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 a significant impact. 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 focuses on the escalating number of year-end notices that defined contribution plans must issue to participants. These notices must be distributed within a reasonable period of time prior to the start of the plan year. The accompanying charts describe these deadlines.

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

  • Traditional Safe Harbor 401(k) Notice
  • Qualified Automatic Contribution Arrangements 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 view table.

Practice Pointers

  • 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, but in the meantime, it may be helpful to include a disclaimer in the notice specifically stating which plan provisions described in the notice may be amended mid-year, so as not to turn your notice into an unnecessary promise.  
  • 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)).

Please do not hesitate to contact your Alston & Bird LLP attorney if you have any questions about notice obligations or if we can assist you in providing proper notices for your qualified retirement plan.