Plan Sponsor

A plan sponsor is the employer or organization that establishes, maintains, and takes legal responsibility for an employee benefit plan. Most commonly, the plan sponsor is a company offering a 401(k) or defined benefit pension plan to its workforce. The plan sponsor decides to offer the benefit, designs the plan structure, selects investment options, and bears fiduciary responsibility for ensuring the plan operates in participants' best interests under the Employee Retirement Income Security Act of 1974.

The plan sponsor is the entity that created the plan and owns it legally. Every other party, including the plan administrator, the trustee, and the record-keeper, works on behalf of the plan sponsor.

What the Plan Sponsor Is Responsible For

The plan sponsor's responsibilities under federal law are substantial and non-delegable in their core elements.

• Plan design: Choosing the type of plan, the employer contribution formula, vesting schedules, eligibility rules, and investment menu. These decisions determine the benefit employees ultimately receive.
• Selecting and monitoring service providers: The plan sponsor hires the record-keeper, investment manager, and third-party administrator and must periodically review whether those providers are performing adequately and charging reasonable fees.
• Ensuring the plan document is current: Tax law changes regularly require amendments to plan documents. The sponsor is responsible for keeping the plan in compliance and submitting required filings with the Internal Revenue Service and Department of Labor.
• Acting as a fiduciary: Decisions about plan design and investment options must be made solely in the interest of plan participants, with the care of a prudent expert. Breaching this duty creates personal liability for the individuals who made the decisions.

Plan Sponsor vs. Plan Administrator

These roles overlap significantly, and in many small companies the same person fills both. The legal distinction matters, though.

The plan sponsor is the organization that established the plan. The plan administrator is the party responsible for the plan's day-to-day operations, including participant communications, required filings, and transaction processing. The plan sponsor designates who serves as plan administrator in the plan document, and can designate itself, a committee, or an outside firm.

Plan Sponsor Liability Is Real

Lawsuits against plan sponsors have increased sharply since the mid-2000s. The most common claims involve excessive investment fees, imprudently selected or retained investment options, and failures to monitor service providers. Notable settlements include Boeing's $57 million settlement in 2021 over excessive record-keeping fees and Lockheed Martin's $62 million settlement in 2015 over similar claims.

These cases have pushed plan sponsors to pay closer attention to fee benchmarking, periodic investment option reviews, and documentation of every fiduciary decision, including the process for reaching it.

Who Qualifies as a Plan Sponsor

Any employer who establishes a plan for its employees is a plan sponsor. This includes corporations, partnerships, sole proprietors, government entities, and nonprofit organizations. For multiemployer plans, often called union plans, a joint board of trustees representing employers and the union collectively serves as the plan sponsor.

Sources

• https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration
• https://www.irs.gov/retirement-plans/plan-sponsor