Understanding Retirement Plan Sponsors’ Responsibilities

One of the most crucial tasks for modern human resources professionals is providing an attractive benefits package to employees. Retirement savings, pensions and health plans provide enormous value to existing workers and prospective talent, but administering these benefits also comes with strong administrative and even regulatory challenges. Organizations that decide to act as retirement plan sponsors and offer such plans have several key responsibilities to keep in mind.

Plan Sponsor Versus Plan Administrator

It’s important to understand your role as a plan sponsor or administrator. A plan sponsor is any company, union or other institution that sets up a retirement plan, such as a 401(k) or 403(b), for the benefit of the organization’s employees, while more strictly speaking, a plan administrator is responsible for directing and planning the day-to-day operations and the strategic decisions involved with a group’s retirement plan.  ERISA (the Employee Retirement Income Security Act of 1974) requires that the plan sponsor formally identify someone (a person or committee) as plan administrator or the “named fiduciary” acting on behalf of the plan sponsor.

In other words, a plan sponsor is the designated employer responsible for all stages of designing, implementing, amending and terminating the group plan, while the plan administrator oversees its functioning. One major difference between a sponsor and administrator is that plan administration is often outsourced to another individual or firm with more specialized investment or management expertise. While the plan sponsor can never eliminate its fiduciary responsibilities, it can outsource them to co-fiduciaries as plan administrator under ERISA Section 3(16) and investment advisor under 3(21) (shared responsibility) or 3(38) (full investment outsourcing).

However, the same party may serve as both plan administrator and plan sponsor. Under these circumstances, the plan sponsor has additional fiduciary responsibilities, meaning they hold higher professional standards of duty.

Retirement Plan Regulations

Plan sponsors have historically been subject to ERISA. The original intent of this legislation was to provide protection for private employees by establishing minimum standards that plan sponsors and their administrators must achieve. For example, communicating retirement plan information regarding fees, features and funding is one basic requirement.  ERISA is supplemented by numerous U.S. Department of Labor (DOL) and Internal Revenue Service (IRS) regulations.

Recent regulation, including the fiduciary rule from the DOL, attempts to further codify the legal responsibilities and compliance methods for employer retirement plan sponsors, particularly in regard to employee disclosure. However, implementing this regulation and its corresponding requirements, which require sponsors and advisers to always act in clients’ best interest, has been delayed until 2019.

Plan Sponsor Requirements

If your organization is looking to implement, modify or gain more information regarding an employee retirement savings plan, there are several proactive tasks that you can take to ensure proper compliance. From monitoring fees to exercising due diligence while selecting and overseeing service providers such as an administrator, recordkeeper and retirement plan consultant, all plan sponsors should be sure to conduct research that meets the fiduciary obligations and needs of their organization, and to document the decisions made.

For sponsors of existing plans, the IRS encourages frequent communication with plan service providers and administrators. This includes timely notification of newly hired or recently terminated employees, accurate calculation of employee payroll compensation amounts and, especially, the careful explanation of any plan amendments to provisions or eligibility, such as a change to rules for participant loans.

Independent, Objective Advice

Finally, a smart option to consider is working with an external party that can provide impartial advice or expert guidance. Objective firms without an active stake in fund performance or other incentives or conflicts from related entities can help determine the organizational needs of a plan sponsor and assess the quality and costs of potential plan services. Working with a fiduciary such as PlanPILOT enables plan sponsors to deliver cost-effective benefits while managing and limiting exposure to unnecessary risks for employees and the employer.

Protecting Your Retirement Plan From Lawsuits Learn the steps a plan sponsor can take to minimize the likelihood and potential impact of lawsuits. Read More »

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