Whose Fault Is It? Mistakes and the 401k…

No matter how careful we try to be, mistakes happen. That’s true in life, in business, and in retirement plans. Sponsors and their employees can make mistakes, and so can even the most diligent TPA’s, advisors, and recordkeepers. It’s especially possible to err or overlook something with retirement plans, given the pages of regulations, standards, protocols and courtroom precedence associated with all things ERISA. What’s key, according to ERISA attorneys, is catching mistakes as early on as possible, and addressing them head-on. 

Avoid The Blame Game and Handle The Mistakes

At the Rosenbaum Law Firm, Ary Rosenbaum points out that “Retirement plans are governed by thousands of pages of statutes, regulations, IRS guidance, and plan-specific provisions. Even the best HR departments, payroll personnel, TPAs, recordkeepers, and advisors make mistakes from time to time.” Rather than wasting time and effort on finding someone to blame for a “terrible job,” (or worse, denying the problem), Rosenbaum counsels communicating about and handling mistakes as soon as they are discovered, noting:

• What separates a well-run plan from a poorly run one isn’t whether mistakes occur. It’s how they’re handled once they’re discovered.
• The IRS recognizes this reality, which is why it created the Employee Plans Compliance Resolution System (EPCRS). The correction program exists because the IRS understands that errors happen. The goal is to encourage plan sponsors to identify problems, correct them promptly, and preserve the tax-qualified status of the plan.
• Almost every problem has a correction method if it’s addressed in a timely manner.
• The worst response is denial….Ignoring an error often makes it more expensive and complicated to fix later. Addressing it immediately demonstrates good fiduciary governance and protects both the plan and its participants.

• Perfection isn’t the standard. Prudence is. A plan sponsor who promptly corrects mistakes and learns from them is usually in a much better position than one who assumes nothing could possibly be wrong.

Good To Know: Error Correction Programs at the IRS and DOL

Both the Internal Revenue Service (IRS) and Department of Labor (DOL) provide tools, resources and protocols for addressing errors made with employer sponsored retirement plans. 

As the IRS itself says, “Mistakes happen!” Among IRS resources for addressing oversights is the 401k plan fix it guide, which provides actions to take in the event of these 12 common errors:

1. Plan document not updated
2. Failure to follow plan terms
3. Incorrect definition of compensation
4. Employer matching contributions missed
5. Failed ADP/ACP nondiscrimination tests
6. Exclusion of eligible employees
7. Excess elective deferrals
8. Late deposit of deferrals
9. Participant loan errors
10. Improper hardship distributions
11. Top-heavy plan minimums missed
12. Delinquent Form 5500

Visit Correcting Plan Errors to get started with the Employee Plans Compliance Resolution System (EPCRS) at the IRS, which “allows retirement plan sponsors to correct plan mistakes and continue to provide retirement benefits on a tax-favored basis. EPCRS includes self-correction without IRS involvement (SCP), voluntary correction with IRS approval (VCP), and correction during audit under a closing agreement (Audit CAP).”

At the Department of Labor the Voluntary Fiduciary Correction Program “is

 a helpful resource for employers and plan officials to voluntarily correct violations of the Employee Retirement Income Security Act (ERISA).” The DOL updated the VFCP in 2025 and explains: 

The Voluntary Fiduciary Correction Program (VFCP) is a voluntary enforcement program that allows plan officials to identify and fully correct certain transactions such as prohibited purchases, sales, and exchanges; improper loans; delinquent participant contributions; and improper plan expenses. The program includes 19 specific transactions and their acceptable means of correction, eligibility requirements, and application procedures. If an eligible party documents the acceptable correction of a specified transaction, EBSA will issue a no-action letter. 

ERISA Bond Errors?

Another frequent error made by retirement plan sponsors is failing to obtain or renew the ERISA Bond required by the DOL for the protection of the retirement plan against acts of fraud or theft. Rosenbaum reminds us: 

Every retirement plan subject to ERISA requires that every fiduciary of the plan be bonded. Except for two exceptions, the fidelity bond must be at no less than 10% of plan assets with a minimum of $1,000 and a maximum of $500,000. Plans that don’t have a fidelity bond in place or don’t have enough coverage are supposed to note that on Form 5500 and that alone could be a trigger for an audit by the government by the IRS or Department of Labor.

Important To Have: Compliance and Protection

ERISA bonds protect the plan–not the sponsor. Defense in the face of investigations is a personal, out of pocket expense for sponsors, and it adds up quickly. T

To help plan sponsors be both compliant and protected, Colonial Surety Company offers an efficient and affordable ERISA Bundle which includes: 

• ERISA Fidelity Bond — Fulfills your federal mandate to protect plan assets from fraud and dishonesty
• Fiduciary Liability Insurance — Provides personal protection, with up to $1,000,000 in coverage for legal defense costs and penalties arising from fiduciary errors, administrative oversights, and participant claims
• Complimentary $50,000 Cyber Liability Insurance — Protects your plan and company against regulatory actions following a data breach, addressing the DOL’s cybersecurity guidance directly by including expert response services.

Colonial Surety Company is Treasury-Listed, rated “A” (Excellent) by AM Best, and has been in business since 1930. As a direct carrier — not a broker — there are no agent markups or unnecessary fees. You can quote, purchase, and download proof of coverage entirely online in minutes.

Don’t wait for a participant complaint, DOL inquiry, or cyber threat to find out what you’re missing. 

Get an instant quote on Colonial Surety Company’s ERISA Bundle today — and protect your plan, your business, and your personal assets in one smart move.

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