No Problems Here…?

Oct 11, 2026

When you sponsor a retirement plan for your business, it’s unsettling even to imagine theft or fraud eating into the life savings you are responsible for. That’s exactly why ERISA requires a fidelity bond covering anyone who handles plan funds or property, so the plan can recover losses caused by dishonest acts. The good news is that the vast majority of plan sponsors and the people who manage plan money are honest. The more likely threat isn’t dishonesty at all but an honest mistake, and that’s something the ERISA bond doesn’t cover. So what kinds of mistakes put plans at risk, how can you prevent them, and what protection is available when they happen anyway? Read on.

Just Keep Moving: Not A Great Idea Vis A Vis ERISA

In many small and mid size businesses, the spirit of “just keep moving” can be a very helpful mindset among employees. Disappointed customer? Staff shortage? Supply delay? These are the kinds of daily problems that good teamwork and resourcefulness overcome every day at worksites around the country. Unfortunately, when it comes to retirement plans governed by ERISA, working around glitches is not a best practice. In fact, rushing through mistakes can spell a lot of trouble. Reminding us that “good intentions do not correct operational failures,” attorney Ary Rosenbaum underscores the importance of following clear processes and adhering to the plan document:

Retirement plan errors rarely occur because someone intended to violate the rules. Most operational failures result from well-meaning individuals trying to solve a problem on their own. An employee decides a worker should be excluded because they are “part-time.” Another assumes a rehired employee must wait another year for eligibility. Someone else believes a payroll issue can simply be fixed next pay period. These decisions can create costly correction programs, additional employer contributions, and unnecessary audit findings.

The solution is not to discourage employee involvement. The solution is to establish clear processes and ensure everyone understands their role. Retirement plans operate best when responsibilities are defined, decisions are documented, and questions are directed to qualified service providers before action is taken.

Catch Mistakes Proactively

Mistakes are a reality, even in retirement plans led by diligent sponsors, backed by excellent employees, and supported by top notch third party administrators and advisors. Retirement plans are complex and governed by exceptionally high standards. That’s why it’s best practice for plan sponsors to periodically secure an independent, operational audit. Doing so ensures procedural compliance, protects employee balances, and can shield employers from damaging regulatory penalties, investigations and allegations. Audits verify whether payroll systems, eligibility filters, and administrative practices match official plan documents. Common mistakes that can be caught in a timely manner through robust, objective audits include:

Compensation Miscalculations: Applying match formulas to excluded pay (such as overtime or bonuses) or exceeding annual IRS compensation caps.
Delayed Remittances: Failing to deposit employee salary deferrals within the DOL’s required timeframe (e.g., the 7-business-day safe harbor for small plans).
Eligibility & Enrollment Gaps: Omitted long-term part-time workers, misapplied entry dates, or missed auto-enrollment and auto-escalation triggers.
Vesting & Match Errors: Incorrectly calculating service credit or misinterpreting per-payroll limits versus annual “true-up” rules.
Documentation Deficits: Granting hardship distributions or loan terms without required verification documents.

When retirement plan errors are uncovered in a timely manner, sponsors can take proactive steps to address them following protocols from the government:

The Department of Labor provides the Voluntary Fiduciary Correction Program.
The IRS provides the 401k plan fix it guide and Correcting Plan Errors.

Do not neglect cybersecurity when examining retirement plan operations for compliance. Retirement plans rely on a web of vendors—recordkeepers, custodians, payroll systems, third-party administrators—with overlapping access to sensitive participant data. The Department of Labor’s Employee Benefits Security Administration (EBSA) has made cybersecurity a national enforcement priority. Without a documented vendor oversight process, sponsors cannot answer the most basic question regulators will ask: who has access to what, and have you verified their cybersecurity protocols?

Best Practice: Compliance And Protection

Under ERISA, plan sponsors remain fiduciaries even when plan services are outsourced. As ADP underscores: The Employee Retirement Income Security Act (ERISA) sets a demanding bar for anyone in the fiduciary role… As the plan sponsor, you retain oversight even when you delegate tasks, making sure the right expertise is in place so nothing falls through the cracks.”

Defense in the face of penalties and investigations is a personal, out of pocket expense for plan sponsors, and it adds up quickly. Remember too: ERISA bonds protect the plan–not the sponsor. That’s why Colonial Surety Company puts three essential coverages into one seamless, affordable bundle for retirement plan sponsors:

ERISA Fidelity Bond: Fulfills your federal mandate to protect plan funds from dishonesty. Remember, an ERISA Bond protects the plan–not you. Colonial Surety Company is a direct, Treasury-Listed bond writer.

Fiduciary Liability Insurance (FLI): Shields your personal assets, providing up to $1,000,000 in legal defense costs and covered losses for claims alleging administrative errors, oversight omissions, or breach of fiduciary duty.

Complimentary Cyber Liability Insurance: Provides $50,000 of protection for the plan and company against regulatory actions following a data breach, directly addressing the DOL’s response plan recommendations.

Protect your retirement plan, your business, and your personal assets in one smart move: bundle your ERISA Bond with Fiduciary and Cyber Liability Insurance at Colonial Surety Company.

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