A recent study by Abernathy Daley 401k Consultants has revealed alarming findings: 84% of retirement plans have at least one ERISA “red flag violation,” indicating a failure in fiduciary responsibilities. A “red flag violation” refers to an infraction, fineable offense, fiduciary failure, or malpractice in regulatory infractions and egregious plan mismanagement.

Regulatory Infractions: 43% of companies have regulatory infraction red flags, which include a loss from fraud or dishonesty, failure to offer qualified default investment alternatives (QDIAs), insufficient fidelity bond, non-compliance with ERISA 404(c). These violations are considered severe and can result in significant civil legal penalties.

Egregious Plan Mismanagement: 76% of companies exhibit red flags related to plan mismanagement, such as lack of an auto-enrollment arrangement, no corrective distributions for excessive contributions, and failure to submit payments on time. While these infractions may not always result in fines, they represent critical fiduciary failures.

Excessive Administrative Fees and Poor Plan Design: The study also found that nearly 80% of companies with at least 100 employees are overpaying on plan administrative fees. Experts recommend conducting a third-party benchmarking review at least every three years to ensure cost-effectiveness and compliance.

Additionally, Abernathy Daley discovered that many plans suffer from poor plan design, leading to operational and legal issues. These issues can create unnecessary risks for employers.

Fiduciary Responsibility and Compliance: Whether you are solely responsible for providing fiduciary services or have engaged external providers, it remains your duty to ensure your plan complies with ERISA, DOL, and IRS regulations.

Contact us for a complimentary review of your retirement plan’s design, services, and fees to ensure compliance and optimal plan performance.