7 Signs You’re Getting a Bad Deal on Your Company’s 401(K)

A good 401(k) plan can be a cornerstone of your retirement savings strategy, offering tax advantages, employer contributions, and long-term growth opportunities. However, not all 401(k) plans are created equal, and some come with hidden pitfalls that can cost you in the long run. Unfortunately, many employees aren’t aware of the red flags that signal a subpar plan.

Spotting these issues early can help you build your wealth, maximize your savings, and avoid unnecessary setbacks. Let’s explore the most common warning signs that your company’s 401(k) may not work in your favor.

High administrative or investment fees can quietly erode your retirement savings over time. Common culprits include mutual fund expense ratios, recordkeeping, and advisory fees. Ideally, incurred fees should be less than 1% to avoid eating into your returns. Even a difference of 1% more in annual fees can significantly reduce your returns over decades.

Requesting a detailed fee disclosure from your HR department or plan administrator is important. Be sure to compare your plan’s costs to industry averages and advocate for lower-cost investment options if fees seem unreasonably high.

If your plan offers only a handful of funds — or excludes essential choices like low-cost index funds — it restricts your ability to diversify your portfolio and reduce risk. A lack of variety can also limit your growth potential.

Consider evaluating the funds in your plan and look for gaps in asset classes like small-cap stocks. If options are too narrow, ask HR about expanding the investment lineup or consider opening an IRA to supplement your 401(k).

Employer matching is one of the most valuable benefits of a 401(k), as it’s essentially free money for your retirement. If your employer doesn’t match contributions or offers a minimal percentage, you could miss out on a significant savings boost.

It’s crucial to always contribute enough to capture the full available match. If your employer doesn’t offer matching, consider negotiating this benefit during compensation discussions or focus on other tax-advantaged accounts like an IRA or HSA.

When it’s hard to find clear, accessible information about your 401(k) — such as fee breakdowns, fund performance, or plan rules — it’s a major red flag. Lack of transparency makes it difficult to evaluate whether the plan serves your best interests.

Consider requesting your plan’s summary description or fee disclosure documents. If the information isn’t readily available, bring this concern to HR. Seeking external financial advice to analyze your plan may be necessary.

Funds that consistently underperform compared to their benchmarks or peers can drag down your overall returns. While short-term fluctuations are typical, consistent underperformance indicates that your plan’s investments may not be well-managed.

Comparing your funds’ performance to industry benchmarks like the S&P 500 or similar funds is a wise idea. If you spot persistent underperformance, allocate contributions to better-performing funds within the plan or explore external investment options.

Automatic enrollment and contribution escalation are features designed to make saving for retirement easier. Without these, employees may delay participation or fail to increase their savings over time, potentially jeopardizing their financial future.

If your plan lacks these features, set reminders to increase your contributions annually. It’s worth advocating for adding automatic features, as they can help all employees build savings more effectively.

Some employers impose lengthy vesting schedules, meaning you won’t fully own the company’s contributions until you’ve worked there for several years. If you leave your job early, you might lose a significant portion of these contributions.

It is crucial to review your plan’s vesting schedule and factor it into your career plans. If the schedule is unfavorable, consider this when deciding whether to stay with the company or accept another offer.

A 401(k) can be a powerful tool for building wealth, but only if it’s structured to support your goals. High fees, limited investment options, or missing features can hold you back, costing you valuable growth over time.

Take a close look at your plan and compare it to industry benchmarks. Are you maximizing your savings potential? Start investing wisely by identifying and addressing shortcomings in your company’s 401(k) plan.