How To Spot A Troubled Retirement Plan From A Distance or a Form 5500

Sometimes you can spot a poorly run retirement plan from a distance, sometimes it’s just as easy as reading their Form 5500. Whether you are a plan sponsor, a financial advisors, and/or third party administrator looking for new clients, you can gauge whether a plan is going through problems just by reading their Form 5500.

Here are some things to spot:

  1. The Form 5500 admits it has a serious error (prohibited transaction, no ERISA bond, later 401(k) deferral deposits.
  2. If the plan is a defined benefit plan, the plan is severely underfunded.
  3. The plan sponsor has both a money purchase and profit sharing plan. Unless they benefit different groups of employees, plans should have been merged in 2002.
  4. If the plan is a 401(k) plan, it’s on an insurance company provider platform and plan assets are more than $2 million.
  5. The broker of record is getting a hefty commission that is not reasonable by what the market dictates (i.e, % compared to plan assets).
  6. The information on Schedule C looks less than complete (especially compensated received directly or indirectly amounts).
  7. The plan is paying too much in administrative fees and auditing (if the plan requires one).

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