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

If you’re new to the world of 401(k)s and wondering what it means to be a plan sponsor, we have you covered.

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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, we have you covered. Betterment will partner with you every step of the way and is always available to answer your questions.

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. We will guide you through these decisions (much of it through our 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 a higher level of investment fiduciary protection. However, you still have an obligation to monitor us 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. We regularly add relevant articles to our website and will keep you informed of any changes that may impact your plan.

We look forward to working with you and are here to answer any questions you may have.