Leave Your 401(k) at Work? How to Audit Your Employer Plan for Hidden Fees and Tax Risks

Stop guessing — protect tens of thousands: a fast audit you can run before leaving your 401(k) at work

If you’re considering leaving your 401(k) with a former employer, you’re not alone — but you can’t afford to be casual. Hidden fees, poor investment options, unaddressed tax rules (including required minimum distributions), and operational risks like plan blackouts can silently erode retirement savings and create audit exposure. This guide gives a step-by-step audit checklist you can run in one afternoon and a prioritized action plan if the results are bad.

Top-line guidance (most important first)

Short answer: It’s OK to leave a 401(k) with a former employer only if the plan passes a focused audit on fees, investment quality, tax handling, and operational risk. Many plans do not.

• If total costs (all fees + expense ratios) are reasonable and the plan handles RMDs, Roth/after-tax balances, and forced cashouts fairly, leaving the account can be simple and low-risk.
• If you see high fees, narrow investment choices, large revenue-sharing arrangements, or no clear RMD policy, you should strongly consider a rollover (to an IRA or a new employer plan) or demand plan changes.
• Run the quick checklist below — then follow the escalation flow if any item scores “red.”

Why audit now — 2026 trends that matter

Regulatory and market developments through late 2025 and early 2026 have made this audit more important than ever:

• Regulators and courts increased scrutiny of participant fee disclosures in 2024–2025, producing more participant-friendly enforcement and settlement activity; that means many plans revised disclosures, but inconsistent fixes persist.
• Fintech benchmarking tools and AI-driven analysis became widely available in 2025, which makes it easier for participants to benchmark their plan — and also reveals outlier plans more quickly.
• Plan recordkeeper consolidations accelerated in 2025, raising the frequency of administrative disruptions and administrative disruptions that can lock you out of your account when you need to roll funds.
• Tax-side changes from SECURE Act 2.0 remain relevant: the current RMD age is 73 (as phased under SECURE Act 2.0) and employers are increasingly offering Roth match/after-tax features — you must understand how your plan handles these.

Five immediate red flags (stop here and act if any apply)

• No recent participant fee disclosure or an incomplete disclosure (missing revenue-sharing or recordkeeping fees).
• Average expense ratios above typical benchmarks (e.g., default QDIA >0.65% when comparable low-cost funds are available at 0.05%–0.25%).
• Forced cashout policy for small balances (e.g., cash-out below $5,000 without rollover option).
• No policy on RMDs or inconsistent treatment of Roth and after-tax balances.
• Recordkeeper or investment manager change announced without clear blackout notice timeline.

The comprehensive 401(k) audit checklist (run this)

Work top-down. You can complete this audit by requesting documents from the plan administrator (use the sample request below), reviewing online plan materials, and doing quick math on fees and returns.

1) Documents to request (must-haves)

• Summary Plan Description (SPD) — explains distribution rules and participant rights.
• Plan document and trust agreement — legal framework and named fiduciaries.
• Participant fee disclosure (the annual or quarterly disclosure you should have received; shows administrative fees, revenue-sharing, sub-TA fees).
• Form 5500 (most recent year) — shows plan-level expenses and service providers.
• Investment lineup and prospectuses for every fund in your account.
• Investment Policy Statement (IPS) or QDIA documentation — shows how default investments are selected and monitored.
• Recordkeeper and trustee contracts (or a summary) — shows compensation and revenue-sharing arrangements.
• Participant statements showing historical returns — to validate net-of-fee performance.

2) Fee analysis (how to detect hidden costs)

Fee disclosure lines can be misleading. Run these quick checks:

1. From the fee disclosure, add: investment expense ratio (management fee) + per-participant administrative fee (if shown) + revenue-sharing (if shown) + recordkeeping per-participant charge = total annual cost as a %.
2. If data is in dollars (e.g., $300/year recordkeeping), convert to %: divide by your balance. Example: $300 / $100,000 = 0.30%.
3. Benchmark: a low-cost plan total cost typically sits below 0.50% for diversified accounts; anything above 0.75% (and especially above 1.0%) warrants deep scrutiny.

Example calculation (compare outcomes):

Scenario A (high fees): $100,000 invested, 6.5% gross return, total fees 1.20% = net 5.3% annually.
Scenario B (low fees): same gross 6.5%, total fees 0.25% = net 6.25% annually.
Over 20 years, Scenario A grows to ≈ $284k; Scenario B to ≈ $350k — a difference of ≈ $66k from fees alone.

This simple math shows why fee vigilance pays — and why comparing expense ratios across available funds is essential.

3) Investment quality and lineup review

• Check how many low-cost index funds or institutional share classes are offered. If the lineup is dominated by high-cost retail funds, that’s a red flag.
• Compare net returns of the plan’s QDIA (default fund) to comparable benchmark funds after fees. Use the prospectus and performance reports.
• Look for concentration risk — proprietary funds or funds managed by plan recordkeeper that generate revenue-sharing back to the plan sponsor.
• Ask: Is there an IPS and is it followed? An active IPS with documented monitoring dates signals stronger fiduciary oversight — consider linking your governance records to a versioning and governance playbook if you’re organizing evidence.

4) Fiduciary & ERISA compliance checks

ERISA requires fiduciaries to act prudently and in participants’ best interests. Your audit should confirm:

• Who the named fiduciaries are and whether they have documented, recent meetings reviewing investment lineup and fees.
• Whether the plan completed timely Form 5500 filings and whether the 5500 shows unusually high plan expenses or certain related-party transactions.
• Whether the SPD and fee disclosures were delivered timely to participants — missing disclosures can be violations.
• Whether the plan uses a reasonable process for selecting and monitoring the recordkeeper and investments (look for an RFP or benchmarking exercise within the last 36 months).

5) Operational risks: blackouts, forced cashouts, and access

• Find the plan’s blackout policy. If a blackout is planned within the next 12 months, consider rolling out before it begins — you can get trapped during a blackout.
• Check forced cashout thresholds. Plans often force distributions when balances fall below $1,000–$5,000; confirm whether they roll small amounts to an IRA or send cash (tax withholding + penalties may apply).
• Review loan and in-service distribution policies. If you have outstanding loans, check how leaving the employer affects repayment and default risk.

6) Tax handling and RMDs (required minimum distributions)

As of 2026, the RMD age is 73 for many participants per the SECURE Act 2.0 schedule. Your audit must confirm:

• How the plan calculates and notifies participants of RMDs (does the plan issue timely RMD notices?).
• Whether Roth 401(k) and after-tax contributions are tracked separately and how RMDs are taken from Roth balances (RMD rules differ for Roth accounts in employer plans vs IRAs).
• Whether the plan allows direct rollovers to an IRA to avoid plan-level RMD complications (rolling a Roth 401(k) to a Roth IRA before RMD age can eliminate Roth RMDs).
• Potential tax traps: involuntary cashout triggers withholding and taxes; pro-rata rules if doing partial rollovers involving after-tax money.

7) Participant protections and dispute options

• Confirm the plan’s claims procedure in the SPD — it should explain how to file an internal appeal.
• If you suspect a fiduciary breach or bad faith charges, you can file a complaint with the Department of Labor (DOL) EBSA or consult ERISA counsel. Keep all documented requests and responses.
• Look for external audit reports or independent fiduciary attestations; absence doesn’t prove wrongdoing but increases your caution threshold.

Scoring rubric for a quick decision

Score each category Green / Yellow / Red. If any category is Red, treat the account as high-risk and consider rolling funds out.

• Fees: Green if total cost <0.50%, Yellow 0.50%–0.99%, Red ≥1.0%.
• Investment lineup: Green if low-cost index options exist and QDIA is competitive; Red if predominantly high-cost and proprietary funds.
• Operational risk: Red if blackout expected or forced cashout threshold is within your balance band.
• Compliance/fiduciary: Red if missing SPD, missing fee disclosure, or no IPS/monitoring evidence.
• Tax/RMD handling: Red if RMD policy unclear or Roth/after-tax tracking is inconsistent.

If your audit finds problems — prioritized action plan

1. Document everything. Save emails, disclosures, screenshots, and date-stamped records — consider organizing evidence alongside a compliance checklist so your records are accessible to counsel.
2. Contact the plan administrator: request clarification and timeline for fixes. Use the sample request below — automating triage of requests can help if you’re managing multiple inquiries (see automation playbooks).
3. Consider rolling out funds: Direct rollover to an IRA typically eliminates plan-level administrative fees, gives broader fund choice, and avoids forced cashout rules. If you have an opportunity to roll to a new employer plan with lower costs, compare both options.
4. Escalate: If the plan fails to respond or you suspect fiduciary breach, contact the DOL EBSA participant hotline and, if warranted, consult ERISA counsel (especially for large balances or complex after-tax issues).
5. Use benchmarking tools: Many fintech platforms (widely available in 2025–2026) can anonymize your data and show whether your plan is an outlier on fees — and if you’re building an analysis pipeline, consider infrastructure tradeoffs for cost-effective benchmarking.

Sample participant request email (copy, paste, send)

Subject: Request for Plan Documents and Fee Disclosures — [Your Name], Participant ID [XXX] Dear Plan Administrator, I am a former employee and participant in the [Plan Name]. Please provide electronic copies of the following documents within 30 days:

1. Summary Plan Description (SPD) and any Summary of Material Modifications.
2. Most recent participant fee disclosure and QDIA notice.
3. Plan document and trust agreement, recent Form 5500, investment lineup with prospectuses, and the Investment Policy Statement (if any).
4. Recordkeeper/administrator contract summaries showing compensation/revenue-sharing arrangements.

Thank you — please confirm receipt and the expected delivery date. Sincerely, [Your Name] — Participant ID [XXX]

Case study: fee impact you can’t ignore

Sam left a company in 2026 with $150,000 in a 401(k) lodged in the employer plan. The plan’s total annual cost was 1.10% vs a low-cost IRA option at 0.25%. Using a conservative 6% gross annual return:

• Net annual return in plan = 4.9% → 20-year value ≈ $396k.
• Net annual return in IRA = 5.75% → 20-year value ≈ $498k.

Sam would forfeit roughly $102k in future retirement wealth by leaving the account in the plan. That’s the real cost of “convenience.”

Common myths — and the reality

• “My old employer’s plan is more secure.” Reality: Security is similar (ERISA protections), but investment choice and fees are often better in IRAs or other employer plans.
• “It’s a hassle to rollover.” Reality: A properly executed direct rollover is straightforward and avoids tax and withholding risk.
• “I’ll lose access to loans or other features if I roll out.” Reality: Loans typically end when you leave. If you value plan loans, weigh that against fee and investment costs.

When leaving the account makes sense

Keep the 401(k) at the former employer if:

• The plan offers institutional share classes and low total costs.
• The recordkeeping and service quality are excellent and you expect the company to continue strong plan governance.
• You have a complicated tax or employer-unique feature (e.g., employer match vesting schedules, special retirement income options) that makes leaving disadvantageous.

Final checklist — one-page audit you can run now

1. Request SPD, fee disclosure, Form 5500, IPS, recordkeeper contract.
2. Calculate total annual cost (%): investment ER + admin fees + revenue-sharing / balance.
3. Compare default/QDIA net return to benchmark funds after fees.
4. Check for blackout notice or recordkeeper change in the next 12 months.
5. Confirm plan’s forced cashout threshold and RMD procedures.
6. Score each area Green/Yellow/Red; escalate if any Red.

Where to go for help

• Department of Labor (DOL) — participant assistance and filing guidance.
• Certified ERISA attorneys — for legal review if you suspect fiduciary breaches.
• Fee benchmarking platforms and fiduciary advisors — for independent analysis of plan costs and performance.

Closing — act now, protect decades of retirement

Leaving your 401(k) at work can be fine — but only after a disciplined audit. Hidden fees, murky RMD handling, and operational risks mean “convenience” can cost tens of thousands. Use the checklist above, document everything, and escalate if you find red flags. If you want a faster path, taxman.app offers a guided 401(k) audit tool that automates document requests, benchmarks fees against peer plans, and outputs a personalized recommendation (rollover vs stay) with next-step templates.

Takeaway: Don’t assume your former employer’s plan is honest about costs. Run the audit, score it, and make a documented decision — your future self will thank you.

Call to action: Start your free 401(k) audit checklist at taxman.app or download the printable checklist now to run the review in under 60 minutes.

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