The Rosenbaum Law Firm P.C. Blog

A recent Vanguard report found that a record 6% of eligible 401(k) participants took hardship withdrawals during 2025, up from 5% the year before and roughly three times the pre-pandemic rate. While the numbers are concerning, they shouldn’t surprise anyone.

People aren’t tapping their retirement accounts because they suddenly forgot the importance of saving for retirement.

They’re doing it because life got expensive.

Medical bills. Housing costs. Inflation. Unexpected emergencies. For many workers, the 401(k) has become the only meaningful savings account they have.

I’ve seen some commentators suggest that employers should tighten hardship withdrawal procedures or make it more difficult to access retirement savings. I think that’s the wrong approach.

Congress has spent the last several years expanding access to retirement plans through legislation like SECURE and SECURE 2.0. Automatic enrollment is bringing millions of new participants into 401(k) plans, many of whom have lower incomes and fewer financial resources. It stands to reason that hardship withdrawals will increase as participation increases.

The real issue isn’t the hardship withdrawal.

The real issue is financial insecurity.

A hardship withdrawal is often the last stop after someone has exhausted other options. If an employee is facing eviction, overwhelming medical expenses, or another immediate financial need, preserving retirement savings becomes secondary to solving today’s crisis.

That doesn’t mean plan sponsors should ignore the trend.

Instead, they should ask better questions.

Do employees have access to emergency savings programs?

Are they receiving financial wellness education?

Do they understand the long-term cost of withdrawing retirement assets?

Has the employer considered the new emergency savings features authorized under SECURE 2.0?

Those conversations will do far more to improve retirement outcomes than simply adding administrative hurdles.

As an ERISA attorney, I spend much of my time helping employers keep retirement plans compliant. But compliance alone doesn’t solve financial stress.

Hardship withdrawals are a symptom, not the disease.

If we want fewer participants raiding their 401(k)s, we shouldn’t start by making hardship withdrawals more difficult.

We should start by helping employees avoid the hardship in the first place.

Years ago, I worked at a law firm that wasn’t a good fit for me. While I was there, I introduced a financial advisor to the firm’s most successful partner, who had a thriving tax certiorari practice. The partner hired him, and I also referred one of my defined benefit plan clients to the advisor. It was a relationship that benefited everyone.

After I left the firm, I later learned the advisor had asked the partner why I was gone. The partner—who, ironically, lives in the same village I do—described me as a “loose cannon.” Based on that one conversation, the advisor instructed his staff to stop working with me.

He never called me.

He never asked for my side of the story.

He simply accepted one person’s version of events and acted on it.

Life has a funny way of playing out. Not long afterward, the advisor lost the very defined benefit client I had referred to him when one of his advisors left for another brokerage firm and took the relationship along.

I’m not telling this story because I’m bitter. That was a long time ago. I’m telling it because it taught me one of the most valuable lessons I’ve learned in both life and business.

There are always two sides to a story.

I’ve learned that the hard way.

It’s why I stay out of disputes that don’t involve me. If two memorabilia dealers are feuding, I have no interest in picking a side. I tell my son the same thing. You rarely know the whole story, and once you insert yourself into someone else’s conflict, you’ve made it your conflict too.

I’ve seen friendships ruined, business relationships destroyed, and reputations damaged because people were too quick to believe the first version they heard. Sometimes the truth is somewhere in the middle. Sometimes it’s completely different from what you’ve been told.

One of the best pieces of business advice I can give is this: don’t become a judge in a case where you haven’t heard all the evidence.

Stay out of other people’s battles unless you have a compelling reason to be involved. You’ll save yourself a lot of unnecessary grief.

That’s a lesson I wish I had learned earlier.

Remember those old Roach Motel commercials?

“Roaches check in…but they don’t check out.”

For some employers, that’s exactly what it feels like with a PEO.

Don’t get me wrong. I understand why businesses use Professional Employer Organizations (PEOs). They can simplify payroll, HR, benefits administration, workers’ compensation, and other employment-related functions. For a growing business without a dedicated HR department, a PEO can make a lot of sense.

The problem isn’t getting into a PEO.

It’s getting out.

When an employer decides to switch from one PEO to another—or leave the PEO model altogether—that’s when the retirement plan issues begin.

Who sponsored the 401(k) plan?

Who adopted it?

Do participants need to be spun off into a new plan?

Is there a plan termination?

Is there a merger?

What happens to outstanding participant loans?

Who files the final Form 5500?

What happens if the employer has changed EINs during the process?

I’ve seen situations where everyone assumed someone else was handling these issues. Months later, the employer learns that Form 5500s weren’t filed, participant accounts weren’t transferred properly, or the IRS still thinks they’re sponsoring a plan they thought ended years ago.

None of these problems are impossible to fix. But they’re much easier—and much less expensive—to address before leaving the PEO than after.

Too often, employers focus on negotiating the new payroll arrangement while treating the retirement plan as an afterthought. That’s backwards. The retirement plan has its own legal and

operational requirements under ERISA and the Internal Revenue Code that don’t disappear just because you’re changing HR providers.

The lesson is simple.

Before you check out of a PEO, make sure you know exactly how your retirement plan is checking out too.

Otherwise, like those old Roach Motel commercials, you may discover that leaving isn’t nearly as easy as getting in.

Every retirement plan should have an annual meeting. Not the participant education meeting. Not the investment review. I’m talking about a meeting where the people responsible for administering the plan sit down and ask one simple question: “How are we doing?”

Too many plan sponsors treat their 401(k) like an appliance. As long as it turns on, they assume everything is fine. Unfortunately, ERISA doesn’t work that way.

An annual fiduciary meeting gives plan sponsors the opportunity to review service providers, discuss participant issues, examine operational errors, review cybersecurity practices, evaluate plan design, and make sure everyone understands their responsibilities. It’s also the perfect time to document decisions that may later be questioned by the IRS, DOL, or plan participants.

I’ve seen plenty of clients who have excellent service providers but no process. When something goes wrong, nobody remembers why a decision was made or who approved it. Good meeting minutes won’t prevent mistakes, but they can demonstrate that fiduciaries acted prudently.

This meeting doesn’t have to last all day. An hour or two with your advisor, TPA, ERISA counsel, and other key providers can identify issues before they become expensive problems.

Think of it as preventive maintenance. You wouldn’t skip servicing your car for five years and expect everything to run perfectly. Your retirement plan deserves the same attention.

If you’re not having an annual fiduciary meeting, you’re missing one of the easiest opportunities to improve plan governance and reduce fiduciary risk.

The best time to schedule your annual meeting was last year.

The second-best time is today.

I can’t tell you how many times I’ve heard someone say, “It’s in our employee handbook.”

That’s great.

But if it conflicts with the retirement plan document, the handbook usually loses.

Your employee handbook is an important HR tool. It explains workplace policies, benefits, attendance rules, and company expectations. Your retirement plan document, however, is the legal document that governs how your qualified retirement plan operates.

The two are not interchangeable.

I’ve seen handbooks describe eligibility incorrectly, explain matching contributions that no longer exist, or promise features the plan doesn’t actually provide. Sometimes the handbook was written years ago and never updated after the plan was amended.

That’s where problems begin.

Employees read the handbook and expect those provisions to apply. Payroll relies on it when administering the plan. Then an audit or operational review reveals that the handbook says one thing while the plan document says another.

Guess which document the IRS and Department of Labor will look at?

The plan document.

This doesn’t mean your handbook isn’t important. It means someone should review it whenever your retirement plan changes. If eligibility, matching formulas, automatic enrollment, vesting schedules, or other plan provisions are amended, make sure your handbook reflects those changes.

Consistency matters.

Your handbook is designed to communicate benefits to employees. Your plan document is designed to satisfy ERISA and the Internal Revenue Code. Both have a purpose, but only one governs the operation of your retirement plan.

Don’t assume they’re saying the same thing.

Verify it.

One of the biggest misconceptions I encounter is that finding an operational error means someone must have done a terrible job. That’s simply not true.

Retirement plans are governed by thousands of pages of statutes, regulations, IRS guidance, and plan-specific provisions. Even the best HR departments, payroll personnel, TPAs, recordkeepers, and advisors make mistakes from time to time.

What separates a well-run plan from a poorly run one isn’t whether mistakes occur. It’s how they’re handled once they’re discovered.

The IRS recognizes this reality, which is why it created the Employee Plans Compliance Resolution System (EPCRS). The correction program exists because the IRS understands that errors happen. The goal is to encourage plan sponsors to identify problems, correct them promptly, and preserve the tax-qualified status of the plan.

I’ve worked with clients who discovered missed deferrals, incorrect matching contributions, eligibility errors, and plan document failures years after they occurred. While no one enjoys finding these issues, almost every problem has a correction method if it’s addressed in a timely manner.

The worst response is denial. Hoping a mistake disappears rarely works. Ignoring an error often makes it more expensive and complicated to fix later. Addressing it immediately demonstrates good fiduciary governance and protects both the plan and its participants.

If your advisor, TPA, or ERISA attorney tells you that a correction is necessary, don’t view it as evidence that your plan has failed. View it as evidence that your compliance process is working. You found the problem before the IRS or the Department of Labor did.

Perfection isn’t the standard. Prudence is. A plan sponsor who promptly corrects mistakes and learns from them is usually in a much better position than one who assumes nothing could possibly be wrong.

If I had a dollar for every time a plan sponsor asked me a question that was already answered in their plan document, I’d probably have enough money to retire.

The retirement plan document isn’t something you sign once and toss into a filing cabinet. It’s the legal blueprint for how your 401(k) plan is supposed to operate. Yet many plan sponsors have never read it beyond the signature page.

That’s where problems begin.

I’ve seen employers accidentally exclude eligible employees because they misunderstood the eligibility provisions. Others have made matching contributions that didn’t align with the formula in the document. Some have allowed distributions or loans that weren’t even permitted under the plan’s terms. None of these mistakes were intentional, but good intentions don’t eliminate fiduciary responsibility.

Your service providers should know your document inside and out, but ultimately the plan sponsor is responsible for ensuring the plan is operated according to its written terms. That’s one of the fundamental requirements of ERISA.

I’m not suggesting every business owner become an ERISA lawyer. I am suggesting you spend an hour every year reviewing the provisions that matter most: eligibility, entry dates, employer contributions, vesting, distributions, and loans. If something doesn’t make sense, ask your TPA or ERISA attorney to explain it.

A plan document shouldn’t be a mystery. It should be a resource. The more familiar you are with its provisions, the less likely you’ll encounter operational failures that require costly corrections.

Your retirement plan is one of the most valuable benefits you provide your employees. Make sure you understand the rules that govern it. Reading your own plan document may not be exciting, but it could save you a great deal of time, money, and frustration down the road.

One thing I hate about social media is that the loudest voices are often the least interested in having an actual conversation. They’re not looking to exchange ideas or learn something new. They’re looking for clicks, comments, and outrage. That’s the entire business model behind rage bait.

I recently came across a post claiming that 401(k) plans are a scam because participants generally can’t access their money before age 59½ without restrictions. Anyone who understands retirement plans knows that’s an oversimplification designed to provoke a reaction. There are hardship withdrawals, loans in many plans, exceptions to the early distribution penalty, and, most importantly, the entire purpose of a 401(k) is to encourage long-term retirement savings. But facts weren’t the point. Anger was.

Too many people take the bait. They spend fifteen minutes crafting the perfect rebuttal, only to help the original post reach an even larger audience. Every angry comment, every quote post, and every argument tells the algorithm that this content is engaging and should be shown to more people.

That’s why I increasingly believe the best response is often no response at all. Scroll past it. If you absolutely feel compelled to comment, don’t argue the merits of the ridiculous opinion. Simply point out that it’s obvious rage bait and that the poster succeeded in getting exactly what they wanted: engagement.

The internet has made everyone believe every opinion deserves a debate. It doesn’t. Some opinions aren’t sincere. They’re marketing. They’re designed to manufacture outrage because outrage drives traffic.

The easiest way to reduce rage bait isn’t better moderation or better algorithms. It’s for the rest of us to stop rewarding it. Sometimes the most effective response is the one you never post.

I’ve joked for years that I’m the turd in the punch bowl. I’m rarely afraid to say what I think, even when I know it won’t be popular. That’s not because I enjoy being contrarian. It’s because I’ve always believed that if you have expertise and conviction, you shouldn’t be afraid to use your voice.

Over the years, that has come with a price.

When I worked at a producing TPA, I believed the industry’s practice of hiding fees from plan sponsors had to end. Transparency wasn’t a radical concept to me, but it certainly wasn’t embraced by everyone. I’ve also never been shy about saying that many payroll provider TPAs simply don’t deliver the level of service or technical expertise that independent TPAs often provide. Those opinions don’t earn you invitations to every conference cocktail party. They don’t make you everyone’s favorite person.

What they do is make people remember your name.

Too many people are uncomfortable when someone has a different opinion. The most secure professionals will debate the issue on its merits. The insecure ones take it personally. They view disagreement as an attack instead of an opportunity to challenge their own thinking.

I saw that growing up as well. Whenever I disagreed with my parents on politics, sports, or just about anything else, the response was often that I had been “brainwashed.” It couldn’t simply be that I had reached a different conclusion. For some people, accepting that someone they care about thinks differently is harder than believing someone else must have manipulated them.

Having opinions won’t make everyone like you. It may cost you business opportunities, friendships, or invitations. But if your opinions are thoughtful, honest, and backed by experience, they’re worth expressing.

I’d rather be remembered for saying what I believe than forgotten for saying nothing at all.

When people ask me how to build a successful practice in the retirement plan business, they’re often looking for the magic answer. Is it social media? Conferences? Speaking engagements? Fancy marketing? Those things certainly help, but they aren’t what build a lasting reputation.

Your reputation is built on the problems nobody ever sees.

No plan sponsor calls me because their 401(k) plan is running perfectly. They call because someone missed payroll. A Form 5500 wasn’t filed. A merger created controlled group issues. A participant was excluded from the plan. A plan document wasn’t updated. Those aren’t glamorous assignments, but they’re the work that defines your value.

Anyone can look like a hero when everything is going according to plan. The professionals who earn trust are the ones who stay calm when things go sideways. Clients don’t expect perfection. They expect competence, honesty, and a solution.

One of the biggest mistakes I see is providers trying to hide problems. They worry about looking bad, so they delay telling the client or hope the issue somehow disappears. It rarely does. Retirement plans are heavily regulated, and small mistakes have a way of becoming expensive corrections if ignored.

I’ve always believed that bad news doesn’t get better with age. If there’s a problem, identify it, explain it, and develop a plan to fix it. Most clients are remarkably understanding when they know you’re being upfront with them.

Ironically, some of the strongest client relationships are forged during difficult situations. When you help a client navigate an IRS inquiry, correct an operational failure, or avoid a costly compliance mistake, you demonstrate something that no sales presentation ever could.

At the end of the day, your clients probably won’t remember the beautiful proposal you gave them five years ago. They will remember the day everything went wrong—and whether you picked up the phone, owned the problem, and helped them solve it.

In this business, your reputation isn’t built during the easy days. It’s earned during the difficult ones.