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November 14, 2023

What’s the Difference between a 401(k) Plan Sponsor and a Plan Administrator?

A 401(k) plan sponsor and plan administrator are two important roles within a 401(k) plan that hold fiduciary responsibilities to the plan participants. Although the two 401(k) plan roles can be confused, their roles and responsibilities are quite different. By understanding the differences between a plan administrator and sponsor, you can ensure your 401(k) retirement plan operates smoothly, efficiently and in complete compliance with regulations from the Department of Labor and the IRS.

401(k) Plan Sponsor vs. Plan Administrator

Although plan sponsors and plan administrators have two distinct roles within a 401(k) plan, there are certain similarities between these roles that may cause confusion. Both plan sponsors and plan administrators oversee and manage the 401(k) plan’s operations. They both play a crucial role in ensuring the plan meets regulatory standards and providing necessary support and guidance to plan participants.

To comply with legal and regulatory requirements, plan sponsors and administrator tasks may include maintaining accurate records, communicating plan details to participants and monitoring activities performed by a third-party administrator (TPA). While these roles are similar in these ways, they’re by no means interchangeable.

What is a 401(k) Plan Sponsor?

A 401(k) plan sponsor is typically the employer or organization that establishes and maintains the 401(k) plan for its employees. Their primary responsibility is to establish the plan and develop a plan document. They must ensure the plan document is written in a way that complies with all IRS requirements. Sponsors are also responsible for performing ongoing plan maintenance, which include:

  • Reviewing TPA reports, such as:
    • Allocation reports for potential contribution errors
    • Distribution reports to ensure participants are making their required minimum distributions in a timely manner and have consented to these payments
  • Reviewing participant loans, if your plan allows them, to ensure:
    • Loans were made in accordance with the plan’s terms
    • Participant account balances can cover the loan
    • Participants are making timely loan repayments or you have acted on defaulted loans
    • Documents to support a participant’s need for hardship withdrawals
  • Regularly reviewing your plan’s terms to make sure they are being followed
  • Arranging an independent review of your plan to ensure others haven’t overlooked something that could improve benefits or provide cost-savings for yourself and your employees

Plan Sponsor Responsibilities and Fiduciary Duties

The plan sponsor also has fiduciary responsibilities, which means they must act in the best interests of the plan participants. This includes prudently selecting and monitoring investment options, ensuring that expenses are reasonable and providing participants with sufficient information to make informed decisions about their retirement savings. The plan sponsor must also comply with legal and regulatory requirements, such as reporting and disclosure obligations.

What is a 401(k) Plan Administrator?

A plan administrator is responsible for the day-to-day operations and administrative tasks of the 401(k) plan. This role is sometimes outsourced to a TPA or handled by the plan sponsor’s human resources department. The plan administrator’s duties include enrolling employees in the plan, processing contributions, maintaining participant records, providing education to participants and communicating with participants about the plan. Some tasks, like maintaining participant records, could be provided by an outsourced third-party.

Plan Administrator Responsibilities and Fiduciary Duties

Like the plan sponsor, the plan administrator also has fiduciary responsibilities, particularly with respect to the administration of the plan. This includes ensuring that contributions are timely and accurately processed, maintaining accurate participant records, and providing participants with the information they need to manage their accounts. The plan administrator must also ensure that the plan’s administrative processes comply with legal and regulatory requirements, such as eligibility and vesting rules, nondiscrimination testing and tax reporting.

For more information on how our 401(k) audit team can help, request a free consultation below to discuss your unique 401(k) audit needs. 

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