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Have You Noticed? A Guide to Year-End (and other) 401(k) Disclosures

November 1, 2018 — It’s an important time of year for most 401(k) plan sponsors: the time to give notice . . . to participants . . . as required by the U.S. Department of Labor. When I say “most,” I’m talking about the sponsors of plans with a December 31 year-end. (For other sponsors, file this blog and revisit it two months prior to your plan’s year-end.)

When I meet with employers, there’s often confusion about the many required 401(k) plan notices – the purpose of each notice, when each must be distributed and to whom each must be sent. This blog is designed to explain some of the most common notices and clarify the distribution requirements.

Most sponsors receive notices throughout the year from their Third Party Administrator (TPA) and must distribute the notices. Keep in mind there are Recordkeepers working with TPAs that will distribute notices for employers for a small fee to “the plan” (that is, to participants). Employers overwhelmed by paperwork will want to inquire about this service as they seek providers.

Two months prior to year-end is the busiest time for notices because participants need to be alerted to certain features of their plan before the plan year begins. In most cases, the timeframe during which these year-end notices must be delivered is no later than 30 to 90 days prior to the start of the plan year. The most common year-end notices include:

    • Safe Harbor Notice – In order to pass plan testing, thus allowing highly-compensated employees to make maximum IRS allowable deferrals, many plans contain a Safe Harbor feature. The feature may be a match, which can be up to 4% of a participant’s annual compensation and is based on the amount that the employee defers to the plan. Or, the Safe Harbor feature may be “non-elective,” with the employer contributing 3% of each eligible participant’s compensation, regardless of whether the employee makes contributions. These safe harbor contributions are “immediately vested,” meaning participants “own them” as soon as they are made.
    • Automatic Contribution Arrangement Notice – In order to encourage retirement savings, some plans automatically enroll employees and some annually automatically escalate participants’ plan deferrals. The notice informs employees of their right to “opt out” of the automatic features and how to do so. Some automatic plans are also safe harbor plans known as QACA plans. QACA stands for Qualified Automatic Contribution Arrangement. QACA safe harbor contributions are not always “immediately vested,” having as much as a two-year vesting schedule. This means that participants may have to achieve up to two years of qualified service before they will “own” the employer’s contributions.
    • Qualified Default Investment Alternative Notice – In order to protect themselves when plan participants do not make an investment selection, employers may default participants into an investment alternative that is “qualified” by the Department of Labor. This notice, also known as a QDIA notice, informs participants of the investment alternative in which their assets will be defaulted.

Other common notices that employers must distribute at other times include:

    • Summary Annual Report – This is a narrative of a plan’s financial status, summarizing information from the plan’s Form 5500, filed with the IRS. Employers must send the SAR to participants no later than nine months after the plan’s year-end (9/30 for plans with a 12/31 year end) or two months later if a Form 5500 filing extension has been granted by the IRS.
    • Annual Participant Disclosure – Since 2012, employers have been required to provide this annual notification to participants, following a prescribed format. Normally prepared by the plan’s Recordkeeper, the disclosure – which also is known as the ERISA 404(a)5 disclosure – lists all plan investments, providing investment return information and identifying all fees removed from the investment returns for fund management and other services. The disclosure also states other fees that may be removed directly from the plan and any fees that individual participants could incur for such services as loans. The report must be mailed annually, but there is no specific time when it must be provided.

To whom must notifications go? Each of the notifications have different participant audiences. For example, the Summary Annual Report need go only to participants with plan balances during the plan year covered by the SAR, but this can include terminated as well as current employees, and it can include the beneficiaries of deceased participants. Safe Harbor notices, on the other hand, need go only to currently eligible employees, but keep in mind this can include eligible employees who are not deferring and don’t have plan balances.

Given the different required recipients, a safe solution is to send required notifications to all eligible employees (including those without plan balances), terminated employees with plan balances, and all beneficiaries of deceased participants.

Next month, we’ll look at the notifications that must be provided to employees as they become eligible participants and when that information must be provided.

Written by Laurie C. Wieder, PPC®, Vice President, Alliant Wealth Advisors Qualified Plans Division


This blog is written to help make the lives of plan sponsors easier in the process of meeting legal requirements under ERISA for their defined contribution plans. Please understand that reading this blog should not alone take the place of a one-on-one consultation regarding the needs of your specific plan, and hence cannot be a guarantee against fiduciary breaches.

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