PRM Consulting

A Retirement Plan Sponsor’s Responsibilities

Donnell Karimah and Michael Rhim

The first step in making sure your plan stays in compliance and remains eligible for tax benefits is to understand your responsibilities as the plan sponsor.  These responsibilities will include making sure the plan is written to comply with the IRS Code, ensuring that the plan is administered to follow its terms in operation and lastly, an employer needs to review the plan annually to ensure it is continuing to operate according to plan terms and according to the laws that govern retirement plans. At the onset, a plan sponsor must know the list of features included in their adoption agreement if they have a pre-approved plan, and what is covered and not covered in their service agreement. As it pertains to the adoption agreement you will need to know when your employees are eligible to participate in the plan; the types and amounts of allowable plan contributions; how employer contributions are divided among participants; when participants are vested; and when and how benefits are paid. 

While the plan sponsor ultimately holds fiduciary responsibility for the retirement plan, properly administering a plan that is compliant and true to its terms requires heavy reliance on administrative tasks as outlined in the plan’s service agreement. Plan Sponsors often hire third party administrators and investment advisors to assist with managing the plan. Even when doing so the plan sponsor often retains and/or shares the fiduciary responsibility for compliance, accuracy and fairness in the plan operations and processes. It is essential that the party performing administrative tasks for the plan be well-informed about what information they need to have in order to update the plan as needed, distribute plan notices, apply plan participation, contribution and distribution terms, file appropriate forms with the IRS or Department of Labor, facilitate the payment of fees, if any, run timely testing if required, invest the plan funds. They will also need to ensure that the responsible party knows to review the plan document for law changes and update it when needed; maintain records for participant accounts; learn about fiduciary responsibilities; and correct the plan (if it becomes non-compliant) and pay any fees associated with this process.

It is prudent for Plan sponsors to periodically hire a firm, like PRM to independently review the plan’s terms, processes and documents and communications to ensure compliance.  As an independent reviewer, we often see something that has been overlooked by others, which could save money for you and your employees and will improve the overall retirement benefit.