A 401(k) plan sponsor is the organization (i.e. an employer, labor union or professional organization. The sponsor is then responsible for maintaining the plan throughout its existence. Have questions about 401(k) Plans? Click here. Plan sponsors have many responsibilities, and they are thus held to a fiduciary standard in carrying out these responsibilities. The first step that the employer must take when implementing a 401(k) plan is to draw up the plan document. This document must meet all pertinent IRS and ERISA guidelines and also spell out all of the provisions of the plan. This document will outline features such as: The plan sponsor is also responsible for choosing the plan custodian and all of the investment choices that will be offered in the plan (i.e., mutual funds, stocks, bonds, annuities, ETFs, guaranteed investment contracts, etc.). In most cases, the plan sponsor will outsource this task to one or more investment companies or advisors. But the sponsor needs to ensure that these parties stay in strict compliance with the Best-Interest Contract Exemption (BICE) rules under ERISA. These rules include giving investment advice that's solely in the plan participants' best interests, charging no more than reasonable compensation, fairly disclosing fees, compensation, and material conflicts of interest associated with their investment recommendations, etc. The sponsor is responsible for overseeing the administration of the plan and must review the plan on an annual basis to ensure that all pertinent rules and guidelines are being followed. Another responsibility of plan sponsors is to coordinate the sponsor's payroll with the plan administrator in order to ensure that the correct amount of employee deferrals are going into the plan and being invested according to each employee's choices. Sponsors must also disclose all pertinent plan information to all participants on a regular basis and ensure that all participants have convenient access to their plans at all times and can make changes to their plan such as reallocating their money among the different investment choices. Other responsibilities of plan sponsors include the administration of distributions, rollovers into and out of the plan and all loans that are taken out by participants. Sponsors that also act as plan administrators are named as plan fiduciaries by default. Many plan sponsors choose pre-approved plan providers that provide all of the necessary services to properly administer a 401(k) plan. The IRS website states: "Pre-approved plans are a convenient, easy way to start a retirement plan, but the employer's responsibility doesn't end once your plan is adopted. The employer should:401(k) Plan Sponsor Fiduciary Responsibilities
401(k) Pre-Approved Plan
401(k) Plan Sponsor FAQs
A 401(k) plan is a retirement plan offered by an employer designed to help employees save for retirement.
A 401(k) plan sponsor is the organization (i.e., an employer, labor union, or professional organization). The sponsor is then responsible for maintaining the plan throughout its existence.
The primary duties of a 401(k) Plan Sponsor include selecting appropriate investments for the plan, monitoring the performance of those investments, ensuring all applicable laws and regulations are met, providing information about the plan to employees, communicating regularly with participants, and periodically reviewing the plan to identify areas for improvement.
Plan Sponsors are responsible for ensuring that their 401(k) plans to comply with all applicable laws, regulations, and requirements set forth by the United States Department of Labor (DOL). To meet these expectations, Plan Sponsors must have procedures in place to regularly monitor investments, review service provider performance, stay up-to-date on regulatory changes, and adhere to fiduciary responsibilities when making decisions about the plan.
Typical services provided by a 401(k) Plan Sponsor include plan design, investment selection, customer service, compliance monitoring, and reporting, administration of employee distributions and contributions, participant education and communication, and fiduciary management.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
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