Maintaining a 401(k) plan is more than just offering employees a retirement savings benefit—it comes with significant fiduciary and regulatory responsibilities. Failing to stay compliant can lead to IRS penalties, DOL audits, and costly corrections. This is why conducting an annual 401(k) compliance review is essential for every plan sponsor.
At Full Focus Financial, we partner with businesses to streamline compliance reviews, minimize risk, and keep 401(k) plans in top shape for both employers and employees.
1. Why an Annual 401(k) Compliance Review Matters
A proactive compliance review helps plan sponsors:
Avoid penalties and regulatory scrutiny by identifying issues early
Confirm that plan operations align with the plan document
Demonstrate fiduciary diligence, which is required under ERISA
Build employee trust in the retirement plan
Neglecting this annual check can leave your company vulnerable to audit findings, disqualification risks, and unnecessary expenses.
2. Key Areas to Evaluate in a 401(k) Compliance Review
A. Review and Update Your Plan Document
Verify all plan amendments and updates are current and properly executed.
Ensure compliance with recent legislation, like SECURE 2.0 updates.
Confirm that daily plan operations follow the written document.
B. Check Contribution Timing and Accuracy
Employee contributions should be deposited promptly (generally within 3–7 business days).
Employer match and profit‑sharing contributions must be calculated correctly.
If deposits are late, calculate lost earnings and submit corrections to the DOL if necessary.
C. Conduct Nondiscrimination Testing (ADP/ACP)
Review highly compensated employee (HCE) contribution levels.
Address any failed tests with corrections or Safe Harbor plan adjustments.
Keep detailed testing records for audit readiness.
D. Verify Participant Eligibility and Enrollment
Ensure employees are enrolled on time based on plan rules.
Review auto‑enrollment and auto‑escalation settings for accuracy.
Confirm terminations and distributions are processed correctly.
E. Benchmark Plan Fees and Investment Performance
Compare administrative and advisory fees to industry standards.
Evaluate fund performance against benchmarks and peer plans.
Hold an investment committee meeting and document all decisions.
3. Tools to Simplify Compliance Reviews
Compliance Checklists: Keep tasks organized and track progress.
Record keeper Dashboards: Access contribution, loan, and distribution data quickly.
Audit‑Ready Reports: Maintain historical records for IRS or DOL requests.
Full Focus Financial provides clients with customized compliance tracking tools to simplify the entire process.
4. Benefits of a Thorough Compliance Review
Reduces Fiduciary Risk: Protects plan sponsors from personal liability.
Improves Plan Health: Enhances participation and performance.
Boosts Employee Confidence: Well‑managed plans inspire trust.
Avoids Costly Errors: Identifies and corrects issues before they escalate.
Conclusion
An annual 401(k) compliance review is more than a regulatory checkbox—it’s a safeguard for your business and your employees’ retirement future.
Full Focus Financial specializes in comprehensive plan reviews, helping companies maintain compliance, improve efficiency, and protect against unnecessary risk.