401(k) Plan Sponsor

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on August 10, 2023

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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.

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401(k) Plan Sponsor Fiduciary Responsibilities

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:

  • Which employees are eligible to participate in the plan (i.e., employees who have been with the company for less than a year, part time employees and those under age 21 may be excluded)
  • The terms of any matching contributions (how much, percentage or dollar amount, etc.)
  • The terms of any vesting schedule (how long will it be, is it cliff or graded, etc.)
  • The terms of any loan provisions (who can take out a loan, how much interest will it charge, etc.)
  • The amount of all fees charged by the plan, such as administrative fees, actuarial fees, etc.

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.

401(k) Pre-Approved Plan

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:

  • Learn what fees it will be charged by the pre-approved plan provider.
  • Keep the opinion or advisory letter issued by the IRS for its pre-approved plan.
  • Promptly sign any plan amendments the pre-approved plan provider sends to the employer.
  • Send copies of plan amendments for your pre-approved plan to the employer's plan administrator.
  • Inform the employer's provider if the employer makes changes to its business, employees or their compensation."

401(k) Plan Sponsor FAQs

About the Author

True Tamplin, BSc, CEPF®

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.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

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