Understanding ERISA Retirement Plan Sponsors & Administrators Responsibilities

What Is the Difference Between a 401(k) Plan Sponsor and a Plan Administrator?

Typically, the employer is considered the 401(k) “plan sponsor,” whereas the day-to-day running of the plan may be handled by a third-party “plan administrator.” Understanding the different responsibilities between the plan sponsor and plan administrator is essential to maintain compliance with all IRS and DOL regulations.

Who can be a 401(k) Plan Sponsor?

In addition to the owner of the company, the plan sponsor can also be a union, a group of representatives, or a key executive. Often, a plan sponsor is also referred to as a “fiduciary” – a person who takes legal responsibility for making decisions on behalf of plan participants. Fiduciaries agree to avoid conflicts of interest and work to keep fees reasonable. The fiduciary can also be held personally liable for plan losses caused by mismanagement.

What is a 401(k) plan sponsor responsible for handling?

  • The 401(k) employer handles the following tasks as the plan sponsor:
  • Selects and monitors service providers diligently.
  • Makes timely contributions to keep benefits well-funded.
  • Avoids making prohibited transactions under IRS law.
  • Understands what the plan does or does not cover.
  • Assigns individuals to take care of tasks not included in the administrator’s service agreement.
  • Determines what classification of employees can participate in the plan.
  • Decides upon the types and amounts of allowable plan contributions, including the employer match.
  • Sets a vesting period for receiving full benefits.
  • Makes the call on when and how benefits will be paid, and whether or not loans will be available.
  • Communicates new hires, terminations, and payroll changes with the administrative team.
  • Sends timely disclosures to workers and beneficiaries, as well as the government.

Who can be a 401(k) Plan Administrator?

An administrator must be selected under the Employee Retirement Income Security Act of 1974 (ERISA). The admin can be the employer itself, a committee of employees, a company executive, or a third-party. Some aspects, such as giving out financial advice, can be outsourced to an investment broker, financial planner, or auditor.

What does a 401(k) Plan Administrator do?

A designated 401(k) Plan Administrator:

  • Discusses 401(k) options and customizes setup for the plan sponsor.
  • Oversees plan operation, including employee enrollment, employer matching, loans, and distributions.
  • Ensures regulatory compliance, reviewing law changes and making plan amendments as necessary.
  • Sends out 1099-R and 5500 forms required by the Department of Labor and Internal Revenue Service.
  • Performs IRS-required ADP, ACP, and top-heavy compliance tests for nondiscrimination each year.
  • Brings plans into compliance by refunding top-earning employees or upping employer contributions.
  • Keeps employees informed on how to participate, use benefits, and maximize savings.
  • Maintains 401(k) planrecords, enforces plan documents, and secures a fidelity bond for protection.


What is a 401(k) plan?

Think that 401(k) plans are just for large businesses with a budget to match? Think again.

Every day, Retirement + Savings™ helps small and startup companies and their employees reap the rewards of tax-deferred retirement savings—without the complexity and without the big price tag.

With a small business 401(k), you (and your employees, if you have them) can save for retirement while lowering your taxable income. Contributions you and your employees make to a 401(k) plan are contributed on a pre-tax basis. In the short term, that translates to a smaller tax bite on your annual salary. In the long run, it means extra security as your investments grow tax-free until you’re ready to retire.

Thinking about starting a retirement plan for yourself or your small company? Read on to get the facts from this complete guide to 401(k) plans made easy.

Contact Information

Tom J. Canova, Co-Founder, Chief Marketing Officer

Modevity, LLC








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