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Required Participant Notices: A Refresher

Practice Management

Providing information and notice to plan participants is not a suggestion—it’s a requirement. A recent blog entry provides some reminders as to why it matters and what notices need to be sent. 

The Why

Sending required notices is a service to plan participants, since they provide information that will help them to make decisions about their assets and coverage—which affects their long-term financial security. But, point out Foley & Lardner LLP Partners Amy A. Ciepluch and Leigh C. Riley in the firm’s Compliance Check blog, sending required notices can benefit the plan as well; for instance, to qualify for a safe harbor, safe-harbor notices must first be sent, and audits—both internal and conducted by the government—will be smoother if required notices have been sent. 

Not only that, warn Ciepluch and Riley, sending required notices also is a duty, and failure to fulfill it can result in liability for plan fiduciaries, penalties courtesy of the IRS and Department of Labor or lawsuits from participants. 

The What

So what notices must a plan and its sponsor send? Following are the notices Ciepluch and Riley highlight. 

Notice What it Does Required for Provided to  When Provided
401(k) Safe Harbor Notice Provides basic info about the safe harbor plan 401(k) plans that have elected to meet certain safe harbor requirements by providing a minimum matching contribution or by adopting a qualified automatic contribution arrangement (QACA) Eligible employees

Initially, to an eligible employee within a reasonable period before their eligibility date.

For QACAs, the notice must be provided early enough to give an employee a reasonable amount to avoid automatic enrollment. 

Annually to all eligible employees at least 30, but not more than 90 days, before the plan year begins.

Automatic Enrollment Notice

Provides basic info about automatic enrollment, including:

(1) % of deferrals that will be made automatically on the participant’s behalf; and 

(2) what steps the participant can take to avoid automatic enrollment.

401(k) plans that provide for automatic enrollment of eligible employees, other than a QACA Eligible employees, and  employees  subject to the auto- enrollment arrangement

Initially, to eligible employees, generally at least 30 days before their automatic enrollment is effective. 

Also, annually within 30-90 days before the plan year starts to employees subject to the auto- enrollment arrangement.

Qualified Default Investment Alternative (QDIA) Notice Describes the default investment fund in which an account of a participant will be invested if no investment choice  is made; also explains how a participant can invest in other investment options 401(k) plans that allow participants to direct the investment of their accounts Eligible employees

To eligible employees at least 30 days before their date of plan eligibility or, if the QDIA is a new feature, at least 30 days before the first invest-ment into the QDIA. Then annually at least 30 days before each subsequent plan year.

Fee Disclosure Notice Info about the fees applicable to the 401(k) that may affect an individual’s account balance 401(k) plans that permit participants to make investment elections All individuals with account balances Annually, but at least once in any 14-month period, to all individuals with account balances. Also, if any information in the notice changes, an updated notice must be provided at least 30 days before the effective date of the change.
Periodic Benefit Statement Plus Lifetime Income Disclosures Info about participants’ account balances, including vested interest All 401(k) plans Participants At least quarterly to participants if the plan permits them to direct their investments, and annually if investment direction is not provided to partici-pants; also on request to a beneficiary 

Riley and Ciepluch suggest that the plan sponsor may want to confirm with its recordkeeper whether it or the recordkeeper will be providing notices. They further suggest that a plan sponsor may find it useful to request copies of representative notices and keep them as part of plan files, which they say may be helpful in a government audit.