What Does It Mean to Be a 401(k) Plan Sponsor?

If you’re new to being a 401(k) plan sponsor, Betterment has you covered

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By Dotdash Creative
Updated August 30, 2022
Reviewed by
David Kindness
David Kindness
Reviewed by David Kindness
David Kindness is a Certified Public Accountant (CPA) and an expert in the fields of financial accounting, corporate and individual tax planning and preparation, and investing and retirement planning. David has helped thousands of clients improve their accounting and financial systems, create budgets, and minimize their taxes.
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We applaud you for considering a 401(k) plan. Not only can an effective plan make a difference in helping employees save for their future, but it can enhance your organization’s recruiting efforts.

If you’re new to the world of 401(k)s and wondering what it means to be a plan sponsor, Betterment has you covered. Betterment will partner with you every step of the way and is always available to answer your questions.

Key Takeaways

  • Betterment is a financial advisory firm based in New York.
  • It has a service that can help organizations and firms seeking to become 401(k) plan sponsors.
  • Betterment will gather all relevant information from the client and help create a plan document which is then executed.
  • Before collecting funds, a plan sponsor is required by law to buy a fidelity bond protecting the plan against any fraudulent acts made by anyone at the organization.
  • The plan sponsor's responsibilities include making sure employees are correctly identified, that all information is up-to-date, and that employees' decisions regarding 401(k) contributions are reflected in the payroll system.

Getting Your Plan Set Up

Betterment will need to know more about your organization to prepare a plan document for your review and approval, outlining key plan provisions such as eligibility requirements, company matching provisions, enrollment type (automatic or voluntary) and vesting schedules. They will guide you through these decisions (much of it through their online Onboarding Hub) and share best practices so that your plan meets the needs of your organization and your employees.

Since you are required to administer the plan in accordance with the plan document, it’s important that you and those responsible for the plan’s operations are familiar with it. Periodic amendments prepared by Betterment will ensure the plan remains in compliance with changing regulatory requirements and evolving decisions by the company.

Before any funds can flow into the plan, you are also required by law to purchase a fidelity bond that protects the plan against fraudulent or dishonest acts made by anyone at your organization that may help administer the plan.

Understanding Your Fiduciary Responsibilities

401(k) plan sponsors have important fiduciary responsibilities and must adhere to specific standards of conduct as defined by Employee Retirement Income Security Act (ERISA):

  • Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them
  • Carrying out their duties prudently
  • Following the plan documents
  • Diversifying plan investments
  • Paying only reasonable plan expenses

Betterment acts as your 3(16) fiduciary for certain administrative functions and acts as a 3(38) investment manager, which provides you with the highest level of investment fiduciary protection. However, you still have an obligation to monitor them and anyone to whom you delegate your fiduciary obligations; you can never fully eliminate these.

Ongoing and Annual Responsibilities

Betterment will handle much of your plan administration, but as plan sponsor, there are certain responsibilities that fall to you, including:

  • Ensuring eligible employees are appropriately identified (if payroll is integrated, Betterment enforces your plan’s eligibility requirements)
  • Making sure that employee decisions are accurately captured and reflected in your payroll system
  • Making sure that employee changes are reflected in the Betterment system
  • Approving participant loans (if offered) distribution requests
  • Reviewing results of compliance tests performed by Betterment (annually)
  • Signing Form 5500 prepared by Betterment (annually)

Staying Informed

The 401(k) industry is constantly changing, and Betterment keeps its finger on the pulse of what’s going on. Betterment regularly adds relevant articles to their website and will keep you informed of any changes that may impact your plan.

Learn More at Betterment.com.