Plan Sponsor Responsibilities and How These Responsibilities Affect The Operation Of The Retirement Plan.
The Plan Sponsor is a significant part in the administration of a retirement plan, as they carry out essential responsibilities that have a considerable effect on the retirement plan. First off, a plan sponsor is a designated party, which is usually the employer or company that sets up a 401(k) retirement plan for the benefits of the employees of the organization.
Managing a retirement plan can be very challenging as well as rewarding, especially on the part of the employer who serves as the plan sponsor. When a good retirement plan is in place, the beneficiaries and the employer will all benefit. However, administering the project requires some actions and involves some responsibilities.
In meeting their responsibilities, it is necessary that plan sponsors understand the basic rules of the Employee Retirement Income Security Act (ERISA). ERISA sets the code of conducts for plan sponsors and their fiduciary responsibilities.
What Is The Plan Sponsor Responsibilities?
A fiduciary is a person who is obligated legally to act in the best interest of his client. A retirement plan sponsor is automatically a fiduciary, although it is possible to share their responsibilities to reduce liability. However, the plan sponsor is not absolved of fiduciary duties, even if they delegate. Below is a list of the fiduciary responsibilities of the plan sponsor.
- The plan sponsor is to act solely in the interest of the plan participants and their beneficiaries.
- They are to carry out their duties with prudence and diligence; This is one of the principal responsibilities of the plan sponsor as a fiduciary. It requires having expertise in a diverse variety of areas about investment.
- Lacking this expertise might require the hiring of another party with the needed knowledge.
- Following Plan Documents: This is also a fundamental plan sponsor responsibility, this is because the document is the foundation for all retirement plan operations. Employers are therefore required to be familiar with this plan document, as well as making periodic reviews of its content.
- Diversification Of Plan Investments: Diversification is another essential fiduciary duty of the plan sponsor as it helps to minimize the risk of losses.
How Do These Responsibilities Affect The Plan?
The above-stated responsibilities determine whether the retirement plan is well grounded or not. Plan sponsors following the first responsibility above, are required to distribute employees notifications, which will guide them in making informed decisions. There is also the need to be prudent in making contribution deposits, as failure to do this brings about complications in computing employees’ data. To deal with this; hiring a trustee to monitor the timely contribution is always the best option. Diversifying also helps the plan, as it produces maximum results and supports the plan sponsor reduce liability.
Ultimately, depending on the wealth of knowledge of the plan sponsor, it might be necessary for a Third Party Administrator to be hired. The TPA would take charge of the administration of the plan, as well as the education of employees on investment.