Plan sponsor

What a plan sponsor is

ERISA defines the plan sponsor as the employer that sets up the plan. The sponsor makes the business decisions about it: whether to have a plan, what it offers, whether to match and when to change or end it. Those design decisions are not fiduciary acts.

Running the plan is different. The plan document must name at least one fiduciary with authority to control and manage the plan, and it identifies a plan administrator. If no one else is named, the sponsor is the plan administrator by default. That is why most employers are both sponsor and fiduciary.

Why it matters to employers

As sponsor you keep some responsibilities whatever providers you hire:

• Choosing providers prudently and monitoring their work and fees.

• Sending accurate payroll and census data, and depositing employee contributions on time.

• Following the plan document.

• Making sure required filings and notices go out, even when a provider prepares them.

• Keeping the plan covered by a fidelity bond.

Example

A 60-person company adopts a 401(k). It hires a recordkeeper that also serves as the 3(16) plan administrator, and an adviser that serves as the 3(38) investment manager. The company has delegated most daily work. It still reviews both providers every year, approves the plan design, and runs payroll correctly.

Common mistakes

• Signing documents as “plan administrator” without knowing what that role carries.

• Having no named person or committee responsible for the plan.

• Assuming the payroll provider or recordkeeper is the fiduciary for everything.

• Not reading the service agreement to see which duties were accepted by a provider and which stayed with you.