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