ALM’s Judy Diamond Associates Analysis Reveals More Than 54,000 401(k) Plans Failed Nondiscrimination Testing

Washington, D.C. – May 19, 2015 – ALM’s 401(k) intelligence provider Judy Diamond Associates has released its annual study of corrective distributions required by 401(k) plans. This new research shows that 54,493 401(k) plans failed their most recent IRS nondiscrimination tests.

These plans were required to return $820 million in 401(k) contributions to highly compensated employees, resulting in increased income taxes and lower retirement savings for the impacted participants.

As a check on plan design fairness, the IRS requires that both highly compensated plan participants and the rank-and-file plan participants contribute at similar rates to their 401(k) plans. In cases where owners and managers contribute at far higher rates than their workers over the course of the year, the plans must return some of the more highly compensated employees’ savings, which then become subject to normal income taxes. These payments are known as corrective distributions.

“The issuance of corrective distributions should serve as a red flag to financial advisors who are looking for opportunities to increase their 401(k) business,” said Eric Ryles, managing director of ALM Financial Intelligence. “It means that the plan has highly compensated employees who were unable to save as much for their retirements with pre-tax income as they would like. It may also mean that the plan is not designed to encourage workers to contribute sufficiently. Plan advisors can utilize this information in their prospecting efforts by introducing retirement education programs and suggesting better 401(k) savings incentives as a part of their proposal.”

Advisors will also find that plans that issue corrective distributions commonly have other issues with their design, according to research by the IRS. These may include inadequate fidelity bonds, incorrect calculation of vesting schedules or failure to amend plans in a timely period to conform to current laws and regulatory changes. Searching for plans with these and other warning signs is possible with Retirement Plan Prospector, Judy Diamond Associates’ intuitive and comprehensive online sales prospecting and plan analysis tool.

Top 5 companies issuing the largest amount of corrective distribution:

Company Name HQ State Industry Corrective Distributions Issued
Enterprise Holdings MO Car Rental $7,725,839
Conoco Phillips TX Oil $6,768,087
Allegis Group MD Staffing $5,229,788
Chevron CA Oil $4,829,786
Safeway CA Grocery $4,499,170

Judy Diamond Associates based this research on the most recently available complete set of 401(k) plan disclosure documents released by the Department of Labor, which are available in its Retirement Plan Prospector database.

For more information about this research, please contact us at or follow us on Twitter @401kFacts.

About ALM
ALM is a global leader in specialized industry news and information. Trusted reporting delivered through innovative technology is the hallmark of ALM’s award-winning media properties. Headquartered in New York City with 14 offices worldwide, ALM brands have been serving their markets since 1843. ALM was named among Folio: Magazine’s Top Places to Work in Media in 2014. For more information, visit

# # #

Media Contact

Angel Fahy
LAK Public Relations
212.899.4755 or [email protected]

About Author: