A common misconception about 401(k) plans is that once they’re set up, the hard part is over, and they will run themselves. But in reality, maintaining a retirement plan is an ongoing responsibility for plan sponsors (also known as employers). From fulfilling fiduciary responsibilities, working with service providers, and staying on top of yearly requirements, everything a plan sponsor handles in their role is crucial to keep a 401(k) running smoothly.

The good news is that these responsibilities don’t have to feel overwhelming. By having a clear understanding of key compliance requirements and keeping a simple checklist handy, employers can stay organized and secure in their role. Below, we will break down what the core 401(k) plan sponsor responsibilities are and provide a practical framework that can be followed throughout the year.

What is a 401(k) Plan Sponsor

For those who may not already know, a 401(k) plan sponsor, or the employer, is the one that sets up and maintains a retirement plan for their employees. While many behind-the-scenes tasks like recordkeeping and administration may be handled by plan providers, the plan sponsor are still responsible for overseeing plan operations and following regulatory requirements.

This means that employers play a significant role in making decisions around plan design, keeping their plan up to date with correct documentation, and more. Just as importantly, under ERISA (Employee Retirement Income Security Act of 1974), plan sponsors are considered fiduciaries and must take on additional duties that are focused on participants’ best interest.

Core Fiduciary Responsibilities Under ERISA

As mentioned, plan sponsors will need to handle plan requirements under ERISA. Some of these duties include:

  • Acting in participants’ best interest: Making plan decisions that keep employees’ retirement goals in mind
  • Following the plan document: Ensuring plan operations follow its written terms and design
  • Ensuring timely remittance of contributions: Taking care of deferrals and contributions within required timeframes
  • Maintaining documentation: Keeping organized records of reviews, decisions, and processes to prove proper oversight
  • Monitoring investments and fees: Regularly reviewing investment and costs for reasonableness

Compliance & Annual Testing Requirements

As annual testing is a huge part of maintaining a retirement plan’s compliance, plan sponsors should understand the requirements and when they typically occur (which is usually after the plan year ends).

These requirements include:

  • Contribution limit monitoring: This helps ensure deferrals and employer contributions stay within IRS limits
  • Coverage testing: Confirms that the plan properly includes eligible employees
  • Top-heavy testing: Determines if the plan’s assets are distributed among key employees and whether minimum contributions may apply
  • ADP/ACP testing: Reviews contribution rates to make sure highly compensated employees don’t benefit disproportionately

Audit Requirements & ERISA Thresholds

As 401(k) plans grow, additional compliance needs may apply, including an annual plan audit. Under ERISA rules, plans with around 100 or more eligible participants, and depending on filing status and participation counts, may be subject to an independent audit. This means it’s important for plan sponsors to properly track their plan growth and understand when an audit may be triggered.

While the audit process may seem daunting, it serves as a safeguard. During one, an auditor will check out operational processes, plan financials, compliance, and internal controls, and their findings are typically included with a plan’s Form 5500 filing. For employers worried about an audit in their future, the best thing to do is stay organized and maintain clear processes, which will make the experience far more manageable.

401(k) Plan Sponsor Responsibilities Checklist

Plan oversight includes multiple moving parts, so a simple checklist like the one below can help plan sponsors stay proactive and organized year-round.  Keep in mind that responsibilities may vary slightly depending on the plan design and plan provider, but this list covers the common areas for employers to regularly review.

  • Track regulatory updates and upcoming deadlines
  • Maintain documents regarding plan activity, reviews, and decisions
  • Review plan performance, investments, and service providers
  • Deliver participant notices on time
  • Stay up to date on audit thresholds and ERISA requirements
  • Complete annual compliance testing (including top-heavy testing and ADP/ACP)
  • Monitor fiduciary processes and decisions

The Role of Plan Providers in Supporting Employers

Again, thankfully, plan sponsors don’t have to take on the entirety of 401(k) management alone. Many day-to-day tasks are supported by recordkeepers, third-party administrators, advisors, and custodians who help handle operations, maintain records, facilitate yearly testing, and support financial transactions.

What’s even better is that with the right plan provider can bring many of these services together in one place, preventing multiple-vendor juggling for plan sponsors. With this approach, plan sponsors still have control with plan oversight but can streamline processes thanks to a more unified model. To know if a provider can provide this model, it’s important to ask them what is included in their offerings when implementing or converting a plan.

Additionally, some employers may work with providers that provide 3(16) fiduciary services, where specific compliance-related responsibilities are handled on their behalf. Form 5500 preparation, overseeing testing deadlines, and coordinating notices are just a few of the major tasks 3(16) fiduciaries can help with.  

Final Thoughts: Strong Oversight as a Strategic Advantage

Ensuring that plan sponsor responsibilities don’t become overwhelming ultimately comes down to consistent oversight, informed decision-making, and taking care of compliance needs proactively. By understanding the requirements (audit thresholds, fiduciary duties, testing rules, etc.) now, employers will set themselves up for success so they can put their focus back into their employees and business, and not play catch up with the day-to-day of their 401(k).

And with the right support system in place, plan sponsor responsibilities can become even more manageable. At Ubiquity, we partner with employers to simplify their duties with hands-on, compliance-focused expertise, allowing them to keep their 401(k)s ready for what is ahead.

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