5 Signs It’s Time to Re-evaluate Your 401(k) Plan

A 401(k) plan is a critical part of your company’s benefits package, helping employees save for retirement and positioning your organization as an attractive employer. However, retirement plans aren’t “set it and forget it” solutions—laws change, employee needs evolve, and the market fluctuates. That’s why it’s important to know when it’s time to re-evaluate your 401(k) plan. 

Regular reviews help ensure your plan remains competitive, compliant, and effective.

Here are five signs it might be time to take a closer look at your 401(k) plan.

1. Low Employee Participation Rates

If your employees aren’t participating in the 401(k) plan, it could signal underlying issues such as:

• Confusing plan features or communication gaps.
• A lack of appealing employer match incentives.
• Limited or underperforming investment options.

2. Complaints About Investment Options

Are employees expressing dissatisfaction with the plan’s investment choices? Outdated or high-cost funds can erode retirement savings, leaving employees feeling frustrated.

Common Issues Include:

• Limited variety (e.g., no target-date funds)
• High fees compared to similar plans.
• Underperforming funds.

What to Do:

• Conduct a benchmarking study to compare your plan’s fees and performance to industry standards.
• Work with a 401(k) advisor to refresh the investment lineup and include options that appeal to your workforce.

3. You’ve Outgrown Your Plan Provider

As your business grows, the 401(k) provider you started with may no longer meet your needs. A provider that was suitable for a small team might lack the resources or services to support a larger, more complex organization.

Signs Your Provider Isn’t a Good Fit:

• Poor customer service or long response times.
• Limited technology, such as outdated online tools for participants.
• High administrative fees compared to other providers.

4. Compliance Issues or Failed Testing

Compliance with IRS and Department of Labor regulations is non-negotiable. If your plan fails nondiscrimination tests, such as the Actual Deferral Percentage (ADP) or Actual Contribution Percentage (ACP) tests, it could lead to corrective actions and penalties.

Common Causes of Compliance Problems:

• Highly compensated employees (HCEs) contribute disproportionately compared to non-HCEs.
• Lack of plan design features like safe harbor provisions or automatic enrollment.

What to Do:

• Review your plan document with a 401(k) advisor to ensure it meets current compliance standards.

5. Your Plan Design Feels Outdated

An outdated plan design might no longer align with your company’s goals or employee needs. Features that worked five years ago might not appeal to today’s workforce.

Signs of an Outdated Plan:

• No Roth 401(k) option for after-tax contributions.
• No auto-escalation, which automatically increases employee contributions over time.
• Limited support for part-time employees, which is increasingly important due to changes in workforce dynamics and regulations like SECURE 2.0.

What to Do:

• Work with a 401(k) consultant to redesign your plan and incorporate modern features.
• Regularly survey employees to identify the benefits they value most.

The Cost of Ignoring These Signs

Failing to reevaluate your 401(k) plan can lead to:

• Employee dissatisfaction and low participation.
• Compliance penalties or audits.
• Missed opportunities for tax savings.
• Difficulty attracting and retaining top talent.

Your 401(k) plan should evolve alongside your business and workforce. 

If you’re noticing any of these signs, it’s time to take action. By reevaluating your plan and making necessary improvements, you can ensure it remains a valuable tool for both your employees and your organization.

Need help reviewing your 401(k) plan? Contact us for a free consultation. We’ll help you identify opportunities for improvement and ensure your plan stays competitive, compliant, and aligned with your goals.