Unfortunately, many small 401k plans are not in compliance with federal and ERISA regulations. The most common problems are failure to pay required fees for services, and failure to cover their plan with a viable and legitimate plan document.
If you are a participant in a 401k plan that is not covered by a current or legitimate plan document, there may be unnecessary risk, because (in rare and extreme cases) the IRS can invalidate your employer’s 401k plan and retroactively withdraw its tax advantages for all participants.
There are two easy ways to check the status of your company’s 401k. The first is to ask your employer for a copy of the 401k plan document. Under ferial and ERISA regulations the employer MUST provide you with a copy of the plan. If the employer refuses this request you have a number or options, including notifying the IRS at: The second way to check the status of your employer’s 401k is to enter the company name or Federal ID number, or name of plan administrator in the search box below. If your plan is suspected of being out of compliance, it will be in this database.
Two federal government agencies have authority to investigate possible violations of the rules that regulate 401k plans, and can bring lawsuits or assess penalties against individuals engaged in illegal actions: the Department of Labor, the Internal Revenue Service and the Justice Department.
Department of Labor
If you think the plan trustees or others responsible for investing your pension money have been violating the rules, you should call or write the nearest field office of the U.S. Department of Labor’s Employee Benefits Security Administration (formerly PWBA). The Labor Department has authority to investigate complaints of 401k mismanagement.
Internal Revenue Service
If you suspect that your company’s 401k is not in compliance with the requirement that it be covered at all times by a current and legitimate plan document, the Employee Plans Division of the Internal Revenue Service may want to take a closer look. The Internal Revenue Service is authorized to impose tax penalties on employers and 401k plan administrators and trustees who operate a non-compliant plan.
NOTE: If you are planning to provide information to the Internal Revenue Service about a non-compliant 401k, you should consider filing a written claim for an Informants’ Reward with the Intelligence Division of the IRS at the same time. If the IRS collects a penalty tax as the result of your information, there is a possibility that you could receive up to 10 percent of the amount collected.
Collecting Information
You have a legal right to ask your company’s 401k plan administrator for the plan’s latest Form 5500 or Form 5500-C/R. You also have the right to ask for a copy of:
- The summary plan description,
- The plan document,
- The trust agreement setting up the plan, if separate from the plan, and
- Any collective bargaining contract, if appropriate,
- Any other instrument under which the plan was established or is operated.
Make all requests for plan documents in writing. You may have to pay reasonable copying costs. If you have trouble getting the documents from your plan, contact EBSA (formerly PWBA)’s Division of Technical Assistance and Inquiries in Washington, D.C. or the EBSA (formerly PWBA) field office nearest you.
If the administrator fails to give you information you are entitled to within 30 days of your written request, and the reasons for the delay are within the administrator’s control, you also have the right to bring a lawsuit against the plan administrator, and ask the court to make the plan administrator pay you a fine of up to $100 a day for every day the administrator goes over the 30-day deadline. It is a good idea to send your request by certified mail return receipt requested so that you will have a record of when you made the request.
If you would rather not ask your plan for the information, you can obtain Form 5500s and Form 5500-C/Rs after they have been filed with the government and processed from EBSA (formerly PWBA)’s Public Disclosure Facility. Free public information about all 401k plans is available at US government website https://www.efast.dol.gov/welcome.html and click the link titled Form 5500/Form 5500-SF Search.
If you find that your pension plan has not filed the Form 5500s or Form 5500-C/Rs, the forms are incomplete or contain false or misleading information, you should immediately notify the nearest EBSA (formerly PWBA) field office. The Labor Department has authority to assess civil penalties against plan administrators who fail or refuse to comply with annual reporting requirements.
Government agencies have limited resources and are unable to investigate all claims of fund mismanagement. You may also want to contact a lawyer.
Even if you think you cannot afford the cost, you may still be able to find a lawyer to take your case. This is because the law provides that a court has the power to award attorney’s fees if you win a pension case.
To find a lawyer, you should check with the lawyer referral service of your state, city or county “bar association.” Ask for a lawyer experienced in pension law who is willing to represent workers and retirees.
| The Plans That Were Sued Had…. | The Plans Should Have Had… |
| Multiple recordkeepers | One recordkeeper to keep fees lower |
| Multiple recordkeepers that charged fees for duplicative work | One recordkeeper to keep fees lower |
| Revenue-sharing arrangement that resulted in excessive fees to service providers | Either no revenue sharing or controlled revenue sharing so service provider paid only a reasonable amount |
| Fees based on assets, resulting in excessive fees per participant | Flat fees per participant |
| No open, competitive bidding process for recordkeepers | Competitive bidding every three years or so |
| An investment advisor/recordkeeper selected because of some relationship with the company or fiduciaries | Independent service provider selected solely in the best interests of participants |
| Fee structure that required401(k) plan to pay expenses of other plans | Separate fee arrangements among multiple plans |
| Actively managed funds with higher expenses that had no actual performance benefit | Passively managed funds with lower expenses that performed just as well |
| Investment options with severe restrictions on liquidity and penalties for early withdrawal | Investment options that allowed participants to move and withdrawal funds without penalty or restriction |
| Too many core/window investment options that confused participants | Smaller number of options with varied risk/return |
| Duplicative investment options with different expense ratios (retail v. institutional classes) | One option for a target index with the lowest expense ratio |
| Particular investment management company funds that were more expensive than competitor fund | The cheapest available with comparable performance |
| Funds that historically underperformed | New funds introduced when funds underperformed |