When it comes to your health, your body doesn’t lie. Chest pain, chronic fatigue, blurry vision—they’re all warning signs that something is off. You ignore them at your own risk. Your 401(k) plan? It’s not that different. A well-run retirement plan is like a well-functioning body: it requires ongoing care, monitoring, and responsiveness to problems before they become full-blown emergencies. After more than 25 years working with retirement plans, I’ve seen more than my share of sick plans. Sometimes the symptoms are subtle, and sometimes they’re flashing red lights. Either way, it’s critical for plan sponsors to recognize the warning signs of an unhealthy plan. If you spot one or two of these issues, it might be time for a checkup. If your plan checks off several, you may need major surgery.

Let’s go through the symptoms.

1. Late Deposit of Salary Deferrals

This is your plan’s version of chest pain—serious, urgent, and likely to land you in hot water. The Department of Labor doesn’t play around with late deferrals. The rule is simple: employee contributions must be deposited as soon as they can reasonably be segregated from the employer’s assets—often within a few business days. When they’re not? That’s a prohibited transaction. It doesn’t matter if it’s $100 or $100,000. It’s the kind of thing that gets you on the DOL’s radar and leads to penalties, excise taxes, and in some cases, participant lawsuits.

2. Low Average Account Balances

If your plan has been around for years and average participant balances are still depressingly low, that’s not just about salary levels. It’s a sign that your employees aren’t engaged with the plan. Maybe they’re not being educated. Maybe the default contribution rate is too low. Maybe your plan design is antiquated and doesn’t encourage saving. Regardless of the cause, it’s a red flag—and a missed opportunity to help your people retire with dignity.

3. No ERISA Bond in Place

This is one of the easiest problems to fix, which makes it even more inexcusable. ERISA requires every retirement plan to have a fidelity bond that protects the plan from fraud or dishonesty. If your plan doesn’t have one, it’s not in compliance. Period. No bond is like driving without insurance— risky, reckless, and a ticking time bomb. The DOL checks for this. You should too.

4. Low Deferral Participation Rate

When only a handful of eligible employees are deferring into the plan, it tells a story—and not a good one. Maybe your enrollment process is too passive. Maybe employees don’t understand the benefits of participation. Maybe the plan feels too complex or irrelevant to their day-to-day lives. Whatever the reason, a low participation rate is a clear sign that something’s broken in your communication, your culture, or your plan design. Auto-enrollment, automatic escalation, and a well-structured match can help—but only if you take the time to implement them properly.

5. Compliance Testing Failures and Corrective Contributions

I’ve seen plans that fail ADP/ACP testing year after year, issuing refunds to highly compensated employees like clock-work. That’s not just frustrating—it’s avoidable. Repeated testing failures are a sign your plan isn’t designed to fit your employee population. Maybe you need to consider a safe harbor plan. Maybe you need a better communication strategy. Or maybe you need a provider who actually understands testing mechanics. Whatever the fix, it starts with acknowledging the failure and doing something about it.

6. Too Many Hardship Requests

Hardships happen—life throws curveballs. But if you’re seeing a consistent stream of hardship withdrawals, it could be a sign of deeper issues. Maybe your workforce is struggling financially. Maybe employees are treating the plan like an emergency fund. Or maybe your hardship standards are too loose. Either way, too many hardship requests suggest the plan isn’t functioning as a long-term savings vehicle, which is its core purpose.

7. Too Many Defaulted Loans

Plan loans are already tricky business. They require careful tracking, timely repayments, and real administrative attention. But when participants default, it creates a tax mess for them and a fiduciary problem for you. If defaults are common, it’s probably time to tighten your loan policy. Maybe restrict loans to one at a time. Maybe increase the minimum loan amount. Maybe re-educate employees about what a loan really costs them. Ignoring the problem only makes it worse.

8. No Benchmarking of Fees

If you haven’t reviewed your plan fees in the last three years, you’re not doing your job as a fiduciary. Plan sponsors have a duty to ensure fees are reasonable. That doesn’t mean you always have to pick the cheapest option—but it does mean you need to know what you’re paying and why. Plaintiffs’ attorneys love overpaying plans because it’s low-hanging fruit. Don’t be the low-hanging fruit.

9. No Review of Plan Providers

Loyalty is a good thing—blind loyalty is not. Just because you’ve had the same TPA, recordkeeper, or advisor for 10 years doesn’t mean they’re still the right fit. Plans evolve. Providers should be reviewed regularly, and your fiduciary file should show that you’ve done that review. You don’t have to switch vendors every time the wind changes, but you do have to show that you’re paying attention.

10. No Formal Fiduciary Process

If you don’t have a clear process in place for overseeing the plan, reviewing investments, and documenting your decisions, you’re walking a tightrope without a net. A formal fiduciary process isn’t just a best practice—it’s your legal defense if something goes wrong. That means regular meetings, written minutes, investment policy statements, and a documented rationale for your decisions. Without that, you’re just winging it—and that’s not what ERISA expects.

Written June 23rd, 2025 by Ary Rosenbaum - The Rosenbaum Law Firm