What is the primary role of a plan sponsor in coverage testing?

The primary role of a plan sponsor in coverage testing is to ensure compliance with eligibility requirements. Coverage testing is designed to determine whether a retirement plan meets the necessary criteria for participation, especially in relation to the minimum coverage requirements set forth by the Internal Revenue Code. This involves verifying that a sufficient number of employees are covered by the plan and that the plan does not disproportionately favor highly compensated employees over lower-level employees.

The plan sponsor is responsible for implementing these tests, collecting the necessary data, and making any adjustments needed to comply with federal regulations. This role is crucial because failing to meet coverage requirements can lead to disqualification of the plan, which involves significant tax implications for both the employer and employees.

The other options, while important roles in the overall administration of a retirement plan, do not specifically pertain to the coverage testing process. Managing investments and conducting employee training are separate responsibilities that fall outside the scope of ensuring compliance with eligibility requirements. Providing legal advice goes beyond the typical duties of a plan sponsor and is usually handled by legal professionals or external consultants who specialize in retirement plan law.