 4975 excise tax and correction analysis may be separate from ERISA fiduciary correction and plan qualification review.^{[S11][S15][S16]}

Correction paths are fact-bound. EPCRS is an IRS qualified-plan correction lane. DOL's VFCP is a fiduciary correction lane for eligible transactions. Form 5500 reporting can be implicated when plan assets, employer securities, receivables or prohibited transactions are involved. None of these paths guarantees that a ROBS employer loan can be fixed by paperwork alone.^{[S15][S16][S17]}

If the company needs capital after a ROBS stock purchase, evaluate cleaner funding channels before asking the plan to become creditor to its sponsor.

These answers keep the employer-stock, employer-loan and participant-loan lanes separate.

These sources support the page's distinctions. They do not approve any plan-to-company loan, participant loan, employer-stock purchase, valuation, correction method, excise-tax calculation or reporting position for a specific reader.

1. S1. Internal Revenue Service: Rollovers as Business Start-Ups Compliance Project

   Used for: IRS-described ROBS mechanics: a qualified plan buys C corporation employer stock, plus concerns involving valuation, prohibited transactions, discrimination, Form 5500 and adverse tax consequences. Limit: IRS page last reviewed 16-Nov-2025; describes compliance concerns and mechanics, not transaction approval.

2. S2. Office of the Law Revision Counsel: ERISA section 3, 29 U.S.C. 1002

   Used for: party in interest, fiduciary, individual account plan, eligible individual account plan, employer security, qualifying employer security and adequate consideration definitions. Limit: Statutory definitions accessed Aug. 11, 2026; facts and plan coverage control application.

3. S3. Office of the Law Revision Counsel: ERISA section 404, 29 U.S.C. 1104

   Used for: loyalty, exclusive purpose, prudence, diversification, plan-document compliance and employer-security diversification boundary. Limit: Fiduciary process statute; does not approve any specific employer loan.

4. S4. Office of the Law Revision Counsel: ERISA section 406, 29 U.S.C. 1106

   Used for: prohibited lending or extension of credit with parties in interest, transfer or use of plan assets, and fiduciary self-dealing. Limit: Exemptions and correction must be analyzed separately.

5. S5. Office of the Law Revision Counsel: ERISA section 407, 29 U.S.C. 1107

   Used for: eligible individual account plan and qualifying employer security rules, including employer-security holding boundaries. Limit: Employer-security rules are not employer-loan authorization.

6. S6. Office of the Law Revision Counsel: ERISA section 408, 29 U.S.C. 1108

   Used for: statutory exemptions for participant loans, certain service arrangements, and acquisition or sale of qualifying employer securities for adequate consideration and no commission. Limit: Exemptions apply only when all conditions fit; no self-directed process safe harbor.

7. S7. Electronic Code of Federal Regulations: 29 CFR 2550.408b-1

   Used for: participant-loan exemption requirements: written plan provisions, equivalent availability, nondiscrimination, reasonable interest and adequate security. Limit: Participant-loan regulation; does not authorize loans from the plan to the employer.

8. S8. Electronic Code of Federal Regulations: 29 CFR 2550.408e

   Used for: qualifying employer-security acquisition or sale exemption, adequate consideration and no-commission boundaries. Limit: Employer-security exemption; not a lending exemption.

9. S9. Electronic Code of Federal Regulations: 29 CFR 2550.404a-1

   Used for: investment prudence process, risk and return, diversification role and relevant information review. Limit: Process rule; not a ROBS suitability approval.

10. S10. Office of the Law Revision Counsel: IRC section 401(a), 26 U.S.C. 401

    Used for: qualified plan, exclusive benefit, nondiscrimination and qualification boundaries. Limit: Tax qualification requires plan-specific administration.

11. S11. Office of the Law Revision Counsel: IRC section 4975

    Used for: disqualified person definitions, prohibited loans or extensions of credit, plan-asset use, statutory exemptions, excise tax and correction language. Limit: Code excise-tax lane is separate from ERISA fiduciary remedies.

12. S12. Office of the Law Revision Counsel: IRC section 72

    Used for: participant plan loan maximum, repayment and deemed distribution framework. Limit: Participant loan rules do not require a plan to offer loans or permit employer borrowing.

13. S13. Internal Revenue Service: IRS retirement plan loan FAQs

    Used for: qualified plan loan permissions, IRA no-loan boundary, participant loan cap, repayment and equal availability concepts. Limit: IRS states FAQs are general information and not legal authority.

14. S14. U.S. Department of Labor EBSA: Meeting Your Fiduciary Responsibilities

    Used for: fiduciary status, parties in interest, prohibited transactions, loyalty, prudence, diversification, service-provider monitoring and correction overview. Limit: DOL compliance assistance publication, September 2021; not ROBS-specific legal advice.

15. S15. Internal Revenue Service: EPCRS Overview

    Used for: IRS qualified-plan correction escalation and limits. Limit: Correction availability depends on facts, timing and current IRS procedures.

16. S16. U.S. Department of Labor EBSA: Voluntary Fiduciary Correction Program

    Used for: DOL fiduciary correction escalation lane and no-general-guarantee boundary. Limit: VFCP category eligibility must be checked with counsel; not every ROBS fact pattern qualifies.

17. S17. DOL, IRS and PBGC: 2025 Instructions for Form 5500

    Used for: annual reporting context for plan assets, prohibited transactions and employer securities. Limit: 2025 instructions accessed Aug. 11, 2026; current filing year and plan facts control.