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BELLEVUE, Wash. – After halting all sales of 401(k) rollover plans for fear of crossing the Internal Revenue Service, Guidant Financial Group announced Wednesday that it will resume small business lending immediately.
A letter to the firm's clients and partners, signed by Guidant co-founder David Nilssen and two managers, explains the reason for the two-week stoppage. “By suspending sales, we hoped to approach the agencies directly to gain feedback into the specific promoter issues that they intended to investigate,” the letter declares. “At no time did we suspect that Guidant, our 401(k) Rollover plan, or our clients were specific targets of investigation.”
The letter also explains the resumption of the firm's rollover business startup (ROBS) sales. “Over the past two weeks, Guidant worked diligently with law firms in both Seattle and Washington DC to engage senior agency representatives,” it states. “In addition, we actively cooperated and shared full information with the other leading players who market ROBS plans. Through this process we learned that the regulatory agencies do intend to pursue legal actions, but only against rogue firms that promote abusive transactions.”
Guidant's chief executive officer, Stephan Roche, called Blue MauMau Wednesday night and spoke of a news article published that morning in which Mr. Stephen Dobrow, the president of the American Society of Pension Professionals & Actuaries, warned that the rollover industry may be in trouble. Roche declares, “The concerns of Mr. Dobrow are precisely why we made the decision to suspend sales temporarily. We thought the full threat to our clients and partners were in not fully understanding the IRS's position on rollovers.” Roche continued, “The difference [between Dobrow's emphasis and our point of view now] is that he didn't make a distinction between the promoters who do know how to structure ROBS properly and those who are intentionally or unintentionally creating abusive transactions.”
Explaining the company's confidence to resume sales, Roche states, “We now have confirmation from regulatory agencies that they are actually looking for rogue operators and clearly fraudulent and abusive transactions and not [closing down] the industry as a whole.”
“We did have an opportunity to communicate with very senior people at the Internal Revenue Service and the Department of Labor," elaborates Roche.
The firm's CEO tells that one political concern to the Department of Labor that may be shaping policy is the drop in small business investment and the evaporation of credit availability. Using retirement funds to start a business can help get around those obstacles.
According to Roche, one of the top regulators said, “There is a tight-rope balance between ensuring that individuals preserve their retirement savings with the recognition that this is an important source of capital for small business growth in America.” Hearing this statement gave Guidant's chief executive confidence that the IRS and the Department of Labor weren't looking at this as a technical decision around the particulars of ROBS transactions. He recognized that the IRS was not going to quash the industry but rather that they were going after incorrect or sloppy procedures.