401(k) Plan Sponsor 101: What You Need to Know Before You Start

Starting a 401(k) plan for your company is a big step, and it makes you a plan sponsor. That means you’re responsible for choosing the plan, managing it, and acting in your employees’ best interest as a fiduciary. In this blog, we’ll walk you through what that role involves and how to handle it with confidence.

What Is a 401(k) Plan Sponsor?

If you’re a business owner starting a 401(k), your company becomes the 401(k) plan sponsor, and you may take on fiduciary responsibilities. You might also have help from your HR manager, CFO, or even a 401(k) committee made up of employees that act as plan administrators, who play an active role in the ongoing management of the company plan.

Are Plan Sponsors Fiduciaries?

Yes! A fiduciary is someone who makes decisions for the plan and must always act in the best interest of the employees. That means making smart, fair choices. If you’re a fiduciary, you’re legally responsible for:

• Keeping fees low
• Avoiding conflicts of interest
• Making sure the plan runs smoothly

Even if you’re not officially named in the plan document, you can still be an “unnamed fiduciary” if you help make decisions. Anyone who’s a fiduciary, whether they’re named or unnamed, has a personal, legal responsibility to make decisions exclusively for the benefit of employees participating in the plan.

What Does a 401(k) Plan Sponsor Do?

Being a plan sponsor comes with a lot of responsibilities. Here are the big ones:

1. Create a Plan Document

A 401(k) plan document is the master guide for how the plan works. Your plan document should include details about:

• Eligibility: When does an employee become eligible to participate in the company plan?
• Employer Contributions: Will the company offer matching contributions to employees? If so, at what rate?
• Fees: The plan document will also determine how fees are paid and who pays them—you or your employees?
• Loans: Some 401(k) plans allow employees to take out loans against their savings. Will your plan allow for this? If so, what are the terms when it comes to repayment schedules and interest?
• Extra Features: There are many features that can be added to a standard 401(k) plan, including profit sharing and safe harbor provisions. What custom plan features will you include in your plan?

In addition to creating this document for a 401(k) plan, a plan sponsor is also responsible for working with their service provider to update the plan document as new features are added or amended over time.

2. Pick the Investment Options

Your plan needs a mix of investment options—like mutual funds, bond funds, and target date funds. As a fiduciary, you must choose options with reasonable fees and keep them updated. Fisher\SMB offers 3(38) investment management, which means we’ll handle this part for you.

3. Manage Employee Payroll Data

You’ll need to keep employee census info current and sure that payroll data is being communicated properly with the 401(k) service provider, ensuring the correct amounts go into each employee’s account. This helps avoid mistakes and keeps things running smoothly.

4. Work with 401(k) Providers

Depending on how you’ve selected and built your provider team, you might have one provider or a whole team. Either way, keep track of who does what so you can get help when you need it.

5. Communicate with Employees

Plan sponsors or their 3(16) administrator service providers are required to issue regular disclosures to employees. You’re also responsible for making sure employees get regular updates and can easily check and adjust their accounts. A good provider will help with this.

6. Handle Loans and Distributions

If your plan allows 401(k) loans, you’ll oversee how they’re given out and paid back. You’ll also manage payouts when employees retire.

7. Monitor Fees and Providers

Every few years, check what your plan providers are charging. Benchmarking your plan every three years can help keep you ensure your fees are fair.

We Can Help You Be a Better Fiduciary

Being a 401(k) fiduciary and sponsor is a big job—but you don’t have to do it alone. Whether you’re a small business owner or part of a growing team, we offer high-touch support to help you manage your plan with confidence. Contact us to learn more about the fiduciary and administrative support we offer small businesses.