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Whats The Difference Between 401(k) Administrator VS Sponsor?

While 401(k)plans can be a great way to lift the spirits of employees, they also come with a lot more paperwork and hassle for employers.

The IRS requires workplace retirement plans to comply with many regulations. Therefore, it is important that 401(k)sponsors and administrators regularly monitor the plans they have been entrusted with and perform various duties.  You can outsource some of the administrative responsibilities to a service provider or also get 401 k compliance assistance.

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Sponsor of a 401k plan is an entity that creates retirement plans for employees and companies. This is usually the employer, a union or a select employee of the company.

The organization responsible for overseeing the operation of a 401(k), plan administrator, is called the plan sponsor. The 1974 Employee Retirement Income Security Act (also known as ERISA), requires that the plan sponsor choose an administrator. This could be an employer, a group of employees, or a company executive.

To better understand the role of a 401(k), plan administrator, it is important to know what the responsibilities are.A financial advisor might be hired to offer investment advice and consulting to employees. An auditor might be hired to verify that financial statements in a plan are compliant with federal laws. 

Administrators are usually responsible for maintaining the plan's records, assuring that the 401k operates according to plan documents, and, if necessary, securing a bond.

Below are additional responsibilities and functions of the plan administrator:

Annual compliance testing

This is an important aspect of a 401k's oversight. To ensure that employees with high salaries don't receive tax deferral, the IRS requires all qualified plans to pass nondiscrimination testing each year. These tests include the Actual Deferral Percentage test (ADP) and the Actual Contribution Percentage(ACP) tests.