Participant Complaints: What’s Your Process?

When you sponsor a retirement plan regulated by ERISA, such as a 401(k), it is crucial to take participant complaints seriously. That means having a clear process for documenting, investigating, and resolving concerns in a timely manner. While busy business owners may be tempted to view complaints as an annoyance, they often provide an important heads-up regarding operational oversights that require correction. A plan sponsor’s duty includes continuously monitoring services for the benefit of participants, and catching mistakes early ultimately helps everyone–including the sponsor. 

Take Concerns Seriously

As Ary Rosenbaum, an attorney specializing in ERISA, explains: “The best plan providers do not treat complaints as annoyances. They treat them as valuable information. Participants interact with retirement plans every day and often notice problems before service providers, plan sponsors, or fiduciary committees do.” Errors and oversights related to retirement plan administration are common, but when identified and addressed early on, sponsors and their service providers can prevent them from spiraling into disruptive and costly issues such as investigations, audits, penalties, and litigation. Wisely, Rosenbaum encourages plan sponsors to view complaints as gifts—opportunities to proactively address operational weaknesses:

• Most retirement plan providers dread participant complaints. A participant cannot access their account, believes their contribution is missing, questions a distribution, or claims they were improperly excluded from the plan. The initial reaction is often frustration because complaints create work and consume valuable time. However, smart plan providers understand that participant complaints are often gifts.

• Many operational failures are first discovered because a participant asks a question. A participant who notices a missing deferral may uncover a payroll issue. An employee who questions eligibility may reveal a plan administration error. A participant who challenges a distribution amount may identify a recordkeeping problem that would have otherwise remained undetected.

• When participants raise concerns, providers should view those inquiries as opportunities to identify and correct issues before they become larger problems. A participant complaint that is addressed promptly may prevent a Department of Labor investigation, an IRS correction program filing, or a fiduciary breach claim.

Avoid Violations and Correct Errors Proactively

At the Department of Labor, the Employee Benefits Security Administration (EBSA) handles complaints from plan participants and maintains a list of civil violations that can trigger enforcement action and penalties: 

• Failing to operate the plan prudently and for the exclusive benefit of participants;
• Using plan assets to benefit certain related parties to the plan, including the plan administrator, the plan sponsor, and parties related to these individuals;
• Failing to properly value plan assets at their current fair market value, or to hold plan assets in trust;
• Failing to follow the terms of the plan (unless inconsistent with ERISA);
• Failing to properly select and monitor service providers;
• Taking any adverse action against an individual for exercising their rights under the plan (e.g., termination, fines, or other forms of discrimination).

An EBSA fact sheet summarizes investigations and actions taken in 2025, which included handling 222,000 informal complaints. Accordingly, law firm Haynes Boone advises plan sponsors to “annually review plan operations for potential breaches of fiduciary duties,” such as: 

• Failures to timely remit participant contributions;
• Plan committees not using best practices to review, monitor, and remove (if necessary) plan investments, as well as failing to properly benchmark plan fees; and
• Neglecting to properly audit third-party administrators regarding the processing of claims in accordance with the plan’s governing documents.

When stepping up their monitoring duties, plan sponsors will find it helpful to note that the IRS outlines common operational errors associated with employer-sponsored retirement plans and provides guidance for proactively resolving them in the 401(k) Plan Fix-It Guide.

Similarly, the Department of Labor offers the Voluntary Fiduciary Correction Program (VFCP), which “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.”

Even the most successful retirement plans and sponsors encounter mistakes, but those who succeed make governance, documentation, and monitoring a continuous habit. Proper protection is also essential because, despite best efforts, inquiry letters arrive from regulators, participants raise concerns, or legal challenges arise. Uniquely, Colonial Surety Company offers an affordable and efficient ERISA Bundle that combines three essential protections into one seamless package for plan sponsors:

• ERISA Fidelity Bond — Fulfills your federal mandate to protect plan assets against fraud and dishonesty.
• Fiduciary Liability Insurance — Provides 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.

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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