Definition
ERISA section 3(16)(B) defines the plan sponsor as the employer that establishes or maintains the plan, the employee organization for a union plan, or the association or committee that does so for a multiemployer plan. The sponsor makes settlor decisions, such as adopting the plan or changing benefits. The plan administrator named in the plan document, or the sponsor by default under section 3(16)(A), runs the plan and signs the Form 5500. A trustee or custodian holds the assets. Roles overlap in small plans.
Why it matters in an audit or review
The auditor of the plan deals with the plan administrator, usually through the sponsor's finance team, and obtains management representations about plan operations. Sponsor responsibilities include remitting contributions on time, choosing and monitoring service providers, and maintaining the plan document. The plan is a separate reporting entity, so the sponsor's own financial statements do not substitute for the plan's statements.
Example
Illustrative: a company adopts a 401(k) plan, names its CFO as plan administrator, and hires a third-party recordkeeper and a trust company as custodian. The company is the sponsor, the CFO's role is administration, and the custodian holds the assets.
Common mistakes
- Assuming the recordkeeper or custodian is responsible for compliance that belongs to the sponsor.
- Mixing up the sponsor's expenses with plan expenses paid from plan assets.
Sources
- ERISA section 3(16), 29 U.S.C. 1002(16), definitions of administrator and plan sponsor: https://www.law.cornell.edu/uscode/text/29/1002
- DOL, Employee Benefits Security Administration, Form 5500 instructions: https://www.dol.gov/agencies/ebsa
- AICPA, AU-C Section 703
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error