When it comes to your health, there are signs\u2014little warnings your body gives you\u2014that something might be off. You don\u2019t ignore chest pain, blurry vision, or persistent fatigue (at least, you shouldn\u2019t). The same is true with your company\u2019s 401(k) plan. There are symptoms that, while not always catastrophic on their own, can be early warnings that your plan is unhealthy and potentially heading for serious compliance trouble.<\/p>\n
As someone who\u2019s been in the trenches of the retirement plan world for more than two decades, let me walk you through the signs I look for when assessing the health of a 401(k) plan. If your plan checks just one of these boxes, it\u2019s time to schedule a checkup. More than one? You\u2019ve got a real problem.<\/p>\n
1. Late Deposit of Salary Deferrals<\/p>\n
This is the equivalent of chest pain in the 401(k) world. Participant contributions must be deposited as soon as reasonably possible\u2014often within days. Late deposits aren\u2019t just bad form; they\u2019re a prohibited transaction and one of the first things the Department of Labor will flag.<\/p>\n
2. Low Average Account Balances<\/p>\n
If your plan has been around for years and participant balances are still anemic, that\u2019s not just a sign of low wages\u2014it\u2019s a sign of low engagement, poor education, and possibly bad plan design.<\/p>\n
3. No ERISA Bond in Place<\/p>\n
This one\u2019s simple: if your plan doesn\u2019t have a fidelity bond, it\u2019s out of compliance. It\u2019s the most basic ERISA requirement. No bond, no excuse.<\/p>\n
4. Low Deferral Participation Rate<\/p>\n
If only a fraction of eligible employees are contributing, something\u2019s wrong\u2014either with communication, plan design, or company culture. Auto-enrollment and re-enrollment features can help, but only if someone is actively managing the plan.<\/p>\n
5. Compliance Testing Failures, Corrective Contributions Made<\/p>\n
One failed test might be forgivable. Chronic failures that require annual refunds to highly compensated employees? That\u2019s a sign of poor plan design. There are ways to fix this\u2014safe harbor, automatic enrollment, better education\u2014but it starts with someone paying attention.<\/p>\n
6. Too Many Hardship Requests<\/p>\n
While hardships happen, a steady stream of them may indicate deeper financial instability among your workforce\u2014or that the plan is being used like a piggy bank instead of a retirement vehicle.<\/p>\n
7. Too Many Defaulted Plan Loans<\/p>\n
Defaults aren\u2019t just unfortunate\u2014they\u2019re taxable events for participants and administrative headaches for employers. If participants are consistently defaulting, it\u2019s a sign your loan policy needs tightening and your education efforts need strengthening.<\/p>\n
8. No Benchmarking of Fees<\/p>\n
If you haven\u2019t compared your plan\u2019s fees to market standards in the last three years, you\u2019re failing as a fiduciary. High fees chip away at participant balances, and plaintiffs\u2019 attorneys love to find overpaying plans.<\/p>\n
9. No Review of Plan Providers<\/p>\n
If your TPA, recordkeeper, or advisor hasn\u2019t been evaluated in years, that\u2019s a red flag. Loyalty is fine, but blind loyalty leads to stagnation. Providers should be reviewed\u2014not necessarily replaced\u2014but reviewed regularly.<\/p>\n
10. No Formal Fiduciary Process Followed<\/p>\n
If your plan doesn\u2019t have documented investment reviews, meeting minutes, or a clear process for decision-making, it\u2019s not a matter of if you\u2019ll get in trouble\u2014it\u2019s when. A formal fiduciary process protects the plan, the participants, and you.<\/p>\n
<\/span><\/p>","protected":false},"excerpt":{"rendered":" When it comes to your health, there are signs\u2014little warnings your body gives you\u2014that something might be off. You don\u2019t ignore chest pain, blurry vision, or persistent fatigue (at least, you shouldn\u2019t). The same is true with your company\u2019s 401(k) … Continue reading