More than 54,000 401(k) plans failed their most recent non-discrimination tests by the IRS, according to new data from Judy Diamond Associates.

That means US$820 million in 401(k) contributions to highly compensated employees will be returned, putting a dent in retirement savings and exposing the affected employees to higher income taxes.

This year, Enterprise Holdings, the car rental company, had the most corrective distributions, at about $7.26 million. Conoco Phillips and Chevron, two oil companies, made the top five. Allegis Group, a staffing company, and grocery chain Safeway rounded out the top five.

JDA looked at 2013 data, the most recent numbers available. In 2012, about 57,000 plans failed non-discrimination testing, leading to $794 million in corrective distributions.

Under the Employee Retirement Income Security Act (ERISA), plan sponsors are prohibited from directing disproportionately high contributions to owners, executives, and managers of companies.

When executives contribute to plans at appreciably higher rates than rank-and-file workers, the IRS requires corrective distributions.

Eric Ryles, managing director of ALM Financial, which is owned by ALM, the parent company of Treasury & Risk, said the non-discrimination test results provide actionable intelligence for advisors to 401(k) plans.

“The issuance of corrective distributions should serve as a red flag to financial advisors looking for opportunities to increase their 401(k) business,” Ryles said.

“It means the plan has highly compensated employees who were unable to save as much for their retirements with pre-tax income as they would like. It may also mean the plan isn’t designed to encourage workers to contribute sufficiently. Plan advisors can utilize this information in their prospecting efforts by introducing retirement education programs and suggesting better 401(k) savings incentives as a part of their proposal,” he added.

Ryles also said the failure of non-discrimination tests often indicate larger, systemic issues with a plan’s design and administration.

A study by the IRS said that even when plans make corrective distributions, they frequently fail to fully comply with regulations. The IRS looked at 57 plans that were required to make corrective distributions and found that 10 percent failed to do so fully, in a timely manner, or based the corrections on improper calculations.

The latest research was conducted in support of JDA’s Retirement Plan Prospector, proprietary analytics tool plan advisors and sponsors use to assess efficiencies of plan design and oversight.