Are You Leaving Money on the Table in Your 401(k)?

============================================================ GABRIEL IMPLEMENTATION BLOCK – SPOKE #102 FEAR-BASED | AUM | Parent Hub: Workplace Retirement Plan Optimization Parent Pillar: 401(k) & Workplace Plans ============================================================

The Four Places Money Hides in a 401(k)

Many high earners assume their 401(k) is on autopilot and working. In practice, four distinct gaps tend to show up at once, and each one compounds for decades. This is not about market returns or investment picking. It is about the mechanical settings of the plan itself.

The four common 401(k) savings mistakes are the unclaimed employer match, the contribution rate that never increased with income, the default investment allocation that was never actively chosen, and the high-cost fund lineup inside the plan. Any one of these gaps costs money, and missed employer matches compound the loss the longest. Together, over a 25-year career, the combined effect can move retirement outcomes by hundreds of thousands of dollars.

Gap 1: The Unclaimed Employer Match

The employer match, also called matching contributions, is the closest thing to a guaranteed return in the U.S. retirement system, which is why these dollars are often described as 401(k) free money employer match dollars. If a plan matches 100% of the first 4% of salary, and an employee contributes only 2%, half the match is lost. Those matching contributions do not carry forward. They are not recoverable next year. They simply are not deposited, and every dollar of missed employer matching is a dollar that never starts compounding.

According to Vanguard’s How America Saves 2024 report, a meaningful minority of participants contribute below the level required to capture the full employer match. The employees most likely to leave match on the table tend to be younger workers, lower-tenure employees, and participants who were auto-enrolled at a default rate (often 3%) and never adjusted upward. Ironically, executives and high earners sometimes leave employer contributions unclaimed for the opposite reason: they hit the IRS annual contribution limit early in the year and stop contributing before the match formula finishes running, unless the plan has a true-up provision.

Gap 2: The Contribution Rate That Never Moved

A common 401(k) contribution mistake is setting a contribution rate once, usually at the first job or during onboarding, and never adjusting it. Salary increases. Bonuses grow. The paycheck gets bigger. The contribution rate stays at 6%. A 6% contribution on a $75,000 salary looks nothing like a 6% contribution on a $250,000 salary when measured against the contribution limits set by the IRS each year.

For 2026, the 401(k) employee contribution limit is $24,500 for participants under age 50, with an additional $8,000 catch-up contribution available at age 50 and over. A high earner contributing 6% of a $250,000 salary is putting in $15,000 of deferrals, well below the $24,500 ceiling. The 401(k) contribution gap between what is being contributed each paycheck and what is allowed is money that could be growing with meaningful tax benefits, reducing current taxable income (in the case of traditional pre-tax deferrals) or building tax-free inside the Roth portion of the retirement plan.

Gap 3: The Default Allocation Nobody Chose

Auto-enrollment is a feature, not a strategy. When a participant is auto-enrolled, the plan typically places contributions into a target date fund (TDF) based on the participant’s expected retirement year. TDFs are designed as a reasonable default, not an optimized investing approach. The glide path is generic. The underlying fund selection is fixed. The risk profile is calibrated to a hypothetical average participant, not to the individual’s actual circumstances, outside retirement accounts, or tax situation.

For a participant with $250K+ in the plan, a working spouse with their own retirement accounts, a traditional IRA or Roth IRA account on the side, a taxable brokerage account, and a concentrated position in employer stock, the generic TDF glide path may not reflect what the full household balance sheet actually calls for. The default is easy. The default is not tailored. A Roth conversion strategy or strategic use of an individual retirement account alongside the 401(k) can shift the picture considerably, but only if someone looks.

Gap 4: The High-Cost Fund Lineup

Plan expense ratios vary widely. Large-plan index funds may charge 0.03% to 0.05%. Smaller plans or plans with actively managed fund lineups may charge 0.50% to 1.00% or more on the same underlying asset class exposure. Over a 30-year horizon, a 0.50% annual expense drag on a six-figure balance compounds into real money, and the terms of the plan dictate which funds are available in the first place.

This is not always visible to the participant. Plan administrators are required to disclose fund expense ratios in the 404(a)(5) participant fee disclosure and the summary annual report. The result is a silent tax on returns that does not show up as a line item on any statement, and many participants never open the 404(a)(5) disclosure to find it.

How Much Does This Actually Cost over a Career?

Here is the question that matters: are you leaving money on the table in your 401(k) in ways that compound for 25 years without anyone noticing? A single 401(k) contribution error in year one does not look like much. The same error repeated for 25 years, with compounding, is a different story. The cost of leaving money on the table in a 401(k) is not a single-year number. It is a multi-decade erosion that only becomes visible near retirement, when the gap between what was saved and what could have been saved is no longer recoverable.

Consider a simplified, illustrative example for a participant earning $150,000 per year with a 4% full-match employer formula. If that participant contributes only 3% (the auto-enroll default), they capture 3% of match and miss the additional 1%. One percent of $150,000 is $1,500 per year in missed match alone. Over 25 years, at a historical average equity-market return in the 6% to 8% range before fees and inflation, the compounded value of that missed match may become a meaningful share of total retirement savings.

Add a stale contribution rate that never climbs from 6% toward the IRS maximum as income rises. Add a 0.40% expense ratio drag versus a low-cost index alternative. Add 25 years of compounding on all three. The cumulative effect is a 401(k) retirement gap that shows up only at the moment it matters most.

This is illustrative math. Actual outcomes depend on market returns, employment tenure, salary trajectory, plan rules, and many other variables. The point is not the specific number. The point is that small, fixable mechanical gaps compound for decades, and the cost is silent until someone actually runs the arithmetic on the household.

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Why Do These Gaps Persist for High Earners?

Why do these gaps persist for high earners? Because the 401(k) is not where their attention lives. The plan sits in the background, default allocation, default contribution rate, quarterly statement glanced at and closed. Nothing feels broken, so nothing gets examined. That silence is exactly where the gaps hide.

There is also a structural issue. The person writing the largest checks into the plan, the high-earning executive or physician or attorney, is often the one with the most complex outside financial picture: concentrated employer stock, deferred compensation, RSUs, a taxable brokerage account, real estate, a spouse with their own plan. The 401(k) is one piece of a larger balance sheet. So the real question of whether you are leaving money on the table in your 401(k) only gets answered when the plan is optimized in the context of the full household, not in isolation.

The Five Mechanical Fixes Many Plans Allow

Every employer plan is different, but many plans offer the same five mechanical controls that participants can adjust. None of these are investment decisions. They are plan settings.

Fix 1: Capture the Full Match

Look up the match formula and the plan’s definition of compensation in the Summary Plan Description. Calculate the contribution rate required to capture 100% of the available match. Set deferrals at or above that threshold. If the plan has a true-up provision, any frontloading will eventually catch up by the end of the year. If the plan does not have a true-up provision, spread employee contributions evenly across the year so the match formula runs every pay period and no paycheck arrives without its matching contributions alongside.

Fix 2: Enable Auto-Escalation

Many plans offer an auto-escalation feature that increases the contribution percentage by 1% per year up to a cap. If the plan offers it, turn it on. This is the single simplest fix for the stale contribution rate problem. The rate climbs with income automatically, and the participant never has to remember to do it.

Fix 3: Max the Contribution If Cash Flow Allows

For 2026, the employee contribution limit is $24,500 under age 50, plus $8,000 catch-up at 50 and over. High earners with adequate cash flow should consider contributing to the maximum. The 401(k) is one of the few remaining pre-tax or Roth-designated savings vehicles with this level of annual capacity, and the income tax deferral on pre-tax dollars produces meaningful tax benefits when measured across a full career.

Fix 4: Review the Fund Lineup

Open the 404(a)(5) participant fee disclosure or the quarterly plan statement. List the funds currently held and their expense ratios. Compare each expense ratio to a low-cost index alternative in the same asset class. Shift to lower-cost funds where available and appropriate for the target allocation. This is a one-time review that can save tens of basis points per year for decades.

Fix 5: Check for SDBA or PCRA Access

A growing number of plans offer a Self-Directed Brokerage Account (SDBA), often called a Personal Choice Retirement Account (PCRA) through Schwab. This allows participants to access the full universe of investments beyond the core plan menu. For high-balance participants who want professional management within the plan, this is the mechanism that makes it possible, without a rollover and without leaving the plan. Not every plan offers it. Ask HR or check the Summary Plan Description.

When the 401(k) Is Only One Piece of the Picture

For the executive, founder, physician, or attorney with a complex household balance sheet, the 401(k) is one account among many. Closing the four gaps inside the plan is necessary but not sufficient. A household review by an experienced financial advisor integrates the plan with outside taxable accounts, IRAs, deferred compensation, concentrated employer stock, and the spouse’s retirement accounts. That review is what turns a cleaned-up 401(k) into a coherent retirement trajectory, one that maps to the household’s financial needs and financial future rather than to a generic plan default.

This is where the interaction with tax-efficient investing strategies matters, where investment portfolio construction at the household level replaces the generic default inside the plan, and where a decision on rolling over a prior-employer 401(k) gets made in the context of the whole picture, not in isolation.

The philosophy behind how HCM approaches this is Preserve. Strengthen. Grow. Preserve the match. Strengthen the contribution rate and the fund lineup. Grow through disciplined compounding over decades. The mechanics of the plan are the foundation. What happens above that foundation is the plan for the household.

The Next Step If the Gaps Feel Familiar

If the four gaps look like a description of a real account, that is the common case, not the unusual one. Most 401(k) plans have been set up once, adjusted rarely, and reviewed against the full household balance sheet almost never. So the real question sits waiting: are you leaving money on the table in your 401(k)? For many high earners, the honest answer is probably yes, and in more than one place at once. The fix is not complicated. The fix is mechanical. But it does require someone to actually run the arithmetic on the plan settings, the fund lineup, the household interaction, and the trajectory to retirement.

A fiduciary review looks at the full picture as one system: the workplace plan itself, the outside accounts, the tax situation, and the household retirement target. Looking at all four at once is what closes the gaps at the household level rather than just inside the plan. That is the kind of work a fee-only, fiduciary registered investment advisor is structured to do, and it is what the broader 401(k) and workplace plans practice at HCM is built around.