Plan sponsors of defined contribution qualified plans may need to issue one or more annual notices to participants before the end of each plan year. Failure to issue a required annual notice can have significant consequences. For example, if a plan sponsor forgets to issue the annual 401(k) safe harbor notice, the plan could lose its safe harbor status and be forced to limit (or refund) contributions by highly compensated employees.

This advisory serves as a reminder of the multiple year-end notices that defined contribution plans must issue to participants. These notices must be distributed within a reasonable period of time, typically 30 days, prior to the start of the plan year.

The following table provides a list of the content and deadlines for the most common notices that plan sponsors may need to distribute. It includes:

  • Traditional Safe Harbor 401(k) Notice
  • Qualified Automatic Contribution Arrangements (QACA) for a Safe Harbor 401(k) Notice
  • Eligible Automatic Contribution Arrangement Notice
  • Qualified Default Investment Alternative Notice (QDIA)
  • Non-Safe Harbor Automatic Contribution Arrangement Notice

Please click here to view table.

More on Fee Disclosure

No later than August 30, 2012, plan administrators were required to provide participants with fee disclosures. These notices are required at least annually thereafter. Calendar year plans may find it beneficial to provide these disclosures at the same time as year-end notices. If a plan administrator elects to provide an updated annual notice at year-end, future annual fee notices can also be given at year- end. In addition, a plan administrator can presumably change the 12-month reporting cycle by simply giving an annual notice at any time. If a plan administrator does not change the 12-month cycle, the deadline for the next annual fee disclosure is August 29, 2013.

In addition to the annual fee notice, plan administrators may be required to issue a mid-year amended fee notice in advance of the change. For example, if the investment fund line-up changes during the year, an updated notice must be distributed prior to the change. Similarly, if there are changes in a plan’s administrative fees or individual fees, an amended notice must be given in advance.

Because the fee disclosure requirements are new this year, we recommend contacting your Alston & Bird lawyer if any changes are made to your investment funds or plan fees to determine if a mid-year, advance notice is required.

Practice Pointers

  • In addition to the year-end notices described above, there are several additional notices that must be provided from time-to-time. These include Summaries of Material Modifications (SMMs) and notices regarding changes to investment funds.
  • The IRS has generally taken the position that mid-year changes to any plan feature described in a plan’s annual safe harbor notice may cause the plan to violate the 401(k) safe harbor requirements. The IRS has provided specific exceptions for the addition of a Roth 401(k) feature and certain changes to hardship distribution procedures (see Announcement 2007-59). Plan sponsors may not be able to make any other changes to plan features that were previously described in the annual safe harbor notice (e.g., changes to the plan’s vesting schedule). The IRS’s reasoning is that the notice may cause the participants to rely on the information contained in the notice, and thus, mid-year changes would harm the participants. We hope the IRS clarifies its position in the future.
  • Plan sponsors can combine multiple notices in a single notice.
  • These notices may also require distribution during the plan year to newly eligible participants or rehired participants.
  • Sponsors of defined contribution plans may also have other notices they must provide participants, such as diversification notices ((ERISA Section 101(m); IRC Section 401(a)(35)) and quarterly or annual participant statements (ERISA Section 105(a)).