Why Employers Should Be Reviewing Their 401(k) Plans Regularly
For many employers, a 401(k) plan is established with good intentions and then left largely untouched. While contributions continue and employees participate, what often goes unnoticed is how quickly a plan can become inefficient, expensive, and legally risky if it isn’t reviewed on a regular basis.
With rising scrutiny around plan fees, expanding fiduciary obligations, and recent legislative changes impacting plan design, periodic 401(k) reviews are no longer optional, they are essential.
1. Fees: The Most Overlooked (and Costly) Issue
Plan fees are typically the largest and most persistent drag on long-term retirement outcomes, yet they are often the least understood by employers and employees alike.
A 401(k) plan may include:
Recordkeeping and administrative fees
Advisory or consulting fees
Investment expense ratios
Revenue-sharing arrangements embedded in funds
Many employers are surprised to learn that:
Their plan fees are above industry benchmarks
Lower-cost institutional share classes may be available
Employees are indirectly bearing much of the cost
Even small reductions in fees can translate into significant additional retirement savings over time. From a fiduciary standpoint, ERISA (The Act that governs 401(k) plans) requires that plan fees be reasonable, not necessarily the cheapest, but defensible and well-documented.
Fee-related lawsuits have become increasingly common, with firms facing litigation for alleged excessive fees or imprudent fee oversight.¹
Regular benchmarking and fee reviews help ensure:
Fees remain competitive as the plan grows
Service providers are still appropriate
The employer can demonstrate a prudent decision-making process
Failing to monitor fees is one of the most common triggers for fiduciary lawsuits.
2. Fiduciary Risk and the Importance of Ongoing Oversight
Employers who sponsor 401(k) plans act as fiduciaries under ERISA. This carries a legal obligation to:
Act in the best interest of participants
Prudently select and monitor investments
Regularly evaluate service providers
A major risk for employers is assuming that hiring a provider removes fiduciary responsibility; it does not.
Why 3(38) Fiduciary Services Matter
One way employers can significantly reduce fiduciary exposure is by engaging a 3(38) investment fiduciary.
A 3(38) fiduciary:
Has discretion over selecting and monitoring investments
Assumes legal responsibility for those decisions
Removes much of the investment-related liability from the employer
Without a 3(38) fiduciary in place, employers typically retain responsibility for investment performance, fund selection, and monitoring — even if they rely on recommendations from advisors or recordkeepers.
Periodic plan reviews help employers confirm:
Whether fiduciary roles are clearly defined
If a 3(38) structure is appropriate
Whether fiduciary documentation is current and defensible
In today’s regulatory environment, a lack of process is often more damaging than poor performance.²
3. Employee Outcomes and the Value of Plan Design
A well-reviewed plan doesn’t just reduce risk, it improves employee outcomes.
Plan reviews often uncover opportunities to:
Improve default investment options
Simplify overly complex investment menus
Adjust plan features to encourage participation
Enhance employee education and engagement
Employees increasingly view retirement benefits as a key component of total compensation. A plan that is outdated, expensive, or confusing can negatively impact morale and retention, even if contributions are generous.
Better plan design leads to:
Higher participation rates
Improved savings behavior
Greater employee confidence in retirement readiness
4. Recent 401(k) Changes Under the “One Big Beautiful Bill” (SECURE 2.0)
Recent legislation — commonly referred to as the One Big Beautiful Bill and formally part of SECURE 2.0 — introduced significant changes to retirement plans, including updated catch-up contribution rules.
Catch-Up Contribution Limits (2026)
Under SECURE 2.0:
Standard 401(k) contribution limit (2026): $24,500³
Catch-up for ages 50 and older: $8,000³
“Super” catch-up for ages 60–63: $11,250³
This means an eligible 60-63-year-old participant could potentially contribute up to $35,750 total in 2026 if their plan allows the higher catch-up limit.³
New Roth Requirement for High Earners
Beginning in 2026, SECURE 2.0 requires that if an employee age 50+ earns more than $150,000 in FICA wages in the prior year, their catch-up contributions must be made on a Roth (after-tax) basis rather than traditional pre-tax.⁴
Importantly, plan documents must be amended, and systems must support Roth processing to implement these changes. Any plan not updated may inadvertently:
Prevent participants from maximizing catch-up contributions
Create compliance headaches for the employer
A regular plan review ensures that legislative changes are:
Properly evaluated
Thoughtfully implemented
Clearly communicated to employees
A Proactive Review Protects Employers and Employees
Regular 401(k) plan reviews help employers:
Identify and reduce unnecessary fees
Mitigate fiduciary risk through proper oversight and delegation
Improve employee outcomes and satisfaction
Ensure compliance with evolving regulations
In a world of increasing fiduciary scrutiny and changing retirement laws, a proactive approach isn’t just smart, it’s necessary!
References
AIG: Pension Trustee & Excessive Fees Fiduciary Whitepaper — litigation around fiduciary fees and increasing claims supporting employer oversight.
Fifth Third Bancorp v. Dudenhoeffer — U.S. Supreme Court reaffirmation of fiduciary prudence standards under ERISA for plan sponsors.
IRS: 401(k) contribution limit increases for 2026 — standard and catch-up limits.
Schwab: Guidance on SECURE 2.0 catch-up Roth requirement and plan amendment implications.