All About 401(k) Plan Sponsors
posted by Fisher 401(k) May 3, 2019
What is a 401(k) Plan Sponsor?
A 401(k) plan sponsor is a company that sets up and manages a 401(k) plan for the benefit of the company’s employees.
Is a 401(k) Plan Sponsor a Fiduciary?
For a 401(k), a “fiduciary” is anyone who makes decisions for the plan on behalf of the employees participating in it. In the plan document, a representative (or representatives) of the employer will be named specifically as a fiduciary on the plan—often the owner of the company or an executive. Beyond the named fiduciaries, however, there can also be “unnamed” fiduciaries.
What Does It Mean to be a Fiduciary in a 401(k) Plan?
Anyone who is a fiduciary, named or unnamed, has a personal, legal responsibility to make decisions exclusively for the benefit of the employees participating in the plan. Fiduciaries must avoid conflicts of interest from the plan, and must work to keep fees reasonable, or they can be held personally liable for damages, even decades into the future. For more information about the responsibilities of a fiduciary, read our page about 401(k) fiduciary responsibility.
Who Can Function as a 401(k) Plan Sponsor?
Typically, the business owner serves as the employer’s representative in handling plan sponsor duties. In addition, many employers assign someone at their company, often a CFO or HR manager, to act as a “plan administrator” who plays an active role in the ongoing management of the company plan. Depending on how much responsibility this person has in making decisions about the 401(k) plan, they may also be a fiduciary.
Sometimes companies have a 401(k) committee made up of a group of employees who take responsibility for managing the plan, and anyone serving on this committee would be considered a fiduciary.
What are the Responsibilities of a 401(k) Plan Sponsor?
As an employer who sponsors a 401(k) plan, it’s ultimately your responsibility to develop a plan document, establish the investment lineup, and work with your chosen service providers for the purposes of ongoing administration and employee communication. Specifically, plan sponsor duties include:
1. Developing a Plan Document
A 401(k) plan document is like the master guide for how the plan works, and it’s important because it’s the final word for making sure a plan is operating correctly. Your plan document should include details about:
- Eligibility: When does an employee become eligible to participate in the company plan?
- Employer Contributions: Will the company offer matching contributions to employees? If so, at what rate?
- Fees: The plan document will also determine how fees are paid. Will the fees be paid only by the employees participating in the plan, or will the company cover some costs?
- Loans: Some 401(k) plans allow employees to take out loans against their savings. Will your plan allow for this? If so, what are the terms when it comes to repayment schedules and interest?
- Additional Plan Features: There are many features that can be added to a standard 401(k) plan to customize it, like profit sharing provisions. What custom plan features will you include in your plan?
Each of these aspects of a 401(k) plan represents an important decision the plan sponsor must make. In addition to creating this document for a 401(k) plan, a plan sponsor is also responsible for working with their service provider to update the plan document as new features are added or amended over time.
2. Selecting the Plan’s Investment Lineup
All 401(k) plans offer a lineup with different investment options, like mutual funds, money market funds, bond funds, and target date funds. The fiduciary is responsible for choosing, monitoring, and updating this lineup and building a mix of different investment options with reasonable fees. If you choose a 401(k) provider that offers 3(38) investment management services, they can take responsibility for this aspect of plan management.
3. Overseeing Employee Payroll Data
Fiduciaries designated by the plan sponsor are responsible for keeping employee census information up-to-date and seeing that payroll data is being communicated properly with the 401(k) service provider in order to keep the correct saving amounts going into each employee’s account.
4. Working with Your 401(k) Providers
Depending on how you’ve gone about selecting and building your provider team, you could have one or many points of contact for your company’s retirement plan. Many service providers will offer you a single phone number you can call with questions and concerns, or you’ll have a dedicated contact who knows you and your company well. Either way, keep a clear record of every provider you may need to speak with so you can quickly communicate in the course of routine account management.
5. Communicating with Employees
Plan sponsors or their 3(16) administrator service providers are required to issue certain disclosures to employees regularly. Additionally, employees need access to important information about their retirement accounts, and it’s the plan sponsor’s responsibility to select a provider who offers employees easy access to view their account information, track their savings progress, and make changes to things like savings rates and investment choices.
6. Administering Distributions and Loans
If your plan allows 401(k) loans, it’s up to you as the fiduciary to oversee the disbursement of the loan as well as the repayment. Additionally, when it comes time for an employee to retire and receive money from the plan, you will also oversee the distribution of funds.
7. Monitoring Fees and 401(k) Service Providers
A big part of a fiduciary’s ongoing duties is to regularly monitor fees and service from plan providers including the adviser, recordkeeper, third party administrator, and others. Every three years, evaluate the costs you and your employees are being charged, if those costs are in line with the average of what other, similar companies pay, and if you are receiving the appropriate level of service for your money. If this is your first time choosing plan providers, read our blog on how to start a 401(k) for details.
For more information on a plan sponsor’s role in ongoing 401(k) management, read our blog about how to administer a company 401(k).
Get Help Understanding Your 401(k) Plan Sponsor Role
Acting as a plan sponsor for a 401(k) is a big responsibility, but you don’t have to go it alone. Visit our Resource Library to find educational materials and request a R.E.T.I.R.E. kit to help you understand and take control of the key aspects of managing a 401(k) plan. If you are interested in working with a 401(k) adviser who takes on many of a plan sponsor’s day-to-day responsibilities, contact Fisher Investments today.
Do you have more questions about being a plan sponsor? Contact us!