What Is a Plan Sponsor?

Every company needs a talented team to support its mission and goals, drive revenue, and facilitate overall success. Part of retaining your hard-working employees is offering them a robust benefits plan that contributes to their well-being and helps prepare them for the future.

If your business is looking to offer employees a comprehensive retirement, pension, or healthcare plan, understanding what a plan sponsor is and how they work is the first step.

Retirement Plan Sponsor Defined

Put simply, a plan sponsor is any company or organization that establishes and maintains a retirement, pension, or healthcare plan for its employees. Essentially, if your organization offers one or more retirement or medical coverage plans to its employees as part of its employee benefits package, it is a plan sponsor. In particular, a company offering a retirement plan is called a “retirement plan sponsor.”

What Does a Plan Sponsor Do?

As a retirement plan sponsor, the company has various responsibilities to follow so it can offer its workforce an actionable way to save money for retirement.

Generally, the main responsibility is establishing the plan, which must adhere to Internal Revenue Service requirements. While a plan sponsor may hire administrators and financial advisors to help create and manage the plan, it’s the employer’s role as the sponsor to ensure ongoing compliance.

Additionally, plan sponsors must stay updated on retirement or healthcare plan industry trends and changes. For example, employee contribution limits for retirement plans can change annually, meaning sponsors must amend the plan as needed and keep plan participants in the loop.

Most companies that sponsor retirement plans work with third-party advisors to help them create, distribute, and maintain their policies. This allows them to establish clear, comprehensive, and compliant retirement policies that employees can understand — though it’s crucial to note that the plan sponsor is still ultimately responsible for its compliance.

Steps for Distributing a Company Retirement Plan

The steps to create a retirement plan as a plan sponsor include:

1. Consider Goals and Budget

As a team, you’ll want to figure out your goals for creating the company retirement plan and how the company can afford to establish it. For example, do you want to build a plan that helps you attract top talent, or are you more concerned about retaining current employees? Additionally, how much can your business reasonably afford to contribute to the plan? These considerations will help you assess the available options to choose one that suits your employees and aligns with your budget.

It’s also important to note that different retirement plans exist for different organization types. For instance, if you employ less than 100 workers or your business is designated as a nonprofit, your company will qualify for a particular set of plans. These company-specific characteristics are important to remember as you start the plan sponsor process.

2. Select the Retirement Plan

There are multiple retirement plan options to choose from for your workforce. As a result, you should compare all your options — including qualified and nonqualified plans — and how they might fit your employees, plus your goals and budget as a company. These are a few examples of retirement plans to consider:

• Simplified Employee Pension Individual Retirement Account (SEP-IRA): The SEP-IRA is ideal for small businesses. Each employee receives their individual retirement account. The employer adopts an SEP agreement and then directly contributes a certain percentage of every employee’s compensation to the employee’s retirement accounts. The SEP-IRA comes with higher contribution limits and is tax-deductible for employers.
• 401(k) plan: This employer-sponsored plan allows employees to allocate a portion of their paychecks toward retirement before taxes. The amount of money workers can contribute is limited, and employers may offer matching contributions. Regarding taxes, contributions reduce taxable income, and employees don’t have to pay taxes on them until retirement.
• 403(b) plan: Similar to a 401(k), the 403(b) plan allows employees to make pre-tax contributions through payroll deductions, and employers can match contributions. However, 403(b) plans are solely for nonprofit organizations, some government entities, and schools.

If your company employs less than 100 employees, you might be interested in offering a Savings Incentive Match Plan for Employees (SIMPLE) IRA plan. This option is a great alternative to sponsoring a traditional retirement plan and as a startup option for smaller companies. This plan involves employee contributions up to a specific amount, and the employer must match a certain percentage. It also provides tax-deferred growth on contributions.

Because not every plan will work for every company, take your time to research each option and determine how certain plans may benefit your team more than others. Additionally, contribution limitations for plans can change annually, which will likely be a key consideration in your selection process.

3. Research Plan Providers

Next, select a financial institution or administrator to manage the plan for your company. Administering any retirement plan is a highly complex and time-consuming process — and it’s subject to numerous stringent compliance regulations.

While some employers attempt to distribute retirement plans on their own, enlisting the help of an experienced service provider can be invaluable. It’s the employer’s fiduciary responsibility to act in the best interests of the beneficiaries — or the employees who buy into the retirement plan — and working with a professional financial team can help you maintain that responsibility.

Once you partner with a retirement plan service provider, you can establish investment options, draft plan documents, set up recordkeeping processes, and more. Together, you’ll create a detailed and compliant policy document to launch your company’s retirement plan.

4. Communicate With Employees

As the plan sponsor, you want to welcome employees to the plan and make onboarding as streamlined as possible. This step involves developing employee materials that cover all the information they need to know about the retirement plan. For example, you should detail how contributions work, which investment options are available, and the plan’s benefits. Provide support as employees learn about the plan to answer questions and get everyone on the same page.

5. Implement the Plan

Finally, with the help of your professional retirement services partner, it’s time to launch your company’s new retirement plan. All eligible employees can now enroll in the plan and begin making contributions as applicable. This process should be as smooth as possible, so try to ensure enrollment systems work properly for your employees’ sake and recordkeeping purposes.

Frequently Asked Questions

Have more questions about plan sponsors? Explore the following FAQs and their answers to learn more:

What Is the Fiduciary Responsibility of a Retirement Plan Sponsor?

Under the Employee Retirement Income Security Act, retirement plan sponsors have a fiduciary responsibility to act in the best interests of plan participants. As the plan sponsor, this responsibility means your company must always prioritize the interests of your employees who choose to enroll in the retirement plan. More specifically, it’s a legal obligation to avoid conflicts of interest, select diverse and suitable investments, maintain transparency with participants about the plan, and more.

Who Is the Plan Sponsor of a 401(k)?

A plan sponsor of any retirement plan — 401(k), 403(b), or otherwise — is an employer or company that maintains that plan for its employees. In some cases, a plan sponsor can be a group of representatives or a key executive overseeing the plan. If you’re an employee wondering who your plan sponsor is, it’s likely your employer.

Learn More About Our Retirement Plan Sponsor Services

The team of financial professionals at Fort Pitt Capital Group knows how complicated it can be to offer a beneficial retirement plan for your employees. Between choosing the right retirement plan type and creating a compliant policy, it can take months for companies to get started.

That’s why we’re here to take the weight off your shoulders with our retirement plan administration and compliance services. Our complete approach includes employee data collection, recordkeeping, plan document maintenance, government reporting, and so much more. As a result, you have a reliable partner on your side to keep you compliant, free up valuable time, and ensure you maintain your fiduciary responsibility.

Ready to create a retirement plan that works for your valued employees? Contact us today to get in touch with our experienced team!