401(k) Compliance Audit #4: Notice Required for Participants | Newsletters | Legal Update: Overview of Employee Benefits

To help employers properly administer their 401(k) plans, in 2022, Foley & Lardner LLP is authoring a monthly 401(k) Compliance Check series. This article discusses some of the notices required for 401(k) plans.

At last month’s 401(k) compliance audit, we discussed what to do if you inadvertently failed to enroll someone in your 401(k) plan. In this month’s compliance check, we focus on the variety of typical notices required for 401(k) retirement plans. However, we do not discuss every review; for example, we do not discuss certain individualized notices, such as notices as to whether a qualified domestic relations order is acceptable for the plan, or requirements for distribution of summary plan descriptions or summary annual reports.

Why is this topic important?

Failure to provide the required notices may subject the plan and its trustees to liability. Failure to review may result in penalties from the Internal Revenue Service or the US Department of Labor, or legal action from participants who were not told important information that affected their decision-making. For many Safe Harbor plans, providing the Safe Harbor Notice is a prerequisite to qualify for Safe Harbor. And ensuring that all required notices of your plan have been provided in a timely manner makes the audit process smoother, whether it’s the plan audit for your Form 5500 or a government audit of your plan.

What are the standard notices that must be provided?

401(k) Safe Harbor Notice

  • This notice provides basic information about the Safe Harbor Plan. It is required for 401(k) plans that have elected to meet certain Safe Harbor requirements by providing a minimum level of matching contribution or adopting a Qualified Automatic Contribution Agreement (QACA), which is a type of a safe harbor plan that provides for enrollment and then automatic annual dues increases. This notice is not required for a plan that satisfies safe haven status by providing a required minimum non-optional contribution and is not a QACA.
  • Notice must initially be provided to an eligible employee within a reasonable time prior to their eligibility date. For QACAs, notice must be provided early enough that an employee has a reasonable time after receipt to avoid auto-enrollment – ​​but note that auto-enrollment must begin no later than 30 days after dispatch of the notice or by the second pay beginning after the sending of the notice, whichever comes first. Thereafter, notice must be provided annually to all eligible employees at least 30 but not more than 90 days prior to the start of the plan year.

Automatic Enrollment Notice (non-QACA)

  • This notice is required for 401(k) plans that provide automatic enrollment of eligible employees, other than a QACA, as noted above. The notice provides basic information about auto-entry, including the percentage of deferrals that will be automatically made on behalf of the entrant and the actions the entrant can take to avoid auto-entry.
  • Notice must be provided to eligible employees initially, usually at least 30 days before their automatic enrollment is effective. For plans that automatically enroll employees as soon as they are hired, an employer may give notice to employees on the date they are hired. If it is impractical to give notice to an employee before they are eligible for the plan, the plan can still meet the notice period requirements by notifying the employee before the pay date for the period pay period during which the employee becomes eligible. and allow the employee to defer any compensation they received after becoming eligible.
  • Notice must also be provided annually, within 30 to 90 days prior to the start of the plan year, to employees who are subject to the automatic enrollment agreement.

Qualified Default Investment Alternative Notice (QDIA)

  • This notice is required for 401(k) plans that allow participants to direct the investment of their accounts. It describes the default investment fund in which a participant’s account will be invested in the absence of an investment decision and explains how a participant can invest in the other investment options available.
  • Notice must initially be provided to eligible employees at least 30 days prior to the plan eligibility date or, if the QDIA is a new feature, at least 30 days prior to the first investment in the QDIA. Thereafter, the notice must be provided annually at least 30 days before each subsequent plan year. It is common to include the QDIA notice with a QACA notice or other automatic listing notice.

Notice of Disclosure of Fees

  • This notice is required for 401(k) plans that allow participants to make investment choices. It includes information about the various fees applicable to the 401(k) plan that may affect an individual’s account balance, such as investment or record keeping fees or fees for initiating distributions or loans .
  • Notice must be provided annually, but at least once every 14 months, to all persons with account balances. Additionally, if any information in the notice changes, an updated notice must be provided at least 30 days prior to the effective date of the change.

Periodic Benefit Statement Plus [NEW!] Disclosure of lifetime income

  • This notice is required for all 401(k) plans. It provides information on the balance of the participant’s account, including his acquired right.
  • Notice must be provided at least quarterly to participants if the plan allows them to direct their investments. If no investment instructions are provided to participants, the notice must be provided annually. In addition, it must be provided upon request to a beneficiary but may be limited to one request per 12 month period.
  • An additional disclosure feature was recently added for lifetime income disclosures. This new disclosure must be provided by all 401(k) plans, whether or not they offer a form of payment that provides lifetime income, such as an annuity. The notice is individualized and shows the participant how their account balance would be paid on a lifetime annuity basis, determined using specified assumptions.
  • The new lifetime income disclosure is provided annually. For plans that provide quarterly benefit statements, the disclosure must be included with the quarterly statement for the quarter ending before September 18, 2022. For plans that provide annual benefit statements, the disclosure must be included with the statement. that is provided for plan years ending after September 18, 2022.

Notice of Prohibition

  • This notice is required when a 401(k) plan imposes a temporary suspension, limitation, or restriction of participants’ ability to manage or diversify assets, obtain loans, or receive distributions from the plan, for example in in connection with a change in investment funds or a change in the records of the plan.
  • Notice must be provided to all account holders affected by the ban at least 30 but no more than 60 days prior to the commencement of the blackout period.

Are there good practices?

  • It is acceptable, and often helpful for employees, to combine some of these reviews. For example, a safe harbor notice may include both the QDIA notice and the annual fee notice.
  • Always confirm with your 401(k) agent whether they will provide these notices or expect you to. Also, for the new lifetime income disclosure, if your accountant has not yet confirmed that he or she will be prepared to provide this notice on behalf of your plan, contact your account representative for a discussion about this.
  • If your accountant prepares and sends the notices on behalf of your plan, request copies of the representative notices and keep them for your plan’s records in case you need to prove later to a government auditor that the plan is meeting its obligations. in terms of notice.

As part of Foley’s ongoing commitment to providing legal insights to our clients and colleagues, our Employee Benefits and Executive Compensation Group publishes a monthly newsletter we call “Employee Benefits Insights”, in which we provide you updates on the latest and most pressing employee issues. benefits and other related matters. Click here or click the button on the left to subscribe.

Harry L. Blanchard