More than 4 in 5 workplace retirement plans in the U.S. (84%) have at least one regulatory “red flag” violation that could put them at risk of fines, legal penalties or fiduciary failure, according to consultant Abernathy Daley 401k Consultants.
Of the nearly 765,000 defined contribution plans analyzed, 43% had at least one “regulatory infraction red flag” or RIRF, the most severe type of violation that could result in civil legal penalties, discovery leading to trial, or both, Abernathy said.
RIRF retirement plan infractions include, for example, loss from fraud or dishonesty or not offering qualified default investment alternatives.
More than 3 in 4 plans, 76%, had at least one “egregious plan management red flag” or EPMRF, a violation that may not necessarily result in a fine but represents a fiduciary failure from either the plan administrator and/or plan sponsor, such as not providing automatic enrollment.
“Plan sponsors and employees are not only overpaying for their retirement plans on a widespread scale; they are also being underserved and exposed to unplanned and potentially damaging legal, compliance and financial risks,” said Steven Abernathy, CEO of Abernathy-Daley, in a new release Jan. 29.
Abernathy noted that the Employee Benefits Security Administration used legal proceedings in 2024 to restore nearly $1.4 billion to employee benefit plans, participants and beneficiaries and that the agency’s ensuing criminal investigations resulted in 68 indictments and 161 convictions or guilty pleas, including from plan officials and corporate officers.
“These alarming findings 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,” said Matthew Daley, president of Abernathy-Daley, in the news release.
Abernathy analyzed the latest Form 5500 filings for nearly 765,000 plans, identifying and tagging each plan with any red flag violations, infractions, fineable offenses, fiduciary failure or plan malpractice.