More than 84% of retirement plan sponsors have at least one likely Employee Retirement Income Security Act “red flag” violation in their plan that puts them at regulatory risk or indicates their failure as a fiduciary, a survey by Abernathy Daley 401k Consultants found.

To come to this conclusion, consultants at Abernathy Daley analyzed the most recent Form 5500 filings for 764,729 employers’ plans. The consultants looked for what the firm considered “red flag violations,” which Abernathy Daley defined as “infractions, fineable offenses, fiduciary failure, or plan malpractice” in two categories: regulatory infraction red flags and egregious plan mismanagement red flags.  

Regulatory infraction red flags were found at 43% of companies across the U.S., and egregious plan mismanagement red flags at 76% of U.S.-based companies, per the Abernathy Daley study. Therefore, the consultancy states, in its opinion, more than 600,000 American companies could be at potential risk of fines, legal penalties and fiduciary failure.

According to Abernathy Daley, regulatory infraction red flags are “the most severe violations, which represent issues within the retirement plan that can result in civil legal penalties, discovery leading to trial, or both.” The categories of plan failures the firm considered were:

1. Loss from fraud or dishonesty;
2. Not offering qualified default investment alternatives;
3. An insufficient fidelity bond; and
4. Not 404(c) compliant.

The egregious plan mismanagement red flags might not necessarily result in a fine, but they represent failure of the plan administrator in its fiduciary duty to the plan sponsors, and the plan sponsors in their fiduciary duty to employees. The firm reported at least 584,113 retirement plans were found to have at least one egregious red flag. These infraction categories were:

1. Not including automatic enrollment;
2. No corrective distribution of excessive contributions;
3. No 404(c) with participant-directed accounts; and
4. Failure to transmit payments on time.

Abernathy Daley in 2024 released a study showing that it believed nearly 80% of companies with at least 100 employees are overpaying on administrative fees for their 401(k) and 403(b) plans. 

“Retirement plans represent a fiduciary duty toward employees and provide an essential competitive advantage for talent acquisition and retention,” said Abernathy Daley President Matthew Daley in a statement. “Yet, these alarming findings clearly show that administrators are not keeping plan sponsors out of harm’s way and plan sponsors are not offering their employees a bulletproof retirement plan.”