As summer winds down, vacations come to an end, schools reopen, and business calendars begin filling up again.
For retirement plan sponsors, this is one of the last opportunities to step back and review plan operations before year-end notices, compliance testing, open enrollment, budgeting, and other deadlines begin competing for attention.
An operational health check does not require a major plan event. The goal is to confirm that the plan is operating as intended and that employees are receiving the benefits described in the plan document.
Three areas deserve particular attention: participation rates, automatic enrollment and escalation settings, and potential missed deferrals.
Start With Participation, Not Assumptions
A plan’s overall participation rate is an important measure, but it does not always tell the whole story.
A plan may have a strong participation rate overall while certain groups of employees remain less engaged. Consider reviewing participation by:
- Location or business unit
- Payroll group
- Employee tenure
- Newly eligible employees
- Automatically enrolled versus voluntarily enrolled employees
- Employees contributing enough to receive the full employer match
For example, if newly eligible employees are participating at a much lower rate than the rest of the workforce, the issue may not be a lack of interest. It could point to an onboarding breakdown, delayed eligibility information, or a disconnect between HR, payroll, and the recordkeeper.
Automatic enrollment can have a meaningful effect. Vanguard’s How America Saves 2026 reported a 94% participation rate among plans with automatic enrollment, compared with 64% among voluntary enrollment plans.
Participation should also be considered alongside contribution rates. Ask:
- What is the average employee deferral rate?
- How many employees remain at the default contribution percentage?
- How many are contributing enough to receive the full match?
- Have opt-out rates increased?
- Are savings rates improving over time?
Participation tells you who is in the plan. Contribution rates provide a better indication of whether employees are making sustained progress.
Review Automatic Enrollment and Escalation Settings
Automatic enrollment should not be treated as a feature that can simply be turned on and forgotten.
Plan sponsors should periodically confirm that the initial default rate, annual increase, and escalation cap remain appropriate for the workforce and align with the employer match.
Vanguard reported that 62% of automatically enrolling plans used a default rate of at least 4% in 2025, while 31% began employees at 6% or more. Seventy-one percent of automatic enrollment plans also increased employee contribution rates annually.
Review questions should include:
- What is the initial automatic enrollment rate?
- Does the contribution rate increase automatically each year?
- Is the annual increase being processed correctly?
- At what percentage does the escalation stop?
- Does that cap allow employees to receive the full employer match?
- Are required notices being distributed?
- Are payroll and recordkeeper systems using the same settings?
- Could periodic re-enrollment help employees who previously opted out?
A plan that automatically enrolls employees at 3% but stops increasing contributions at 6% may unintentionally anchor employees at a savings rate below the employer’s match threshold or their long-term needs.
Certain 401(k) and 403(b) plans established after December 29, 2022, are generally subject to the SECURE 2.0 automatic enrollment requirements for plan years beginning after 2024, although several exceptions apply. Existing plans that are not subject to the mandate may still choose to add automatic features.
Regardless of whether automatic enrollment is required, the plan document, employee notices, payroll system, and recordkeeper should all reflect the same provisions.
Look for Missed Deferrals Before They Grow
A missed deferral generally occurs when an eligible employee is not given the opportunity to contribute according to the terms of the plan or when an employee’s contribution election is not implemented correctly.
Common examples include:
- An eligible employee was not enrolled on time
- An employee’s election was not transmitted to payroll
- Payroll continued using an outdated contribution rate
- Automatic enrollment deductions did not begin
- An annual automatic increase was skipped
- A rehired employee was treated incorrectly
- Roth deductions were processed as pre-tax, or vice versa
- A payroll or recordkeeper conversion caused an election to be lost
These issues are often discovered when an employee reviews a paycheck, during annual compliance testing, or while preparing for an audit. By then, the error may have continued across multiple payroll periods.
Depending on the circumstances, correction may involve an employer contribution for the missed deferral opportunity, restoration of missed matching contributions, and an adjustment for lost earnings. Certain automatic enrollment errors may qualify for more favorable correction treatment when corrected within the applicable timeframe.
Because correction requirements depend on the specific facts, potential errors should be reviewed promptly with the plan’s third-party administrator, recordkeeper, advisor, ERISA counsel, or other qualified professionals.
The sooner the issue is identified, the easier it may be to limit its impact.
Reconcile the Three Main Sources
A reliable operational review compares information across three places:
- The plan document
- The payroll and HR systems
- The recordkeeper
These sources should agree on eligibility, entry dates, contribution elections, automatic features, and contribution types.
The review should compare:
- Employees identified as eligible under the plan document
- Eligibility and entry dates maintained by HR
- Employees shown as eligible by the recordkeeper
- Contribution elections on the recordkeeper’s website
- Actual deductions taken through payroll
- Amounts deposited into participant accounts
- Pre-tax, Roth, after-tax, and catch-up contribution sources
- Automatic escalation dates and percentages
- Terminated and rehired employee coding
- Employer matching contribution calculations
It is also important to distinguish a missed deferral from a late deposit.
A missed deferral involves a deduction that should have occurred but did not. A late deposit occurs when money was deducted from an employee’s paycheck but was not forwarded to the plan on time. Late deposits can create separate fiduciary and prohibited-transaction concerns.
Pay Special Attention After Operational Changes
Retirement plan errors can frequently occur after changes involving:
- Payroll providers
- Recordkeepers
- Pay frequencies
- Business acquisitions
- New locations or payroll groups
- Eligibility provisions
- Automatic enrollment percentages
- Roth or catch-up contribution processes
Even when each provider believes its system is configured correctly, information may not transfer properly between systems.
Following a significant change, review the first several payrolls carefully. Confirm that newly eligible employees, existing elections, automatic increases, employer contributions, and contribution sources are all processing correctly.
The absence of employee complaints does not necessarily mean the process is working.
Create a Simple Exception Report
The most effective operational controls are often the simplest.
Consider creating a monthly or quarterly report identifying:
- Eligible employees with no contribution election
- Newly eligible employees whose deductions have not started
- Recordkeeper elections that do not match payroll deductions
- Employees who reached an escalation date without an increase
- Participants remaining at the default rate for an extended period
- Payroll deductions that do not match plan deposits
- Employees who may be missing the full employer match
Assign someone responsibility for reviewing the report and documenting how exceptions were resolved.
This creates an ongoing process rather than relying on a once-a-year cleanup.
An End-of-Summer Checklist
Before the fall calendar becomes crowded:
- Confirm participation and average deferral rates
- Identify employee groups with lower participation
- Review the automatic enrollment default rate
- Confirm the annual escalation percentage and cap
- Compare the escalation cap with the employer match threshold
- Reconcile recordkeeper elections with payroll deductions
- Review newly eligible and rehired employees
- Investigate eligible employees with no deductions
- Confirm contribution sources are mapped correctly
- Document findings and corrective actions
- Schedule a fall plan design and year-end readiness review
Final Thought
A retirement plan can be well designed on paper and still experience problems if its day-to-day operations are not monitored.
Employees must be enrolled on time. Contribution elections must reach payroll. Automatic increases must occur as intended. Payroll deductions must be deposited properly.
A focused end-of-summer review may help uncover small issues before they require corrective contributions, lost earnings, and additional administrative work. It can also reveal opportunities to improve participation, strengthen savings rates, and make year-end administration smoother.
The goal is not simply to offer a retirement plan. It is to operate a plan that works as intended for eligible employees.
Together, let’s evaluate the way we approach retirement programs.
Chris Cristallo, CFP®
401(k) Advisor
Sources
Vanguard, How America Saves 2026.
Internal Revenue Service, Retirement Topics: Automatic Enrollment.
Internal Revenue Service, 401(k) Plan Fix-It Guide.
U.S. Department of Labor, Meeting Your Fiduciary Responsibilities.
Important Disclosure
This material is provided for general educational and informational purposes only and should not be construed as individualized investment, legal, tax, or ERISA advice. Retirement plan rules and correction requirements vary based on the specific facts and circumstances. Plan sponsors should consult their retirement plan professionals, legal counsel, tax advisors, and other service providers before taking action. Information is believed to be accurate as of the date of publication but is subject to change.
