top of page
  • Writer's pictureSamantha Diggs

12 Things Every 401(k) Plan Sponsor Needs to Know

Updated: Mar 11, 2022

Employer-sponsored retirement plans such as a 401(k) provide companies and employees with numerous benefits. When establishing a 401(k), you will designate an individual or committee within your company that is responsible for the establishment of the plan document, communication, compliance, and more. In this blog, we are going to uncover the 12 things that every 401(k) Plan Sponsor needs to know including tips and responsibilities.

What are a Plan Sponsor's Responsibilities?

For companies that sponsor a 401(k) plan for the benefit of their employees, it is ultimately their responsibility to design the plan, establish the investments as well as communicate both internally and externally with necessary parties. There are numerous responsibilities that a Plan Sponsor should be aware of including:

1. Design the Plan and draft the legal plan document

a. Your plan document should be the detailed guide for how your retirement plan will operate. This includes listing the details for eligibility, employer contribution features (matching, safe harbor, non-elective), vesting, in-service withdrawals, termination, and retirement benefits, and other features. This document can be updated as features are added or amended over time.

2. Decide on Plan's Investments

a. 401(k) plans offer a variety of investment options for participants. This could include mutual funds, money market funds, and more. You will want to select and monitor the proper investments to be offered to your participants.

3. Oversee Employee Data

a. Another responsibility is keeping your employees' census information up-to-date and confirm that payroll data is communicated with the 401(k) service providers.

4. Communicate with 401(k) Providers

a. Your 401(k) retirement plan servicing team may have various points of contact that you can reach out to with questions, concerns, and other necessary updates. When communicating with your plan service providers, be sure to keep records of talking points so your company will have a clear understanding of where your account is and you to contact for specific plan-related needs

5. Disclose Information to Employees

a. As a Plan Sponsor, you will be responsible for issuing disclosures to your employees on a regular basis. Employees should also have access to their retirement account so they understand their savings progress and can make changes to their rates and investments as they choose.

6. Monitor Fees and Services from Providers

a. A major responsibility of Plan Sponsors is to regularly monitor fees and services from your plan service providers. This can include what your company and employees are being charged as well as how it compares to the market. You want to make sure that your company is getting the most value and the level of service for the money you're paying.

Tips for 401(k) Plan Sponsors

1. Ensure Your Plan is Compliant

a. As the Plan Sponsor, you are responsible for keeping your plan in compliance. This means that your plan needs to be written to comply with all IRS codes and follow the terms set forth in the plan document. Plan Sponsors should review their plan annually to ensure they are meeting all necessary regulations and are properly updated for any law changes.

2. Understand your Adoption Agreement (if applicable)

a. For companies with pre-approved plans, you will have an adoption agreement. This document is part of your legal plan document package and will list plan features that have been chosen for your plan


3. Know the Ins and Outs of Your Service Agreement

a. When it comes to the administrative side of your retirement plan, understanding what your service agreement covers is crucial. You need to review the following and designate a member of your team to complete these tasks:

i. Review plan document for law changes

ii. Apply the plan's terms for participation, distributions, and contributions.

iii. Alert participants of required plan notices

iv. Understand the testing requirements

v. Maintain participant account records

vi. Review fees from all service providers

vii. Invest plan funds or allow participants to direct their investments of the funds in their account

viii. Correct the plan if it fails testing and pay associated fines, penalties, and fees.

4. Communicate with Necessary Parties

a. Communication is key with retirement plans and ensuring that your plan service providers are aware of changes within your company is essential. From hiring, offboarding, and compensation changes to plan provisions and amendments, your plan service provider should be kept in the loop with major company changes in order to keep your company's account updated.

5. Stay up to Date with IRS Rules

a. The IRS requires different retirement plan reporting and disclosures depending on your plan. Follow the IRS publications for more specific changes for your type.

6. Keep up With Your Plan Sponsor Duties

a. By reviewing your plan regularly and its terms, you can ensure that your plan is up-to-date. Once your plan is established, following the IRS and DOL regulations and communicating with necessary parties is a major part of the role and is critical for the success of your plan.

Navigating Your Role as a Plan Sponsor

When it comes to the world of retirement, being the Plan Sponsor for your company's 401(k) is a huge responsibility. Whether you're just starting out or are needing assistance with IRS rules and regulations, you do not have to do this alone. Need assistance navigating your 401(k) retirement plan? Contact RPCSI today–we are here to help!

79 views0 comments


bottom of page