Is Your Company 401(k) Any Good? Five Things You Can Check This Week

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A plan that runs and a plan that works are two different animals.

Contributions go in on time. Statements go out. Nobody complains. From where you sit, the 401(k) is handled, and you have roughly four hundred other things competing for attention.

Meanwhile, the plan can be costing your team real money in a way nobody in the building would notice, because the costs come out of investment returns rather than off a paycheck.

Five checks. Each one takes minutes, and none of them require hiring anybody. The answers are already written down, on the report your plan files with the government every year.

Where the answers live

Every 401(k) files a report with the federal government once a year called a Form 5500. Plans with fewer than 100 participants at the start of the plan year generally file a shorter version, the Form 5500-SF.

It's public, which means the answers to all five are already written down and anybody can read them, including you.

The quickest way through is to let our 401(k) Scorecard pull your plan's most recent filing and read it for you. Search by company name, and the overall score comes back free in about a minute. If you'd rather dig it out yourself, every filing sits in a Department of Labor database called EFAST2, searchable by company name at no cost.

1. The bond has not kept up with the plan

A fidelity bond protects plan money from theft by the people who handle it. ERISA requires one, and it has to cover at least 10% of the funds a person handles, with a $1,000 floor and a $500,000 ceiling.

The filing asks whether the plan was covered by a bond. A "No" is a gap you can close with a phone call. The more common version is a "Yes" sitting next to a number that stopped keeping up. A plan holding $2.4 million needs at least $240,000 of coverage, and the bond on file is often the one somebody bought when the plan was new and much smaller.

The same part of the form asks whether participant contributions went in late. A "Yes" there is a prohibited transaction, and fixing it means putting the lost earnings back. Plans with fewer than 100 participants can use a safe harbor by getting the money in within seven business days of withholding it.

What to pull: your most recent Form 5500, Part V, lines 10c and 10a.

2. Your company is named as the plan administrator

Line 3a names the plan administrator, with a box for "Same as Plan Sponsor." If that box is checked, your company holds the job, and the duties ERISA attaches to it sit with the company.

The person who sold you the plan may have no ongoing role in it at all, and plenty of small plans operate with no plan advisor whatsoever. Plenty of those plans run fine. It is worth knowing which seat you are in rather than assuming somebody else is in it.

You can hand investment decisions to a firm that takes them on, and responsibility for those decisions moves where the discretion moves. Choosing that firm and keeping an eye on it afterward stays with you either way.

What to pull: your Form 5500, Part II, line 3a, and your advisory service agreement.

3. Money came back out to the owners

Line 8e reports corrective distributions. Anything above zero usually means the plan failed the IRS fairness test, which compares what the owners and highly paid employees put in against what everyone else put in. When a plan fails it, money gets refunded to the people at the top and they pay income tax on it that year.

That one points at plan design rather than paperwork. A safe harbor design skips the test in exchange for a required contribution to employees.

What to pull: your Form 5500, Part III, line 8e.

4. Nobody is watching the participant count

Line 5c(2) counts participants with account balances at the end of the plan year. Start a plan year with 100 people holding balances and an independent audit generally applies, which brings a new annual cost with it. Between 80 and 120 you are allowed to file the same way you filed the year before.

Since the 2023 plan year, a defined contribution plan counts only the people who hold a balance rather than everyone eligible, a change the Department of Labor estimated would move about 18,700 plans out of large-plan status. Former employees who left their money behind still count.

What to pull: your Form 5500, Part III, line 5c(2).

5. People are enrolled but barely contributing

Auto-enrollment at 3% gets somebody into the plan. It also anchors them there, sometimes for a decade, because 3% starts to feel like the recommended amount rather than the starting line.

Auto-escalation raises deferrals by one percentage point a year up to a cap. It is available on nearly every modern platform; it improves outcomes substantially, and when a plan does not have it turned on, the reason is usually that nobody asked.

The filing shows part of this. Part IV, line 9a carries the plan's feature codes, including the ones for automatic enrollment and for a default investment, and Part III shows what employees put in across the year. Vanguard's 2026 report found 94% participation in plans with automatic enrollment, against 64% where employees have to sign themselves up.

What to do: ask your provider whether auto-escalation is enabled. It is often a settings change.

While you have them on the phone, one more for 2026: employees who earned over $150,000 in Social Security wages during 2025 now have to make catch-up contributions on a Roth basis. If your plan has no Roth option, those employees cannot make catch-up contributions at all. Worth confirming before the next payroll run.

Those are the five. They are also the five areas the Scorecard grades, so if you ran it at the top of this page, you have already seen your own plan's answers to every one of them.

What the filing will not tell you

Fees. Every fund in the menu has an expense ratio, paid by your employees out of their returns. No invoice, no line on a pay stub, no notification.

A well-built menu comes in somewhere around 0.05% to 0.25% on a weighted average. For reference, Investment Company Institute data puts the 401(k) average for equity mutual funds at 0.26% and index equity mutual funds at 0.05%. A menu built around actively managed or proprietary funds can average 0.75% to 1.00%.

The menu itself is the other gap. Funds close. Funds merge. Managers leave. A fund drifts from the strategy it was picked for. And once a plan crosses certain asset thresholds, cheaper share classes of the identical fund become available, which nobody moves you into unless somebody is paying attention. A menu chosen in 2019 and untouched since is not a decision. It is the absence of one.

What to pull: your participant fee disclosure, the document required under DOL rule 404a-5, and your 408(b)(2) service provider disclosure, which lays out what every vendor is paid. What a 401(k) Really Costs a Small Business walks through where that money goes.

If several of these landed, that is normal

Most small-business plans get set up during a busy stretch, by a well-meaning owner taking a well-meaning recommendation, and then they run. Years pass. The plan keeps doing exactly what it was configured to do on day one, which is the problem and also completely understandable.

A benchmarking review takes a few weeks, does not interrupt payroll, does not require changing providers, and leaves you with documentation of a prudent process either way. Frequently it also lowers what employees pay, which is the part they will never see and will feel for thirty years.

The fastest version of all of this is still the 401(k) Scorecard. It pulls your plan's most recent Form 5500-SF, grades the same five areas, and hands you a short write-up of what your own filing says. Free, about a minute, and nothing to dig out of a filing cabinet. If you want a second set of eyes on it after that, that is an easy conversation to have.

Common questions

How do I know if my company 401(k) is good?

Start with the plan's most recent Form 5500, which is public. It will tell you whether the plan carries the required fidelity bond, whether payroll deposits went in late, who is named as plan administrator, whether the plan had to refund money to owners and highly paid employees, how many people hold account balances, and whether automatic enrollment and a default investment are turned on. Fees and the fund menu sit outside the filing, in your participant fee disclosure and your service provider disclosure.

Is my company's Form 5500 public?

Yes. Every Form 5500 and Form 5500-SF is published in the Department of Labor's EFAST2 database and is searchable by company name or EIN at no cost. The most recent filing on record can be more than a year old, since the form is due seven months after the plan year closes and filers can extend it.

Can I get these five checked for me?

Yes. The ClearMind 401(k) Scorecard reads your plan's most recent Form 5500-SF from the Department of Labor's public database and grades the same five areas, with the overall score free. Plans with 100 or more participants file the full Form 5500 rather than the short form, so the automatic search will not turn those up, and we build those by hand.

What is a good expense ratio for a 401(k) plan?

A well-constructed menu typically averages 0.05% to 0.25% weighted across participant assets. Investment Company Institute data shows 401(k) participants paid an average of 0.26% for equity mutual funds and 0.05% for index equity mutual funds.

How often should a 401(k) plan be reviewed?

Investment menus are commonly reviewed at least annually, with a fuller fee benchmarking exercise every two to three years or whenever plan assets or headcount change materially. Documenting each review is as important as performing it.

Can employees sue over high 401(k) fees?

Excessive fee litigation against plan sponsors has been an active area for years, generally centered on whether the sponsor followed a prudent process in selecting and monitoring investments and service providers. Maintaining documented reviews is the practical response. Specific legal questions belong with an ERISA attorney.

What is auto-escalation in a 401(k)?

A plan feature that automatically increases a participant's contribution rate, typically by one percentage point per year up to a set cap, unless they opt out. It counteracts the tendency for people to stay at whatever rate they were enrolled at.

Written byAustin Wolfe & Joe AndersonClearMind Capital | Workplace RetirementView bio →

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