Plan Sponsor vs. Plan Administrator

It is also important that the plan sponsor assign responsibilities for each task associated with the plan as the IRS is not lenient when it comes to maintaining compliance.

A plan administrator is in charge of executing the employee retirement plan. This includes ensuring the plan is current and up-to-date, reviewing the plan for changes in the law, and investing plan funds, and determining associated fees.

Plan administrators also need to be in constant communication with employees to explain how the retirement plan works, opportunities to participate, and how benefits and vesting periods work. If the plan allows for employees to take out loans against eligible accounts, the plan administrator oversees these requests and ensures they are in accordance.

There are many differences between a plan sponsor and a plan administrator when it comes to the duties they perform.

Here are the key differences between a plan sponsor and a plan administrator:

• The plan sponsor is usually the business entity whose employees are covered by the plan

• The plan administrator is the person within the business entity who is responsible for the day-to-day administration decisions for a plan

• The plan sponsor selects the service provider for the plan and determines what classification of employees can participate in the plan

• The plan administrator oversees plan operation including employee enrollment, employer matching, and distributions

• The plan sponsor understands what the plan does or does not cover and avoids making prohibited transactions under IRS law

• The plan administrator sends out 1099-R and 5500 forms as required by the Department of Labor and the Internal Revenue Service