A recent analysis of government retire­ment plan filings suggests compa­nies across the country could be fall­ing short in properly managing their employ­ees’ 401(k) and 403(b) plans, exposing them to the possibility of regulatory fines and penalties.

The data reveals what some experts ar­gue are widespread and systemic problems in how employers administer these tax-advan­taged plans meant to help workers save for re­tirement. It also calls into question whether employees are getting the most value for their money in terms of fees and services.

Major Issues Uncovered

An analysis by consultancy firm Aber­nathy Daley 401k Consultants found a poten­tial breach of fiduciary duty under the Employ­ee Retirement Income Security Act (ERISA) in approximately 84% of U.S. retirement plans.

Looking at the most recent Form 5500 fil­ings for 764,729 defined contribution plans, the analysis identified more than 615,000 employ­ers at risk for regulatory infractions, fiduciary failures, or other plan issues that the company deemed as possible malpractice.

These employers could face financial con­sequences like fines—or in the worst cases, lawsuits—if found liable of mismanagement. Employees whose plans underperformed due to excessive fees or inferior investment options could also suffer in the form of lower account balances.

Two broad categories encompassed most of the red flags:

• Regulatory Infractions: Highly severe vi­olations that can lead to civil legal penalties or even a trial, including loss from fraud or dishonesty and not being 404(c) compliant. Approximately 43% of companies were found to have at least one such infraction.
• Egregious Plan Mismanagement Red Flags: Situations that suggest imprudent or egregious management by plan fiduciaries, such as not including automatic enrollment and failure to transmit payments on time. Around 76% of companies were found to have at least one such red flag.

Fee Benchmarking Lacking

So, what’s driving this apparent widespread mismanagement?

In the view of some experts, the root cause is likely that the majority of employers have not had their plans independently benchmarked and audited within the last three years.

Benchmarking by a third party lets com­panies compare their plan’s fees and services against peers. This process helps fiduciaries fulfill their legal duty to ensure fees paid by the plan are reasonable.

Without regular benchmarking and reviews by experts, plans could unnecessarily overpay for administrative fees and investment options that underperform.

The scope of this issue implies employees may be losing large sums in their accounts. One executive cited the billions of dollars re­stored to retirement plans in recent litigation as evidence that workers and retirees are bearing the brunt through overpayments.

More Vigilant Oversight Needed

For employers offering retirement benefits, what steps can help avoid heightened risks and potential penalties?

Experts believe that ensuring prudent over­sight and management of the plan should be the priority. Employers should also leverage qual­ified experts to audit their plans and provide benchmarks.

Some of the best practices fiduciaries should follow include:

• Conducting regular fee analysis and bench­marking every 2-3 years to identify fee discrepancies or excessive charges
• Reviewing investment performance and comparing to benchmarks to weed out con­sistently lagging funds
• Ensuring all required participant disclosures and filings are completed accurately to avoid technical violations
• Working with service providers that specialize in risk and compliance to avoid violations.

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Copyright © 2025 Smarts Publishing. This is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.