As I mark my 10th anniversary as a focused 401(k) Advisor and Consultant, I’m reflecting on the numerous challenges and opportunities that have defined my journey. Over the years, I’ve learned that while each plan is unique, there are several major pitfalls that can significantly impact the success of a retirement plan and its participants. Here are my personal “Top Ten Pitfalls to Watch Out for When Managing a 401(k)” or other Group Retirement Plan:

Unlevel Compensation:

Probably the worst actor but thankfully less frequent these days is Unlevel Compensation. When I first started my 401(k) Advisory journey, I used to come across many older plans utilizing multiple share classes with different levels of compensation to the provider and/or advisor, classified as 12b1 fees and revenue sharing.

Plan investment options with different 12b1 revenue sharing lead to inequities. If revenue sharing isn’t credited back to participants, some participants are subsidizing others. Two employees with identical account balances could pay different amounts for the same services if their funds have different revenue sharing arrangements. 

For example: Joe has a 100k plan balance in XYZ fund with no 12b1, and Bill, also with a 100k balance, has ABC Fund with a 0.25% 12b1. In this example Bill is paying $250 more per year for the same plan services they are both receiving. Imagine there were three employees one at zero, one at 0.25% and one at 0.75%. I have seen this and it’s not good. 

Lack of Plan Design Advice:

Though they have vast amounts of knowledge and experience at their fingertips, many platform provider account managers and Third-Party Administrators (TPAs) are a bit more reactive rather than proactive when it comes to plan design. However, how is a plan sponsor, business owner, or investment committee ever going to know what alternative plan designs they should be reviewing without someone proactively recommending them for consideration?

For example, a plan struggling with the expense of a Traditional Safe Harbor Match, high turnover, and low average deferral rates should at least consider a Qualified Automatic Contribution Arrangement (QACA) Safe Harbor Match. With this QACA example, the sponsor would be able to implement a 2-year cliff vesting schedule and require a smaller employer contribution (3.5% for employees deferring 6% of their compensation) compared to the Traditional Safe Harbor Match (4% for deferrals of 5%). Both lower overall plan expenses to the employer and increase average participant deferral rates.

Other examples of missed opportunities in plan design frequently include plans with participation of over 75% not reviewing Nonelective Safe Harbor options and profit sharing which could net them lower safe harbor expenses and allow for larger profit-sharing allocations.

Ignoring Plan Force-Outs:

A common oversight is the failure to manage plan force-outs, which not only helps manage plan expenses that can be tied to each participant but can help maintain participant counts below the threshold that triggers the long-form 5500 filing and the costly independent 5500 audit. Advisors should discuss the benefits of forcing out terminated participants with low balances (limit of $7,000 or lower for 2024). This not only reduces per participant fees but also helps midsized companies avoid the additional workload and expense of a long-form 5500 filing and the audit which can cost upwards of $20,000 per year.

Inadequate Plan Reviews:

Plan sponsors have a fiduciary responsibility to act in the best interest of participants. Regularly reviewing the plan’s performance, investment options, and fees is crucial to fulfilling this duty. With this, I personally believe that the most impactful plan statistics to monitor participant success are plan participation, average participant deferrals, and plan loan utilization. 

How can we know if plan participants are on a path to success if we don’t benchmark how many are saving and at what savings rates and comparing those year over year? I fear too many plans spend the majority of the plan reviews on investment performance versus the things that actually impact participant success: when we start saving and how much we save.

Selecting on Fees Alone:

Opting for advisors with the lowest consulting fees can sometimes lead to inadequate service. Chances are you can end up with a non-specialist advisor who only has experience with a couple of plans and because of this they may not be able to provide plan monitoring guidance or proactive plan design advice. 

Another issue that could arise when selecting an advisor based on fees is they may be offering lower 401k advisory fees because their primary focus is not on managing plans but on gathering more financial planning clients, which generally pay higher fees. This unfortunately, like most of the financial planning arena, can lead to those participants with larger balances or income receiving more focused advice than those with smaller balances and income.

It’s crucial to choose advisors who offer equitable services to all participants.

Failing to Monitor Investment Performance:

Investment monitoring is generally a service I believe any and all 401(k) advisors can adequately provide to their clients. This part is not rocket science. Most 401(k) consultants use the same software and even the same screening criteria to perform this aspect of plan monitoring. However, plans without a 401k advisor may not be getting this level of service and worse could be utilizing fund menus that would not pass basic monitoring criteria due to either their proprietary nature or built in expenses. 

At its core, investment monitoring requires the regular review of all available investment options available to plan participants to be benchmarked against either the fund’s peer group, index, or both. Screens or criteria monitored usually include but are not limited to areas such as, fund manager tenure, fund performance for trailing 1, 3, 5, and 10-year periods, investment risk characteristic, investment volatility, and the investment option’s net expenses. Investment options that do not pass a majority of these screens should be removed, replaced, or noted in the plan’s Investment Committee Minutes as to why they were not removed or replaced or if the committee wishes to continue to monitor them more closely.

Investment monitoring continues to be of importance because poor-performing investments can erode participants’ compounding returns and thus their final retirement savings balance.

Inadequate Participant Education:

Providing participants with adequate education and resources to make informed investment decisions is crucial. While every company’s employees are different, regular educational sessions can significantly improve participant outcomes for participants of all types. Be it the first time they are learning about basic financial concepts like the time value of money or the 10th time when something finally clicks.

However, group meetings may not always be the best way to interact with a certain participant or participant group. Resources on financial wellness and retirement education should be delivered in other formats as well which may be more easily accessible to participants such as newsletters, emails, or client portals.

And last but not least is access to personalized advice. Being able to sit with someone and clearly see where we are at in our retirement savings journey and what we need to do to change it will significantly improve our outcomes.

Not Reviewing Plan Fees:

Excessive fees can significantly impact participants’ retirement savings over time. Sponsors should regularly review all plan-related fees, including administrative, investment, and advisory fees, to ensure they are reasonable and competitive.

But how do you do this? First, even with fee disclosures it can be hard for a sponsor to know exactly how much they and their participants are paying in total 401(k) fees. Further, platform-generated fee benchmarking can be limited or somewhat disingenuous due to the inherent conflict of interest.

I recommend working with your 401(k) Plan Advisor to run a third-party analysis. Ask that this fee study includes all areas of plan expenses in easy-to-understand sections with national and alternative platform pricing comparisons. While all sections should be compared these areas generally include all per participant record keeping fees, base annual record keeping fees, per participant administration fees, base annual administration fees, record keeping asset-based/wrap fees, avg. net expense ratio of the plan’s investment options, and 401(k) advisory fees.

Not including Actively Managed Funds OR Index Funds:

This is an age-old debate. There have been multiple studies, the semi-annual S&P SPIVA Report being just one, illustrating how the majority of fund managers are unable to outperform their index alternatives over different periods of time. This could either be due to the actively managed funds often having higher costs or their inability to select stocks or industries weightings that outpace the broader asset class.

However, many actively managed funds, maybe not the average or the majority of them, can and do outpace their index alternatives. The goal of the 401(k) Advisor is to monitor and replace actively managed investment options so that those that are being provided are generating excess returns for participants without the need for excessive risk vs their index.

Further, there are several asset classes, such as small-cap growth, mid-cap growth, and other international asset classes that regularly show larger percentages of active managers outperforming the passive index-based options.

Evaluating a plan’s fund lineup to not only include low-cost index funds but also include and monitor active options can improve participant outcomes. It is not one size fits all.

Not Understanding the Impact of Financial Stress:

As sponsors and plan advisors, let’s not forget that failing to address and assist employees with retirement readiness through engagement and plan design can have significant unintended consequences.

Employees nearing retirement age often face uncertainty about their financial readiness, leading to increased anxiety and distraction. This emotional toll of worrying about retirement savings and future financial stability can lead to increased absenteeism and decreased engagement in work tasks. As a result, businesses may experience delays in project completion, lower quality of work, and diminished team morale, all of which can hinder overall organizational performance.


I hope you found some of these points valuable and you are able to take action on them by asking your plan advisor or account manager about them. 

As I move forward into my next ten years as a 401k consultant, I am committed to learning more to help plan sponsors navigate whatever challenges they may face and helping them to optimize their retirement plans for the benefit of their employees.

If you are one of our group retirement plan clients, thank you for trusting me with your 401k advisory needs over the past decade. Here’s to many more years of successful collaboration and improved retirement outcomes!