What is a 'Plan Sponsor'

A plan sponsor is a designated party, usually a company or employer, that sets up a healthcare or retirement plan, such as a 401(k), for the benefit of the organization's employees. The responsibilities of the plan sponsor include determining membership parameters, investment choices, and in some cases, providing contribution payments in the form of cash and/or stock.

BREAKING DOWN 'Plan Sponsor'

Some companies offer retirement savings plans, pension plans, or health plans to their employees as part of their employee benefits program. These companies are referred to as plan sponsors. Employers are typically plan sponsors, but unions and professional bodies could also be plan sponsors. The plan sponsor implements and establishes a plan, determines the benefit package, amends the plan, and terminates the plan. Depending on the type of retirement or health plan available to employees, contributions to the plan can be made by both the plan sponsor and employees, plan sponsor alone, or employee alone.

The plan sponsor is responsible for paying the employees the retirement income that they are entitled to from the plan. The retirement income can be based on the performance of investments within the plan, or it could be a pre-determined amount based on how much the employee contributed. An employee that leaves before the vested time may only receive the amount that he or she contributed to the plan, forfeiting any benefits that the retirement or health plan provides.

Fiduciary Management

While some plan sponsors take matters into their own hands and handle all the investment decisions for retirement plans, most of them outsource the fiduciary management of the assets in the plan to one or more third parties. This way, multiple investment options run by different money managers may be offered to suit various risk profiles among the company's employees. Some of the roles that a plan sponsor outsources includes plan administrators, trust companies, and investment advisers. The plan administrator is responsible for managing the day-to-day affairs and the strategic decisions involved with a group's retirement plan. A trust company or trustee provides custodial services and holds the actual investment assets in a trust fund for the employees. Plan sponsors usually hire investment advisors to recommend an investment or course of action for one or multiple retirement plans.

Individuals and organizations that provide investment advice to retirement plan participants and sponsors are subject to the fiduciary standards set by the Employee Retirement Income Security Act (ERISA). Plan sponsors have to ensure that the investment advisors managing the plan investments are adhering by the Best-Interest Contract Exemption (BICE) rules under ERISA, which include giving investment advice that’s in the plan participants’ best interests, charging no more than reasonable compensation, fairly disclosing fees, compensation, and material conflicts of interest associated with their investment recommendations, etc.

In establishments in which the plan sponsor also acts as the plan administrator, the plan sponsor is said to be a fiduciary. A fiduciary is required to diversify investments to minimize the risk of large losses; act in accordance with the rules governing the plan unless the rules are inconsistent with ERISA; act solely in the interest of the plan participants and their beneficiaries; and act with prudence, skill and diligence of a prudent person acting in similar capacity.

 

RELATED TERMS
  1. Sponsor

    A sponsor can be a range of providers and entities supporting ...
  2. Employee Retirement Income Security ...

    The Employee Retirement Income Security Act of 1974 protects ...
  3. Employee Contribution Plan

    An employee contribution plan is an employer-sponsored savings ...
  4. Unit Benefit Plan

    A unit benefit plan is an employer-sponsored pension plan with ...
  5. Pension Risk Transfer

    Pension risk transfer is when a defined benefit pension provider ...
  6. Corporate Pension Plan

    A corporate pension plan is a formal arrangement between a company ...
Related Articles
  1. Financial Advisor

    Advisors: Here's Your DoL Fiduciary Rule Checklist

    Advisors should start working with retirement plan sponsors sooner rather than later to help them become compliant with the new fiduciary rule.
  2. Investing

    How 401(k) Plan Sponsors Can Minimize Risk

    There are ways 401(k) plan sponsors can protect themselves against risk and potential litigation.
  3. Retirement

    The 401(k) and Other Qualified Plans Tutorial

    Learn about eligibility requirements, contributions and distribution rules for these retirement plans.
  4. Insights

    What the New Fiduciary Rule Means for 401(k)s

    Sponsors of 401(k) plans need to adapt to changes in the wake of the new fiduciary rule.
  5. Retirement

    How We Can Help Close the Retirement Savings Gap

    The majority of Americans are not very confident about having enough for retirement.
  6. Financial Advisor

    Coverage of Fiduciary Liability Insurance

    As fiduciaries, retirement plan sponsors have tremendous personal liability exposure. Find out how fiduciary liability insurance can protect personal assets.
  7. Financial Advisor

    Investment Committees: Duties and Responsibilities

    An investment committee can help plan sponsors avoid fiduciary liabilities. Included is information regarding the duties and responsibilities of investment committee members.
  8. Retirement

    The 401(k) Plans That Vanguard Offers

    Find out what you need to know about Vanguard's 401(k) plan offerings to large and small businesses and what makes them so popular.
  9. Retirement

    Is Your 401(k) Administrator Competent?

    The more that employees know about their employee 401(k) plans, the better. But what doesn't your administrator know?
  10. Financial Advisor

    How to Follow Investment Committee Best Practices

    More plan sponsors are forming investment committees to fortify their fiduciary standards. These are best practices for investment committees to follow.
RELATED FAQS
  1. How do you rollover/transfer a 401(k) to another 401(k)?

    Understand the process of transferring your old 401(k) account into your new employer-sponsored plan, and learn the benefits ... Read Answer >>
  2. What are qualified retirement plan types?

    Understand the different types of qualified retirement plans and what they mean in terms of employee and employer contribution ... Read Answer >>
Trading Center