Legal & Financial Benefits

My accountant wants to know…

What is the DreamSpark plan?

The DreamSparkTM plan is a “qualified” defined contribution retirement plan similar to any other U.S. corporation sponsored 401(k) or profit sharing plan. The form of the plan and its operations conform to the requirements of Section 401(a) of the IRC. Once the DreamSpark plan is established by the new corporation:

  • you can become an employee of the new C corporation
  • you are eligible to participate in the new DreamSpark plan
  • you can roll over or transfer monies into the new DreamSpark plan from another qualified retirement plan or IRA
These rolled over funds are invested in common stock of the new corporation, the plan sponsor. The proceeds from the initial stock offering can be used for business operations. The DreamSpark plan also offers traditional retirement plan benefits enabling you and your employees to continue saving for retirement.

Why is the DreamSpark plan allowed to buy stock in your corporation?

The purchase of your C corporation’s common stock by your DreamSparkTM plan is exempt from the prohibited transaction rules under Section 4975(d) (13) of the IRC and Section 408(e) of ERISA if:

      1. the purchase of stock by your DreamSpark plan complies with adequate consideration,
      2. no commission is charged for the purchase of your C corporation’s employer stock,
      3. the DreamSpark plan is an eligible individual account plan as defined in section 407(d) (3) of ERISA.
These rules also apply to an Employer Stock Ownership Plan (ESOP).

Is your DreamSpark plan a qualified retirement plan?

The DreamSparkTM plan is covered by a favorable opinion letter issued by the IRS. This letter indicates that the plan conforms to the requirements of IRC section 401(a) and expresses their opinion regarding the form of the plan document. The DreamSpark plan basic document is pre-approved by the IRS under the so-called “Volume Submitter” plan. For more information about favorable opinion letters and a Volume Submitter Plan, visit IRS.gov. Pango FinancialTM will continue to be a resource as the “third party administrator” providing the following services:

      • plan operational support;
      • service and support in complying with the plan’s written terms;
      • prepare annual required filings based on information provided for the retirement plan, such as Form 5500 series returns for employee benefit plans or others;
      • provide direct online access to client’s plan and participant records.

Understanding the ins and outs of legal and government requirements isn’t easy. Check out these commonly asked questions that may even be helpful to your accountant or professional advisor.