A sweeping analysis of U.S. retirement plans has found that 84 percent of defined contribution plans exhibit at least one significant compliance or governance red flag, raising serious concerns about fiduciary oversight and regulatory adherence across the private sector.
The findings, published by Abernathy Daley 401k Consultants, are based on a review of nearly 765,000 plans through their most recent Form 5500 filings. The firm categorized red flags into two main groups: Regulatory Infraction Red Flags (RIRFs), which may trigger civil penalties or legal action, and Egregious Plan Mismanagement Red Flags (EPMRFs), which suggest failure in fiduciary duties even if not immediately subject to enforcement.
Compliance failures span most U.S. companies
According to the report, 43 percent of plans had at least one RIRF, which includes issues such as:
- Losses due to fraud or dishonesty
- Absence of a qualified default investment alternative (QDIA)
- Insufficient fidelity bonding
- Noncompliance with ERISA section 404(c)
In the category of egregious mismanagement, 76 percent of plans were flagged. Violations here include failing to automatically enroll participants, not correcting excess contributions, and failing to transmit participant contributions on time.
When combining both categories, the data showed that 639,741 out of 764,729 plans had at least one red flag.
Costs and legal exposure mount
The report points to the growing financial and legal risks employers face. In 2024, the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) restored nearly $1.4 billion to retirement plans and their participants, initiated 68 criminal indictments, and secured 161 convictions or guilty pleas—many involving plan officials and company leaders.
In one recent case cited by Abernathy-Daley, Vanguard agreed to pay $104.6 million to the Securities and Exchange Commission and an additional $40 million to 401(k) plan participants over misrepresentations in its Target Date Funds.
Industry complacency a key concern
Abernathy-Daley said the prevalence of issues across such a large sample suggests a systemic problem in retirement plan governance. The firm argues that excessive administrative fees and inadequate plan oversight point to an industry culture that prioritizes cost savings and expedience over participant protection.
“Most reasonable observers would think that the overpaid administrators would be offering incredibly valuable advice that would keep the plan sponsors out of harm’s way,” the report said. “Yet, from the data we have observed so far, it appears to be the exact opposite.”
Recommendations for plan sponsors
To improve compliance and protect plan participants, Abernathy-Daley recommends employers:
- Regularly update plan documents and ensure compliance with IRS and ERISA requirements
- Identify and document plan fiduciaries and their responsibilities
- Educate administrative staff and participants on plan details and risks
- Conduct independent investment and fee benchmarking analyses
- Establish written investment policies and maintain detailed records of plan decisions
The firm emphasizes the need for quarterly or even daily participant access to investment changes, as well as strict adherence to ERISA 404(c) requirements to protect plan sponsors from liability.
Conclusion
The report paints a troubling picture of the retirement plan landscape in the U.S., suggesting that many companies are failing to meet their basic fiduciary obligations. With legal penalties and reputational risks mounting, Abernathy-Daley warns that continued neglect may have lasting consequences for both employers and employees.
