Starting a retirement plan is a great step toward supporting your employees and preparing your business for long-term success. But the process isn’t always straightforward—and getting it wrong can lead to compliance issues, financial penalties, or a plan that simply doesn’t serve your goals.

Here are some of the most common mistakes employers make when setting up a retirement plan, and how to avoid them:

Choosing the Wrong Type of Plan

Not every retirement plan fits every business. Many small employers default to SIMPLE or SEP IRAs without considering the long-term flexibility and benefits of a 401(k) plan—or miss out on advanced designs like safe harbor or profit-sharing options.

Solution: Work with an experienced advisor to evaluate your business size, goals, and employee demographics to choose the right plan structure.

Ignoring Plan Design Options

Failing to customize your plan design can result in low participation, failed compliance testing, or limited savings for owners. Defaulting to a generic plan can leave tax advantages on the table.

Solution: Consider design features like automatic enrollment, Roth contributions, vesting schedules, and safe harbor provisions to align the plan with both employee needs and owner goals.

Overlooking Eligibility and Entry Rules

Plan sponsors often create eligibility rules that are too restrictive or too open. Allowing employees in too early can cause administrative burdens; delaying too long could trigger compliance issues or even penalties.

Solution: Define clear eligibility criteria that balance accessibility and ease of administration—such as one year of service with semi-annual entry dates.

Missing Key Filings and Deadlines

A missed Form 5500 filing, late ADP/ACP test correction, or a delay in remitting employee deferrals can lead to costly penalties and IRS scrutiny.

Solution: Set up a compliance calendar and partner with a third-party administrator (TPA) or auditor to stay on track with all deadlines.

Not Understanding Employer Responsibilities

Some employers assume their provider handles everything—from compliance testing to contribution calculations—only to learn too late that they were ultimately responsible.

Solution: Get educated on fiduciary responsibilities and roles. If you don’t want the responsibility, consider outsourcing to a 3(16) plan administrator or joining a pooled employer plan (PEP).

Neglecting Employee Education

Even the best plan won’t succeed if employees don’t understand it. Low participation or poor deferral choices often stem from lack of engagement.

Solution: Offer ongoing education sessions, provide access to advisors, and simplify plan materials to boost participation and retirement readiness.

Forgetting to Reassess Over Time

Business goals, tax strategies, and employee demographics change. Failing to revisit your plan design regularly can limit your flexibility and prevent optimization.

Solution: Review your retirement plan annually with your advisor or auditor to make sure it’s still meeting your business and compliance needs.

Corrigan Krause Can Help

Setting up a retirement plan is a major milestone—but it’s not a “set it and forget it” decision. Taking the time to do it right from the beginning can help you avoid costly errors, maximize your contributions, and create a benefit that truly supports your team. Click here to download a helpful checklist.

If you’re thinking about starting a plan—or want a second opinion on an existing one—contact the Employee Benefit Audit Team for information on becoming at client here.