Is Your 401(K) Plan Still Competitive? How to Evaluate Before Year-End

As 2025 winds down, many employers are taking a fresh look at their benefits line-up, particularly retirement offerings. And for good reason: “Most employers view the 401(k) as the most important benefit when it comes to attracting talent, even above their health insurance plan,” says Charlie Cote, head of retirement plan sales at J.P. Morgan.

That’s a big claim, but it’s undeniably true that retirement benefits serve as one of the most powerful levers in talent retention and recruitment.

For small businesses in particular, the year-end benefits renewal period offers an ideal time to ask a critical question: Is your 401(k) plan still competitive? Small business 401(k) plans that once seemed adequate can quickly fall behind market expectations. Benchmarking your retirement plan types, performance, participation, and matching strategy against peers is essential to ensure your benefits remain a recruiting asset rather than a hidden liability.

How to Evaluate if Your 401(k) Plan is Competitive? 

To determine whether your 401(k) plan still meets employee and market expectations, follow these six steps: 

1. Review effectiveness: Review participation rates, employee satisfaction, and retention data to determine whether your 401(k) plan is achieving its goals.
2. Review compliance and administration: Confirm that your plan filings, fiduciary duties, and documentation meet Department of Labor and IRS requirements. 
3. Benchmark against the market: Compare your plan's fees, investment options, and participation metrics against similar businesses and industry averages. 
4. Review employer match and vesting: Assess how your company's match percentage and vesting schedule align with competitors and current best practices. 
5. Consider complementary savings options: Evaluate whether programs like emergency savings accounts or short-term financial wellness benefits could enhance your overall retirement strategy. 
6. Explore partnership opportunities: Consider working with a Professional Employer Organization (PEO) to gain access to enterprise-level retirement plan types, simplified compliance, and reduced administrative workload. 

Each of these steps helps ensure your business's 401(k) plan remains competitive, compliant, and aligned with employee expectations.

Step 1: Evaluate the Effectiveness of Your Plan

The first measure of competitiveness is effectiveness. In other words, does your plan help to achieve your organization’s goals for it? Do employees actually participate? Are they happy with it? Does the plan boost retention or hiring? Ultimately, any retirement program is an investment in the workforce, but that investment only works if employees participate and feel supported in saving enough.

This step is all about data gathering, including retention and turnover rates and 401(k) participation rates, and comparing that data against internal expectations. If there’s a gap, that’s a flashing red light to take a second look at your retirement and 401(k) options.

Step 2: Confirm Compliance and Administrative Soundness

Next, before you start your 401(k) plan comparison with competitors, make sure the fundamentals are in place. Compliance and fiduciary oversight must come first. Consider: General Electric recently agreed to pay $61 million to settle a class-action lawsuit alleging mismanagement of 401(k) funds.

Even smaller employers face risks if their plans aren’t properly managed or documented. Make sure your plan is regularly audited, that filings such as Form 5500 are up to date, and that you’re aligned with Department of Labor (DOL) standards. 

If these compliance efforts are too much, get help. Portfolio management is complex, which can increase the risk of inadvertent compliance violations. “It can feel overwhelming at some point,” says Kathy Barber of Goldman Sachs Ayco Personal Financial Management. “Companies are struggling to manage all of these various benefits, so look for strategies to simplify and consolidate them.” 

For small business 401(k) plans, that often means ensuring administrative tasks are outsourced or at least streamlined through a single provider.

Step 3: Benchmark Against the Market

Benchmarking is the single best way to understand how your retirement offering stacks up. This process compares performance metrics like fees, investment options, participant services and plan performance against other retirement offerings in the marketplace and at competing employers.

Start your 401(k) plan comparison by reviewing publicly available Form 5500 data for businesses of similar size and industry. The DOL’s efast.dol.gov/5500search tool allows you to review and compare public filings for competitor plans. Many financial institutions, benefits consultants, and HR partners like PEOs also offer plan benchmarking tools or advisory services that can help interpret the numbers. Specifically, try to answer questions like: 

• Are your fees reasonable? 
• Are your investment options diversified? 
• Are participation rates improving? 

For small business 401(k) plans, even incremental improvements in these areas can translate into stronger employee engagement and retention.

Step 4: Review Your Employer Match and Vesting Schedule

When conducting a 401(k) plan comparison, contribution and vesting policies are among the most visible indicators of competitiveness, and likely the two aspects that current and prospective employees will note right away.

Research finds that more employers are defaulting employees into plans at higher contribution rates than before. “We found a lot of employers started people off with automatic contributions of 3% but we learned it’s a real struggle for them to accumulate enough for retirement that way,” Angela Trefethen, senior director of retirement plan services at financial services firm The Standard, told HR Executive. “Now, the default contribution rate is up to 6% and inching up towards 10% as a starting point.”

Indeed, a 2025 SHRM survey found that 85% of employers offering a traditional 401(k) provide a company match, with an average match of 6.3%. If your match lags significantly below that figure, your plan could be costing you talent. Small business 401(k) plans that don’t help employees meaningfully build retirement wealth risk being perceived as behind the curve.

Meanwhile, vesting schedules also matter. It may be worth revisiting how you handle vesting (typically either 100% immediately, 100% after X years, or on a multiyear graded schedule). Note that federal rules require full 100% vesting in no more than six years.

Step 5: Consider Complementary Savings Perks

A growing number of organizations are pairing their retirement offerings with short-term savings programs to boost financial resilience. “We know that having $1,000 in emergency savings cuts in half the likelihood of a costly retirement loan or early withdrawal,” says Sid Pailla, CEO of the Sunny Day Fund, which offers employee emergency savings accounts. “This foundational financial resilience … protects and grows retirement savings—a true bridge between today and the far future.”

Such programs can be helpful for small business 401(k) plans, where employees may otherwise tap into their 401(k)s for emergencies, undermining their long-term savings. Offering an emergency savings account (ESA) or other complementary perk can demonstrate that your benefits strategy takes a holistic view of financial wellness.

Step 6: Explore How a Partner Can Strengthen Your Offering   

For many small businesses, the biggest barrier to maintaining a competitive retirement plan is more logistical than intentional. Every business would love to offer best-in-class plans, but larger employers often have more leverage to negotiate lower fees and richer features across retirement plan types. 

That’s where partnering with a Professional Employer Organization (PEO) can make a measurable difference. A PEO pools multiple employers under a single umbrella, enabling smaller companies to access enterprise-grade retirement plan types, usually with reduced administrative burden and fiduciary risk because of how the employer–PEO relationship is structured. By joining a PEO-sponsored plan, small businesses can tap into ongoing benchmarking, streamlined compliance management, and enhanced investment options that would otherwise be cost-prohibitive on their own.

Additionally, a PEO can provide strategic guidance, helping you interpret data from benchmarking reports and 401(k) plan comparisons and then align your contributions, vesting, and communication strategy with current market norms. For many small business 401(k) plans, that combination of cost savings and professional management is what finally allows them to compete head-to-head with larger employers.

Keeping Your 401(k) Plan Competitive Year After Year

Regularly evaluating your 401(k) plan is one of the most effective ways to ensure your benefits strategy keeps pace with market expectations and employee needs. A competitive plan not only supports recruitment and retention but also strengthens overall financial wellness across your workforce. 

For small and mid-sized employers, staying compliant, managing fiduciary duties, and maintaining competitive plan features can be challenging without the right resources. By taking time to review participation, benchmark results, and contribution policies, businesses can uncover opportunities to improve both employee satisfaction and plan performance. 

As the year-end review period approaches, use this time to make informed adjustments that align your 401(k) offering with best practices and evolving workforce expectations. 

CoAdvantage, one of the nation’s largest PEOs, helps small to mid-sized companies with HR administration, benefits, payroll, and compliance. To learn more about our end-to-end benefits administration and offerings, contact us today.

**The information provided on this website is for general informational purposes only and does not constitute legal advice. While we strive to ensure the accuracy and completeness of the information, we make no guarantees about its correctness, completeness, or applicability to your specific circumstances.  Laws and regulations are subject to change, and you should consult a qualified legal professional before making any decisions based on the information provided here.