If you oversee a company retirement plan, here’s a startling statistic that should grab your attention: 84% of U.S.-based retirement plans have at least one red flag that could signal regulatory violations or fiduciary failures. This finding comes from a comprehensive analysis by Abernathy Daley 401k Consultants, who examined Form 5500 filings for over 760,000 plans nationwide.
The implications are significant – more than 600,000 American companies could be facing potential fines, legal penalties, or fiduciary breaches without even realizing it. For perspective, in 2024 alone, the Employee Benefits Security Administration’s (EBSA) legal proceedings led to the restoration of nearly $1.4 billion to employee benefit plans and their participants.
The study categorizes these red flags into two main types: Regulatory Infraction Red Flags (RIRFs) and Egregious Plan Mismanagement Red Flags (EPMRFs). The findings reveal that 43% of companies have at least one RIRF – serious violations that could result in civil legal penalties or trials. These include issues like fraud-related losses, lack of qualified default investment alternatives (QDIA), insufficient fidelity bonds, and 404(c) compliance failures.
Even more concerning, 76% of companies have at least one EPMRF, indicating potential fiduciary failures by either the plan administrator or plan sponsor. These red flags include missing automatic enrollment features, failures to correct excessive contributions, inadequate 404(c) compliance for participant-directed accounts, and late payment transmissions.
Recent events underscore the seriousness of these compliance issues. In January 2025, Vanguard agreed to pay over $140 million in combined fines to the SEC and 401(k) plan participants for misleading investors about their target date funds. This case serves as a stark reminder of the substantial penalties that can result from plan mismanagement.
“Plan sponsors and employees are not only overpaying for their retirement plans on a widespread scale; they are also being underserved and exposed to unplanned and potentially damaging legal, compliance, and financial risks,” noted Steven Abernathy, CEO of Abernathy Daley.
For employers and plan advisors, the message is clear: proactive compliance monitoring is a non-negotiable. Matthew Daley, president of Abernathy Daley, recommended implementing regular benchmarking audits to ensure compliance and optimize plan offerings for employees. This approach not only protects against potential penalties but also helps maintain retirement plans as a valuable tool for talent acquisition and retention.
The stakes are high – EBSA’s recent criminal investigations resulted in 68 indictments and 161 convictions or guilty pleas, including plan officials and corporate officers. As regulatory scrutiny intensifies, ensuring your retirement plan meets all legal and fiduciary requirements isn’t just good practice – it’s necessary for protecting your organization and your employees’ financial futures.
