7 Common 401(k) Administrators Mistakes—and How to Fix Them Fast

Running a 401(k) plan for your business is a great way to help your team save for retirement. But let’s be honest—401(k) administration can get tricky. Between confusing rules and tight deadlines, it’s easy to make mistakes. The good news? Most issues are fixable and knowing what to watch for can save you time, money, and stress.

Here are 7 common 401(k) mistakes businesses make—and how to avoid them.

1. Skipping the Plan Document Check

Your 401(k) plan document is like a rulebook. It tells you who’s eligible, how much they can contribute, and when they’re fully vested. If you don’t follow it, you could break ERISA rules (that’s the law that governs retirement plans).

2. Not Updating Your Plan Document

Laws change. So should your plan. Every few years, the IRS requires updates to reflect new rules—like changes to the definitions or contribution limits.

3. Confusing Compensation Definitions

What counts as “compensation” in your plan? Is it just salary? Or does it include irregular pay like year-end bonuses, taxable perks, or other non-salary earnings? If your payroll provider uses the wrong definition, it could lead to ineligible contributions or missed savings. These less predictable forms of compensation are often the biggest source of confusion.

4. Late Payroll Contributions

When employees choose to save, their money should go into their 401(k) accounts quickly. Late contributions can lead to fiduciary violations and penalties from the Department of Labor.

5. Failing Compliance Tests

Every year, the IRS checks if your plan treats employees fairly through compliance testing. The two big tests are the ADP (Actual Deferral Percentage) and ACP (Actual Contribution Percentage) tests. The Top-Heavy test is another common test that many small and medium-sized businesses fail. If highly paid employees contribute more than others or if employees don’t own more than 60% of plan assets, your plan might fail.

6. Missing Notices and Disclosures

You’re required to give employees certain documents—like plan details, disclosures, and updates. These help them make smart choices about their retirement savings.

7. Not Explaining Loans and Distributions Clearly

Employees may want to borrow from their 401(k) or take money out during personal financial challenges, if the plan allows for it. But every plan has its own rules—like how much they can borrow or how many loans they can take.

Stay on Track with Your 401(k)

Mistakes happen—even in well-run plans. Fortunately, most 401(k) compliance issues can be corrected with the right support. But if errors go unchecked, your plan could risk losing its tax-exempt status and you could incur penalties—and that’s no small matter. The IRS offers correction programs to help you fix problems and avoid penalties.

Want to simplify 401(k) administration? Fisher\SMB strives to provide expert support for small and medium-sized businesses. We help you stay compliant, avoid costly mistakes, and protect your team’s retirement savings. Contact us today to learn how we can help.