Midwest Retirement Plan Advisors Reveal Common Business 401(k) Administration Mistakes and the Benefits of Fixing Them
Corporate and small business retirement plans for employees aren’t simply about offering a benefit—they are a strategic investment in your company’s future. However, the complexity of retirement plan administration can lead to costly mistakes that affect both your business operations and employee satisfaction.
The Hidden Costs of Retirement Plan Missteps
Before diving into specific pitfalls, consider these compelling statements & statistics related to business retirement plans in general:
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Failure to properly manage retirement plan fees and compliance can lead to Department of Labor audits and potential lawsuits, which have increased significantly in recent years.
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Business owners who manage retirement plans in-house spend an average of 80+ hours per year on plan administration—time that could otherwise be used for growing the business.
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Retirement plans are critical for employee retention (72% of workers are more likely to stay with an employer who offers a plan) and avoiding turnover costs—which reached $800B in the United States recently.
By understanding and avoiding common retirement plan pitfalls you can maximize the value of your plan while minimizing administrative headaches and compliance risks.
Pitfall #1: Inadequate Plan Design for Your Specific Business Needs
Many business owners adopt generic, one-size-fits-all retirement plans without considering their unique business structure, employee demographics, and long-term goals.
Common Mistake: Selecting a standardized plan structure (like a traditional 401(k)) without exploring options like Safe Harbor provisions, profit-sharing components, or cash balance plans that might better suit your company’s profile.
Solution: Partner with a retirement plan specialist who conducts a thorough business assessment before recommending plan structures. The right customized approach can:
- Generate tax advantages unique to your business situation
- Create incentive structures aligned with your retention goals
- Balance cost management with competitive benefits
Real Business Impact: According to a 2023 Plan Sponsor Council of America survey, businesses that implemented Safe Harbor plans with age-weighted profit-sharing components reported 87% fewer compliance issues compared to those with traditional 401(k) plans. Additionally, these customized plans allowed business owners to increase their personal retirement contributions by an average of 40% while maintaining compliance with non-discrimination testing requirements.
Pitfall #2: Non-Compliant Fee Structures and Disclosure Practices
Insurance is an often-underutilized tool in private wealth management. A solid risk management strategy ensure that you’re prepared for unforeseen circumstances.
- Life Insurance: Provides liquidity to cover estate taxes and offers wealth transfer benefits and income replacement in the case of untimely death.
- Long-Term Care Insurance: Helps cover medical costs in later years without depleting your savings.
- Liability Protection: Umbrella insurance shields your assets from lawsuits or unexpected liabilities.
Real Business Impact: According to a 2023 Plan Sponsor Council of America survey, businesses that implemented Safe Harbor plans with age-weighted profit-sharing components reported 87% fewer compliance issues compared to those with traditional 401(k) plans. Additionally, these customized plans allowed business owners to increase their personal retirement contributions by an average of 40% while maintaining compliance with non-discrimination testing requirements.
Pitfall #2: Non-Compliant Fee Structures and Disclosure Practices
The regulatory environment around retirement plan fee disclosure has become increasingly stringent, yet many business owners remain unaware of their fiduciary responsibilities in this area.
Common Mistake: Failing to regularly benchmark plan fees against industry standards or inadequately disclosing fee structures to plan participants. This can trigger DOL investigations and potentially costly lawsuits, in addition to potentially reducing participant savings over time.
Solution: Implement a documented process for:
- Periodic fee benchmarking against comparable plans
- Transparent fee disclosure documentation for employees
- Regular review of service provider relationships and value assessment
Real Business Impact: According to a report by The Pew Charitable Trusts, higher fees can significantly reduce retirement savings across longer time frames. In their example, a retiree investing in a fund with annual fees of 1.25% would deplete their savings after 18 years, whereas choosing a fund with fees of 0.04% would allow the retiree to maintain savings beyond 20 years.
Pitfall #3: Inconsistent Investment Monitoring and Oversight
Many business owners establish a retirement plan with a solid initial investment lineup but fail to implement ongoing monitoring procedures.
Common Mistake: Neglecting to establish an Investment Policy Statement (IPS) or failing to follow its guidelines for regular review and replacement of underperforming investment options.
Solution: Work with a retirement plan advisor who provides:
- Investment performance reviews
- Documentation of investment committee meetings and decisions
- Systematic processes for fund replacement when necessary
- Employee education on available investment options
Real Business Impact: Research from Vanguard suggests that formal investment monitoring frameworks help plan sponsors make more consistent, less emotionally driven decisions—leading to improved long-term outcomes. By providing structure and discipline, these processes support better alignment with investment goals and reduce the risk of reactive decision-making during market volatility.
Pitfall #4: Inadequate Employee Education and Engagement Strategies
Even the most well-designed retirement plan delivers limited value if employees don’t understand or appreciate it.
Common Mistake: Providing only annual enrollment materials without ongoing education, personalized guidance, or financial wellness resources that drive meaningful participation.
Solution: Develop a comprehensive education strategy that includes:
- Regular financial wellness workshops tailored to different employee segments
- One-on-one consultation opportunities with financial advisors
- Digital resources and tools for retirement planning
- Targeted communications based on participation behavior and life stages
Real Business Impact: According to Bank of America’s 2023 Workplace Benefits Report, companies that offer comprehensive financial wellness programs see retirement plan participation rates of 83%, compared to 68% at companies without such programs. The Plan Sponsor Council of America also reported that employers offering one-on-one financial counseling saw average employee contribution rates increase by 15% within the first year of implementation.
Pitfall #5: Overlooking the Strategic Advantages of Advanced Plan Features
Many business owners miss opportunities to leverage sophisticated plan design elements that could provide significant business advantages.
Common Mistake: Implementing basic retirement plan structures without exploring features like:
- Auto-enrollment and auto-escalation provisions
- Multiple employer plans (MEPs) for cost sharing
- Cash balance plans for accelerated owner retirement saving
- Student loan repayment integration options
Solution: Partner with retirement plan specialists who regularly review your plan design against evolving regulatory opportunities and business objectives to identify strategic enhancements.
Real Business Impact: Vanguard’s “How America Saves 2023” report shows that plans with automatic enrollment have an average participation rate of 93%, compared to just 66% for voluntary enrollment plans. Additionally, the Employee Benefit Research Institute (EBRI) reports that automatic features have the greatest impact on younger and lower-wage employees, groups that traditionally have lower participation rates.
The Value of Expert Partnership
While these pitfalls can seem daunting, working with specialized retirement plan advisors transforms what could be administrative burdens into strategic advantages for your business. Professional retirement plan partners bring:
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Deep regulatory knowledge that minimizes compliance risks
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Fiduciary protection that reduces personal liability
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Systematic processes that save valuable management time
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Strategic insights that maximize plan value for both the business and employees
Frequently Asked Questions About Business Retirement Plans
Q: How often should I benchmark my retirement plan fees?
A: Best practice is to conduct a thorough fee benchmarking analysis every two to three years, with an informal review annually. This ensures your plan remains competitive and cost-effective.
Q: How can I determine if my current retirement plan design is optimal for my business?
A: Start with a comprehensive review conducted by a retirement plan specialist who will analyze your business objectives, employee demographics, and plan utilization metrics to identify potential enhancements.
At Ancora, we specialize in designing and managing customized retirement plans for businesses throughout Ohio and the Midwest. Our approach focuses on creating strategic retirement solutions that align with your business goals while minimizing administrative burdens and compliance risks. Contact our retirement specialists today to schedule a comprehensive plan review and discover how we can transform your retirement plan from a standard benefit into a powerful business advantage.
Transamerica Institute, Stepping into the Future: Employers, Workers, and the Multigenerational Workforce https://www.transamericainstitute.org/research/publications/details/stepping-into-the-future-employers-workers-and-the-multigenerational-workforce
Plan Sponsor Council of America. 2023 Annual Survey of Profit Sharing and 401(k) Plans. https://www.psca.org/industry-content/surveys/annual-401k-survey/
Pew Charitable Trusts, How Employees Handle Their Retirement Savings During Work Transitions, https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2021/05/how-employees-handle-their-retirement-savings-during-work-transitions
Vanguard Institutional. Quantifying the Value of Personalized Advice. https://institutional.vanguard.com/insights-and-research/perspective/quantifying-the-value-of-personalized-advice.html
Bank of America. 2023 Workplace Benefits Report. Retrieved from https://business.bofa.com/workplace-benefits-report
Employee Benefit Research Institute (EBRI), The Impact of Auto-enrollment and Automatic Contribution Escalation on Retirement Income Adequacy. https://www.ebri.org/content/the-impact-of-auto-enrollment-and-automatic-contribution-escalation-on-retirement-income-adequacy-4657
Vanguard Institutional, How America Saves Report. https://institutional.vanguard.com/insights-and-research/report/how-america-saves.html