The 12 Critical 401(k)
Mistakes
Plan sponsors should never make these costly errors that can jeopardize qualified status
Each mistake can result in significant fines, loss of qualified status, increased fiduciary liability, or Department of Labor audits. Learn how to identify, avoid, and correct these critical errors before they impact your plan.
Why These Mistakes Matter
The retirement plan landscape is complex and challenging. Even well-intentioned plan sponsors can make costly mistakes that have serious consequences for both the plan and its participants.
Financial Penalties
IRS fines up to per violation, DOL penalties of per day with no maximum limit.
Loss of Qualified Status
Plan disqualification results in immediate taxation for all participants and loss of tax benefits.
Fiduciary
Liability
Personal liability for plan sponsors, potential lawsuits, and breach of fiduciary duty claims.
DOL Audits
Increased scrutiny from Department of Labor, comprehensive audits, and ongoing compliance monitoring.
The Good News
All of these mistakes are preventable with proper planning, documentation, and expert guidance. Partnering with experienced retirement plan professionals helps reduce fiduciary liability and avoid costly errors.
All 12 Mistakes Detailed
#1
High
Not Understanding or Monitoring Fees
Potential Consequences:
#2
Critical
Failure to Update Your Plan
April 30th, 2016 marked the IRS deadline for most employers to restate their 401(k) plans. Plans that did not comply could lose qualified status or face.
Potential Consequences:
#3
High
Failure to do Discrimination Testing
Potential Consequences:
#4
Medium
Failure to Test Top Heavy Plans
Potential Consequences:
#5
Critical
Not Keeping Up with Reporting Obligations
Form 5500 filing failures result in IRS penalties of day (max) plus DOL fines of /day with no maximum. Summary Plan Descriptions must be provided timely.
Potential Consequences:
#6
High
Failure to Conform Participant Loans & Hardship Withdrawals
Potential Consequences:
#7
High
Delayed Payment of Deferrals and After Tax Contributions
Potential Consequences:
#8
Medium
Not Having an Accurate Definition of Compensation
Potential Consequences:
#9
Medium
Too Little Diversity Among Investment Options
Potential Consequences:
#10
Critical
Not Understanding Your Role as Fiduciary
Potential Consequences:
#11
Medium
Not Reviewing Service Providers and Third Party Administrators
Potential Consequences:
#12
High
Not Having a Fidelity Bond
Potential Consequences:
1. Not Understanding or Monitoring Fees
Hidden fund or recordkeeping fees can quietly increase costs. Regular reviews help keep them fair and transparent. Read More
2. Failure to Update Your Plan
Missing regulatory updates or restatements risks penalties. Work with your TPA to stay compliant. Read More
3. Failure to Do Discrimination Testing
Skipping nondiscrimination tests can harm plan fairness. Annual checks keep benefits balanced. Read More
4. Failure to Test Top Heavy Plans
If key employees hold over 60% assets, contributions are required. Annual testing ensures compliance. Read More
5. Not Keeping Up with Reporting Obligations
Late filings or missed disclosures can cause penalties. Use a compliance calendar to stay on track. Read More
6. Failure to Conform Participant Loans & Hardship Withdrawals
Unverified loans or withdrawals risk disqualification. Always match terms with the plan document. Read More
7. Delayed Payment of Deferrals
Deferrals must be deposited promptly. Delays can trigger penalties and lost earnings. Read More
8. Not Having an Accurate Definition of Compensation
Incorrect pay definitions affect testing and matches. Ensure payroll follows the plan rules. Read More
9. Too Little Diversity Among Investment Options
Limited fund choices raise risk for participants. Provide diversified options or target date funds. Read More
10. Not Understanding Your Role as Fiduciary
Fiduciaries must act prudently and fairly. Training and documentation help reduce risk. Read More
11. Not Reviewing Service Providers and TPAs
Outdated providers may overcharge. Regular reviews and benchmarking protect participants’ interests. Read More
12. Not Having a Fidelity Bond
Plans require bonding coverage for protection. Renew annually to stay compliant and avoid audits. Read More
Need Expert Guidance?
Don’t navigate these complex requirements alone. Our experienced advisors help plan sponsors avoid all 12 mistakes through proper planning, documentation, and ongoing compliance monitoring.
