As the calendar year rapidly wanes, 401(k) plan required notices for calendar-year plans will soon be due. Three of the most common year-end notices are Section 401(k) plan safe harbor notices, Qualified Default Investment Alternative (QDIA) notices, and automatic contribution notices. These notices must be provided no more than 90 days (and not less than 30 days) prior to the new plan year. Accordingly, for calendar year plans, December 1, 2015 is the notice distribution deadline.
Safe Harbor Notices
- Standard Safe Harbor. Section 401(k)(12) of the Internal Revenue Code provides that a cash or deferred arrangement is deemed to meet the nondiscrimination requirements of Section 401(k)(3)(A)(ii) if the arrangement provides at least one of two types of safe harbor employer contributions and if a safe harbor notice is provided to each employee eligible to participate in the arrangement. The notice must be provided at least 30 days (but no more than 90 days) before the beginning of each plan year and must be sufficiently comprehensive to inform employees of their rights and obligations under the plan. It must include (among other things) a description of the safe harbor employer contribution, other contributions made under the plan and the conditions under which they are made, and compensation on which deferrals are based. The safe harbor notice must include any scheduled changes to the plan that will apply in the new plan year.
- QACA Safe Harbor. Section 401(k)(13) sets forth a slightly different nondiscrimination safe harbor that relates to a qualified automatic contribution arrangement (QACA)—that is, an arrangement under which, in the absence of an election to defer, an employee eligible to participate in a plan is treated as having elected to defer a certain percentage of compensation. The annual timing requirement of the notice for this QACA safe harbor is the same as under the standard safe harbor. The content requirement is also the same, with the exception that a QACA safe harbor notice must describe the automatic contributions that will be made on the employee’s behalf, the employee’s right to elect not to have elective contributions made (or to elect to have them made at a different percentage), and how contributions made under the QACA will be invested in the absence of any investment election by the employee.
401(k) plan fiduciaries wishing to limit liability with respect to investment of participant accounts absent an affirmative participant investment election can do so through the use of a qualified default investment alternative (QDIA). A QDIA includes an investment alternative that is a target date or lifecycle fund or portfolio, a balanced fund or portfolio that meets certain requirements, or a managed account using a target date or lifecycle approach. Among other QDIA requirements, participants and certain beneficiaries must be provided with a QDIA notice prior to their first investment in the plan and annually at least 30 days before the beginning of each plan year.
Automatic Contribution Notices
Any 401(k) plan that includes an automatic contribution feature, regardless of whether the plan is a QACA, generally must provide an annual notice to each plan participant that sets forth participants’ rights and obligations under the arrangement, including the right to not have automatic contributions made (or to have them made at a different percentage) and an explanation of how the automatic contributions are invested. This notice must also be provided at least 30 days (but no more than 90 days) before the beginning of each plan year.